NHS pension - low earner

busy_dad

My brother works for the NHS part time. He is planning to reduce his hours so that his earnings will be less than the personal tax allowance.

He pays into the NHS pension at source, therefore will this mean he just doesn't get any tax relief on his pension contributions?

Just confused as if you were a non-taxpayer and paid into a SIPP you would still receive some government top up? Am I missing something?

Thanks

Dazed_and_confused

Sort of.

His taxable income will still be less than it would otherwise be and there may be knock on benefits to this i.e. if they are married it may make applying for Marriage Allowance more beneficial than it would otherwise be.

But you are correct that it won't actually save him any tax if his new salary would already be less than his Personal Allowance. If they have any other taxable income this may not be true as the reduction in his taxable pay with the NHS could have a knock on effect elsewhere.

He could in theory stop paying into the NHS pension and make personal pension payments and receive basic rate tax relief at source but you have to weigh up the guaranteed benefits of the NHS scheme they are in against the potential risks/benefits of a private pension.

Do they have the knowledge to invest their contributions and produce a better return than the NHS scheme is guaranteed to provide?

Finally he may still receive tax relief in the current tax year even if his new salary is less than the Personal Allowance. Because the contributions will mean their total taxable pay will be less than it would otherwise be and overall it is still above the Personal Allowance.

tibbles209

He will receive tax relief only at the rate which he pays tax, so if he pays 0% tax that is the rate of relief he will get on his contributions. The NHS pension however is absolutely outstanding value, particularly for lower earners for whom the contribution rates are low. The lack of benefit from tax relief does not change this, and it would be a dreadful idea for him to opt out for this reason.

busy_dad

Thanks.

I don't think he has any intention of opting out. I certainly wouldn't be encouraging it!