NHS Salary Sacrifice plus payrise and the impact on Annual Allowance

jimpom23

Hi all, 

I have undertaken a salary sacrifice scheme for the last 3 years for a car which ends in Sept and am conscious that my wage will not only increase by that sacrificed amount (£8k) but also by a recent payrise (also £8k), both of which will impact my PIA across both the 1995 and 2015 schemes when it comes to the end of this FY, which in theory could push me over my Annual Allowance (or not?!)

I have tried to use calculations to work out the opening/closing values for PIA but I want to make sure Iam doing it correctly. This is also something that will only be realised when looking at the 24/25 position and I don't know how to apply the logic when the 1995 figure is correct to 2022 (when it transferred to 2015) but the 2015 figure is correct to March 2024? 

Returning the car in Sept plus new pay rise will see my Salary rise to £78,000 and I've no idea how to reconcile across the two to get an idea of how close I might be to my AA. For the purposes of calculation I assume it would be £74,695 as 6 months of it will be at £70,576 (£78,814 minus sacrifice amount of £8,238k) and 6 months at £78,814.

My calculations so far look like this - 

1995 Scheme:

Step 0: Current pension = 19/80 x £62,179 = £14,768 annual pension

Step 1: £14,768 x 16 = £236,280

Step 2: lump sum is 3 x annual pension for NHS 1995 scheme: £236,280 + (3 x £14,768) = £280,584

Step 3: Increment by CPI in Sept 2023 (6.7%) £280,584 + 6.7% = £299,383. This is the opening amount.

Step 4: Predicted pension at April 2025 - 19/80 x £74,695 = £17,740 x 16 = £283,841 

Step 5: Lump sum is now 3 x £17,740 = £52,725, added to  £283,841 = £336,566

Step 6: £336,566 - £299,383 = £37,183. This is the PIA value for the NHS 1995 scheme(?)

 

2015 Scheme:

Step 0: Current pension = 2/54 x £62,179 = £2,296 annual pension

Step 1: £2,303 x 16 = £36,847

Step 2: No lump sum in 2015 Scheme

Step 3: Increment by CPI in Sept 2023 (6.7%) £36,847 + 6.7% = £39,316 - This is the opening amount.

Step 4: Predicted pension at April 2025 - 3/54 x £74,695 = £4,150 x 16 = £66,396

Step 5: No lump sum in 2015 Scheme

Step 6: £66,396 - £39,316 = £27,080. This is the PIA value for the NHS 2015 scheme(?)

I assume I then add £37,183 and £27,080 which gives me £64,263, which suggests a breach of the allowance? 

If someone would be kind enough to check my logic/sums it would be very much appreciated.

NedS

Hi Jim,

It's been a while since I've looked at AA calculations, but your logic and figures look correct to me.

I guess the key point here is whether the 1995 section is still included in the calculations. Normally any DB pension that is in deferment (that you are not actively contributing to) is not included in the calculations, but because it's with your current employer and still retains a link to your current salary, I'm not sure if this would be the case here. 

Perhaps someone can confirm for us if the 1995 section should be included?

najan49

The 2015 scheme is CARE, isn’t it?

Edale

Don't forget you can carry forward unused annual allowance from the previous 3 years. Given the numbers above I think you will have plenty of carry forward unless you have paid substantial amounts into another pension.

Edale

The 2015 scheme revalues previous years accrual by CPI + 1.5% so the calculation will give a slightly higher PIA than you state.
Edit: you are not working out the 2015 calculation correctly. Each year accrues 1/54th of the pensionable earnings for that year. Previous years' accruals are then increased by CPI +1.5%. For example a salary of £54,000 would accrue £1000 of pension, if CPI was 6.7% then the value of this year would increase by 8.2% to £1082 and the next year would add a further 1/54th of that year's pensionable earnings.

Have you got the latest Total Reward Statement as they have only just been updated?