NHS pension and Annual Allowance

furpho

I'm trying to calculate my remaining annual allowance for tax year 23/24 for an Nhs defined benefit pension.  I'd appreciate any feedback (I've estimated my final salary this year and rounded up the pennies).

 

Opening value  22/54 x £42337 = £17248.41 x 16 =  £275,974.56  Increased by 10.1 (CPI Sept 23) = £303,847.99

 

Estimated Closing value  23/54 x £45000 = £19166.67 x 16 = £306,666.67

 

Therefore the total input is equivalent to £306,666.67 - £303,847.99 = £2818.68

 

So my remaining allowance is £45000 - £2818.68 = £42181.32

 

So if I add £30000 this tax year the HMRC should top this up to £37500 and I'll still be under my allowance?

 

But!  As this is an NHS pension and because of my age (now 55) I was moved from the 1995 to the 2015 pension.  Does this impact at all and if so are there new rules/calculations I should be using?

hugheskevi

But!  As this is an NHS pension and because of my age (now 55) I was moved from the 1995 to the 2015 pension.  Does this impact at all and if so are there new rules/calculations I should be using?

So you are a member of the 1995 scheme for the period from when you started until 31 March 2022, and the 2015 scheme from 1 April 2022 to the current time.

You have to calculate your pension input for each scheme and add them together to get your total input.

Opening value  22/54 x £42337 = £17248.41 x 16 =  £275,974.56  Increased by 10.1 (CPI Sept 23) = £303,847.99

The 1995 scheme has an accrual rate of 1/80, an automatic lump sum of 3 x pension and is linked to salary.

The 2015 scheme has an accrual rate of 1/54, no automatic lump sum and increases by September CPI+1.5%.

You seem to be trying to combine everything, rather than calculating each scheme separately. Can you not use the figures from your Annual Benefit Statement to give the figures for the starting value?

So my remaining allowance is £45000 - £2818.68 = £42181.32

Where does £45,000 come from? The Annual Allowance in 2023/24 is £60,000.

Are you confusing this with your salary, which limits the amount of pension contribution eligible for tax relief, and is not affected by pension inputs.

So if I add £30000 this tax year the HMRC should top this up to £37500 and I'll still be under my allowance?

It doesn't look from the figures you give that you have any Annual Allowance concerns.

I think you are confusing the amount of salary eligible for tax relief with Annual Allowance. If your salary is £45,000 you will pay 9.8% member pension contribution through the net pay system, leaving a taxable income of £40,590. This would enable you to contribute £32,472 (net) into a Defined Contribution pension operating Relief at Source and benefit from tax relief. Any additional taxable income, eg, bonus, would increase this figure.

furpho

Hi..

I got the above calculations from the HMRC site. 

PTM053320 - Annual allowance: pension input amounts: defined benefits arrangements: worked examples - HMRC internal manual - GOV.UK (www.gov.uk)

There's also an online calculator from M&G which works out the same.  You can change the accrual rate to match either scheme.  I used the 2015 scheme for this year.

Defined Benefit Pension input amount tool (mandg.com)

£42337 was my pensionable pay last year and I'm estimating my pensionable pay for 23/24 to be £45000.   As far as i understand i cannot contribute more than my total salary in a tax year regardless of the AA limit or any past unclaimed allowance.  £45000 will be my maximum.

I think these calculations look correct for a standard defined benefit pension but because of the mess with 1995 and 2015 and possibly any Mccloud decision I'm not sure if the NHS pension needs extra consideration.  

I've tried contacting NHS pensions and HMRC and i'm not having much luck.  You'd think someone could tell me how this is worked out.

The reason is an inheritance i'm trying to get into my SIPP.

hugheskevi

I used the 2015 scheme which is the only live scheme now.

You are still an active member of the 1995 scheme (as well as the 2015 scheme) and have an active final salary link. You are just not accruing further service in the 1995 scheme. You therefore have to calculate pension input from both schemes.

As far as i understand i cannot contribute more than my total salary in a tax year regardless of the AA limit or any past unclaimed allowance.  £45000 will be my maximum.

You are limited by earnings that attract tax relief rather than total salary - the full list is at this link. It is wider than total salary. You also need to remember to take into account the member contributions you pay into the NHS scheme.

I think these calculations look correct for a standard defined benefit pension but because of the mess with 1995 and 2015 and possibly any Mccloud decision I'm not sure if the NHS pension needs extra consideration.  

I'm afraid your calculations are completely wrong.

Fortunately, it does not matter, as the Annual Allowance does not appear to be an issue for you, rather it is the earnings that attract tax relief limit you need to be cautious about. The earnings that attract tax relief does not appear to be a barrier if you only wish to put £30,000 (net) into a SIPP - you appear to be able to contribute slightly  more than that should you wish.

The 2015 Remedy (McCloud) does not have any consequence here either, so that is also not a concern.

Thicko3

www.nhspensionaatax.org

Here is a ready reckoner that you may find helpful. However I don't think it accounts for McCloud Remedy of maintaining 1995 benefits up until 2022. However some manipulation of the figures will help you out to get something close.

Some important changes for 2023/24. If you have a negative PIA amount in the 1995 element of the calculation this can be sued to offset a positive number on the 2015 PIA calculation. So if you have some long service in 1995 scheme and got a 5% pay rise this year, you will probably have a big negative number due to the baseline shifting up by inflation of 10.1%. Previous years a negative number was reset to 0. Very beneficial for myself this year and much fairer.

furpho

Thank you both for your input.  Unfortunately i'm still confused .  Everywhere i read online including Hmrc and NHS sites it says that annual allowance is only calculated as "the increase or growth in the value of a member’s benefits over the pension input period" which makes sense as it's the ANNUAL allowance. The only contradicting site is the link provided by Thicko3 (good name, i think i should have taken the 4 spot!).  

If anybody has links to a comprehensive explanation of this debacle i would be very grateful.  Or if anyone can forward the name of a professional that would clear this up for me i'd be happy to pay.

The pension input amount is the increase or growth in the value of a member’s benefits over the pension input period. The amount of benefit growth in the NHS Pension Scheme is the difference between the value of their NHS benefits at the start of the pension input period (the opening value) and the value of their NHS benefits at the end of the pension input period (the closing value). The growth in the NHS Pension Scheme is not based on the amount of employee or employer contributions paid.

‘DIP’ FILE ADMINISTRATION (nhsbsa.nhs.uk)

NoMore

hugheskevi said:

I'm afraid your calculations are completely wrong.

Fortunately, it does not matter, as the Annual Allowance does not appear to be an issue for you, rather it is the earnings that attract tax relief limit you need to be cautious about. The earnings that attract tax relief does not appear to be a barrier if you only wish to put £30,000 (net) into a SIPP - you appear to be able to contribute slightly  more than that should you wish.

The 2015 Remedy (McCloud) does not have any consequence here either, so that is also not a concern.

I agree with hugheskevi, I think your overthinking it and AA is not a concern for you.

I think your making the classic mistake of conflating the tax relief limit and the AA and getting yourself in a twist about it.

LightFlare

OP states 22/54 which suggests 22 years of contributions to date - so start of contributions ~2001

I can’t recall what was in place with the swapping from 1995 to 2008 to 2015 and if that will make any difference 

Also IF eligible, I believe there is a choice to include 2015-2022 into 1995 or 2015 at retirement so not sure which figures would be used

zagfles

furpho said:

Thank you both for your input.  Unfortunately i'm still confused .  Everywhere i read online including Hmrc and NHS sites it says that annual allowance is only calculated as "the increase or growth in the value of a member’s benefits over the pension input period" which makes sense as it's the ANNUAL allowance. The only contradicting site is the link provided by Thicko3 (good name, i think i should have taken the 4 spot!).  

If anybody has links to a comprehensive explanation of this debacle i would be very grateful.  Or if anyone can forward the name of a professional that would clear this up for me i'd be happy to pay.

The pension input amount is the increase or growth in the value of a member’s benefits over the pension input period. The amount of benefit growth in the NHS Pension Scheme is the difference between the value of their NHS benefits at the start of the pension input period (the opening value) and the value of their NHS benefits at the end of the pension input period (the closing value). The growth in the NHS Pension Scheme is not based on the amount of employee or employer contributions paid.

‘DIP’ FILE ADMINISTRATION (nhsbsa.nhs.uk)

That part's correct. The mistake you're making is thinking the annual allowance is limited by salary. It is not. The annual allowance for everyone, except very high earners and those who've trigged the MPAA, is £60k this year. Also you can carry forwards unused AA from previous years.

There is also a limit on tax relief, which is nothing whatsoever to do with the AA, it's a separate thing, it's a limit on how much tax relief you can get for your personal contributions, explained above.

This causes so much misunderstanding because there's lots of simplistic bull on the internet which tries to combine these unrelated limits. They apply to different things and have different rules. We've even had IFAs on here who get it wrong. 

You need to consider the limits separately. For someone in a DB scheme and SIPP as only two pensions they're contributing to, essentially:

1) Is PIA to DB scheme + gross SIPP conts > £60k + available carry forwards ? No? You're OK for the AA

2) Is gross SIPP conts > taxable pay? No? You're OK for tax relief

Stuff like taxable benefits and tax reliefs claimed may make a difference, but you've been quoted links for the gory details.

furpho

I really appreciate your perseverance and i finally get what you've been trying to tell me.  I reread the hmrc site and now realise the difference between Annual Allowance and tax relief. 

It's the tax relief i'm interested in to build up my pension.  So.. if my taxable earnings for 23/24 are £45000 the maximum I can contribute to my SIPP is £36000 and the government will add £9000?   As far as tax relief goes I don't need to factor in my NHS pension at all?

I also read on the Hmrc site that if I pay in over £10,000 (even as a 20% tax payer) I need to write to let them know.  Anybody else done that?

Dazed_and_C0nfused

furpho said:

I really appreciate your perseverance and i finally get what you've been trying to tell me.  I reread the hmrc site and now realise the difference between Annual Allowance and tax relief. 

It's the tax relief i'm interested in to build up my pension.  So.. if my taxable earnings for 23/24 are £45000 the maximum I can contribute is £36000 and the government will add £9000?   As far as tax relief goes I don't need to factor in my NHS pension at all?

I also read on the Hmrc site that if I pay in over £10,000 (even as a 20% tax payer) I need to write to let them know.  Anybody else done that?

Where have you read that?  Unless you have a chunk of other income or are Scottish resident that contribution won't be saving you any income tax, you will simply be getting the £9,000 in pension tax relief the pension company adds.

If you plan on making a £45,000 RAS contribution then I think you will need to understand the overall annual allowance position for the year as it's quite possible you will exceed £60k with a DB PIA to add as well.

You might not exceed £60k and even if you do you might have unused annual allowance available from the previous 3 years but at least you will know where you stand.