NHS pension and tax charges: no option to reduce pension contributions?

Flugelhorn

SouthLondonUser said:

I see.
I am not particularly sympathetic to the plight of those who have more than £1m (or annuity equivalent) in their pension pot, or to those who earn so much in a given year (I think > £200k or so) that their annual pension allowance starts to go down. Cry me a river.

But, yes, if the NHS does not even give the option to reduce pension payments, that's crazy and I'd  be very upset at that, too.

No you can't reduce and TBH don't have to earn much to breach the AA if you have been in the business for while, some people who are now part-time are effectively paying to work as the CPI+1.5% growth in the pension is ginormous and the tax is more than they earn. Better not to work. Some leave the scheme or opt in and out.

SouthLondonUser

Flugelhorn said:

SouthLondonUser said:

I see.
I am not particularly sympathetic to the plight of those who have more than £1m (or annuity equivalent) in their pension pot, or to those who earn so much in a given year (I think > £200k or so) that their annual pension allowance starts to go down. Cry me a river.

But, yes, if the NHS does not even give the option to reduce pension payments, that's crazy and I'd  be very upset at that, too.

No you can't reduce and TBH don't have to earn much to breach the AA if you have been in the business for while, some people who are now part-time are effectively paying to work as the CPI+1.5% growth in the pension is ginormous and the tax is more than they earn. Better not to work. Some leave the scheme or opt in and out.

But, to be clear, the reason you are being asked to pay more is because you get a very generous pension.

Also, now that rates have been increasing, I wonder if the coefficients will be revised.

Flugelhorn

SouthLondonUser said:

Flugelhorn said:

SouthLondonUser said:

I see.
I am not particularly sympathetic to the plight of those who have more than £1m (or annuity equivalent) in their pension pot, or to those who earn so much in a given year (I think > £200k or so) that their annual pension allowance starts to go down. Cry me a river.

But, yes, if the NHS does not even give the option to reduce pension payments, that's crazy and I'd  be very upset at that, too.

No you can't reduce and TBH don't have to earn much to breach the AA if you have been in the business for while, some people who are now part-time are effectively paying to work as the CPI+1.5% growth in the pension is ginormous and the tax is more than they earn. Better not to work. Some leave the scheme or opt in and out.

But, to be clear, the reason you are being asked to pay more is because you get a very generous pension.

Also, now that rates have been increasing, I wonder if the coefficients will be revised.

oh the pension is fine thanks - what do you mean by coefficients?

SouthLondonUser

Flugelhorn said:

oh the pension is fine thanks - what do you mean by coefficients?

Apologies for the imprecision, I'm sure someone will  be able to clarify, but the gist is that the pension limits are:

1. a lifetime allowance of ca £1m
2. an annual allowance of £40k, which goes down gradually to £4k for the highest earners

These figures are for defined contributions pensions. What is the equivalent for defined contribution pensions?

Well, the equivalent is determined based on certain coefficients set by HMRC.

Until now, the coefficient has been 25, or 4%, i.e. having an annuity (ie a defined-benefit pension of) £40k corresponds to having £1m in a defined-contribution pension pot.

This has been until now, with very low rates. Now that rates have been going up, the argument could be made that a £1m pot buys more than £40k, so the coefficient could be reduced from, I don't know, 25 to 20.

To be clear, I have no idea if there is any proposal to actually do that.

Also, there are lots of nuisances I haven't taken into account, but this is the gist.

Flugelhorn

The coefficient you describe when I retired was 23 (20x pension + lump sum) - I took a bit more lump sum to reduce the total and squeak in under my protected LTA.  Looks to me like it is the same, not sure if it will change a bit when more people who were in the 2008 / 2015 schemes retire as they didn't have automatic lump sums.

penners324

The LTA only applies to DC pensions though and not to DB pensions. So reducing your pension contribution in a DB would be utterly daft.

MX5huggy

penners324 said:

The LTA only applies to DC pensions though and not to DB pensions. So reducing your pension contribution in a DB would be utterly daft.

That’s just plain wrong DB’s are valued at 20 times the annual pension for LTA purposes. https://techzone.abrdn.com/public/pensions/db-dc-which-pays-lta-charge

Flugelhorn

penners324 said:

The LTA only applies to DC pensions though and not to DB pensions. So reducing your pension contribution in a DB would be utterly daft.

It most certainly applied to my DB pension, I had to get to get individual protection 2016 and then they calculated the amount of LTA used and it appears on every statement 

SouthLondonUser

penners324 said:

The LTA only applies to DC pensions though and not to DB pensions. So reducing your pension contribution in a DB would be utterly daft.

That's just so factually wrong! Please don't talk about stuff you patently know nothing about, don't confuse other forum users.
If it didn't apply, then what would be the problem with NHS doctors breaching their pension allowances and having to pay extra tax?????

Sim_2

SouthLondonUser said:

Flugelhorn said:

oh the pension is fine thanks - what do you mean by coefficients?

Apologies for the imprecision, I'm sure someone will  be able to clarify, but the gist is that the pension limits are:

1. a lifetime allowance of ca £1m
2. an annual allowance of £40k, which goes down gradually to £4k for the highest earners

These figures are for defined contributions pensions. What is the equivalent for defined contribution pensions?

Well, the equivalent is determined based on certain coefficients set by HMRC.

Until now, the coefficient has been 25, or 4%, i.e. having an annuity (ie a defined-benefit pension of) £40k corresponds to having £1m in a defined-contribution pension pot.

This has been until now, with very low rates. Now that rates have been going up, the argument could be made that a £1m pot buys more than £40k, so the coefficient could be reduced from, I don't know, 25 to 20.

To be clear, I have no idea if there is any proposal to actually do that.

Also, there are lots of nuisances I haven't taken into account, but this is the gist.

Part of the ‘plight’ is that in trying to change from final salary to CASE systems the government fell foul of age discrimination rules – this shunted some NHS employees (not just doctors, just someone ‘unluck’ enough to get a badly time pay rise) into a situation where they have two pension pots sharing the £40K allowance, and facing a tax charges as a result. The joke being only one of these pots will be used.