NHS pension calculations, annual and lifetime allowances

DoublePolaroid

Sorry if old thread revival is not the done thing but it seemed more sensible than starting a new thread. 

I’ve the opportunity to arrange a meeting with a financial planner with some experience with NHS pensions. I’ve made clear my interest is specifically regarding the pension but he would like, as part of the introductory meeting, to take a holistic approach. I genuinely hate wasting people’s time, especially when I’m not paying for it, so I’m trying to work out as much for myself as I can. So I have a couple of additional queries:

• As far as I can tell, my options for mitigating AA issues are to reduce my hours, come out of the scheme (temporarily) or just pay the charge out of pocket or via scheme pays. Am I missing anything?

• Pension growth for AA purposes is defined as the difference between the size of the “pot” (16x annual pension plus any lump sum) between the beginning and end of the relevant pension year. As there is a generous annual revaluation, am I right in assuming that as time passes, the increasing growth in my pension due to revaluation will make the amount of pension I can input from pensionable pay without breaching AA decrease over time?

hyubh

DoublePolaroid said:

• Pension growth for AA purposes is defined as the difference between the size of the “pot” (16x annual pension plus any lump sum) between the beginning and end of the relevant pension year. As there is a generous annual revaluation, am I right in assuming that as time passes, the increasing growth in my pension due to revaluation will make the amount of pension I can input from pensionable pay without breaching AA decrease over time?

Only the above inflation part, as the opening figure is increased for inflation before comparing. While scheme year dates aren't perfectly aligned with tax years, the inflation figure used (the previous September's CPI) is the same.

DoublePolaroid

hyubh said:

DoublePolaroid said:

• Pension growth for AA purposes is defined as the difference between the size of the “pot” (16x annual pension plus any lump sum) between the beginning and end of the relevant pension year. As there is a generous annual revaluation, am I right in assuming that as time passes, the increasing growth in my pension due to revaluation will make the amount of pension I can input from pensionable pay without breaching AA decrease over time?

Only the above inflation part, as the opening figure is increased for inflation before comparing. While scheme year dates aren't perfectly aligned with tax years, the inflation figure used (the previous September's CPI) is the same.

Nice one. Thank you. So a fixed 1.5% then. That explains the answer to a question I hadn’t yet thought to ask which is why there’s a difference on my AA statement between one year’s closing value and the following year’s opening value. 

Cheese1990

Unless you are quite senior in the NHS I.e. Band 8c and above in London or 8d and above outside London the LTA should not be an issue.

Flugelhorn

Cheese1990 said:

Unless you are quite senior in the NHS I.e. Band 8c and above in London or 8d and above outside London the LTA should not be an issue.

a great many with practitioner elements to the pension hit the LTA - I had mixed officer / practitioner and exceeded it even with IP2016, a colleague who thought she would be OK as had worked abroad and hence had less time in  NHS has found that she has hit the current figure and didn't qualify for protection

DoublePolaroid

Apologies for another bump for another question. 

What follows is hypothetical scenario for the purposes of illustration based on real sums but a number of assumptions which may not hold and also ignoring the different rules in the different schemes but neither of which matters for the purposes of the question. 

I estimate my pension may be worth £80k p/a in 20 years in today’s money. I estimate I would incur a reduction in that pension due to use of scheme pays to pay off annual allowance tax charges of about £7k p/a. As I would be looking to retire at around the same time, that pension figure will also be actuarially reduced by 34%

Given that my final pension figure will be different depending on which way round one applies the reductions, the question is, in what order are the scheme pays and actuarial reductions applied i.e. scheme pays first then reduction or vice versa? 

r2i

It's great that you're in a position to have 80k pension in DB (NHS) scheme. I'm assuming that you're likely to be a GP/Dental (practitioner)

I believe that, If you pay an AA tax charge via the scheme pays facility, the capital value is calculated after the deduction has been made. So SP first and then AR reduction.
You may have an option to take a bigger lump sum to reduce LTA tax charge or do Hokey

Re your post on 8.1.22, I believe that lump sum is not considered for AA calculations (only for LTA). The 'virtual' pot increases with CPI+ 1.5%. Your 1995 or 2008 value would still grow up by cpi+1.5% , even if you contribute in 2015 scheme. So be aware of these values, when calculating LTA.

Happy to be corrected, as I'm learning too!

Flugelhorn

I agree re the AA being dealt with first as that is all to do with "input"  - after that is paid then it will be actuarial reduction followed by fudging the LTA by taking larger lump sum - then any LTA payment

I took larger lump sum and squeaked in just under the LTA, then 18/12 later they recalculated with the delayed practitioner payments and there was tax due as it breached which was paid by the scheme but obviously after the value of the pension was determined

DoublePolaroid

Thank you both (and yes I’m a GP). The order you suggest is what I’d hoped for as it results in a larger amount. r2i you are of course right to correct the error in my post regarding lump sum, not sure why I posted that. 

hugheskevi

r2i said:

Re your post on 8.1.22, I believe that lump sum is not considered for AA calculations (only for LTA). The 'virtual' pot increases with CPI+ 1.5%. Your 1995 or 2008 value would still grow up by cpi+1.5% , even if you contribute in 2015 scheme. So be aware of these values, when calculating LTA.

1995 or 2008 scheme will increase in line with change in final pensionable earnings whilst still active, not CPI+1.5%. If it becomes deferred it would increase by CPI.

Edit: Post not correct as above is for officers, but r2i did specify practioner, see Flugelhorn next post