NHS ill health pension - annual allowance

deejay24

Hi all

Very long time lurker and fired up the old MSE account in our time of need!

Wife taking ill health NHS pension tier 2- confirmed 

She hasn’t got HMRC SIC test, is unlikely to get at appeal and unsure if wants it anyway 

So due to tier 2 enhancement , This looks like it has put her over annual allowance - I’ve calculated it for her and looked at this being about £33k over her AL, including this years and previous three years after deductions for growth in both 95 and 15 schemes 

Questions-

• Am I correct - this years allowance of 60k and three years allowances can be removed from total ( I’ve deducted the respective growth amounts from the 95 and 15 schemes )?
• She’s retiring young- 49- advantages and disadvantages of scheme pays on the tax bill? I’ve calculated tax to be owed at £13k. Why would scheme pays be any benefit over simply paying out of lump sum ?
• Looking at the calculations and relevant factors supplied ( below ) would I be correct in assuming this is “ the tax due on £33k divided by the relevant factor = reduction to pension? Is that therefore an annual reduction or a one off reduction ?
• If we did use scheme pays- which would be preferential ? 95 or 15?
• Would she still need to complete SA for tax confirming that scheme pays has settled the AL bill?

“When you have calculated your annual allowance charge, you will be able to calculate the deduction to your NHS Pension Scheme benefits using relevant factors supplied by the Scheme Actuary. 

The reduction to your NHS Pension Scheme benefits is calculated as:

             Annual allowance charge = reduction to pension 

                  relevant factor

In the 1995 Section of the 1995/2008 NHS Pension Scheme, the relevant factor for a 49 year old member retiring because of ill health is 26.21.  

In the 2015 NHS Pension Scheme, the relevant factor for a 49 year old member retiring because of ill health is 23.21.  

The reduction is deducted from your basic pension before any commutation. If you are a member of the 1995 Section, there will also be a deduction of 3 times the pension deduction from your retirement lump sum.”

Many thanks 

hugheskevi

Wife taking ill health NHS pension tier 2- confirmed 

She hasn’t got HMRC SIC test, is unlikely to get at appeal and unsure if wants it anyway

Someone meeting NHS tier 2 ill-health should qualify for the HMRC severe ill-health exemption, as the test has the same criteria as that for the NHS ill-health test.

• Am I correct - this years allowance of 60k and three years allowances can be removed from total ( I’ve deducted the respective growth amounts from the 95 and 15 schemes )

Yes, you calculate the total pension input for 2024/25, remove £60,000 and then remove any available unused allowance from the last 3 years.

• She’s retiring young- 49- advantages and disadvantages of scheme pays on the tax bill? I’ve calculated tax to be owed at £13k. Why would scheme pays be any benefit over simply paying out of lump sum ?

Scheme pays is deducted from pre-tax pension so is more tax efficient than paying from post-tax income.

• Looking at the calculations and relevant factors supplied ( below ) would I be correct in assuming this is “ the tax due on £33k divided by the relevant factor = reduction to pension? Is that therefore an annual reduction or a one off reduction ?

The reduction applied to the annual amount of pension payable, and is a permanent reduction. For example, if the pension was £20,000 p/a and the Scheme Pays debit was £1,000 then the pension put into payment would be £19,000.

• If we did use scheme pays- which would be preferential ? 95 or 15?

The factors are calculated actuarially, so it should make no difference.

• Would she still need to complete SA for tax confirming that scheme pays has settled the AL bill?

Yes. SA informs HMRC of the amount of tax due, scheme pays is a way to meet the obligation.

deejay24

Many thanks!!
I Appreciate it greatly 


according to the appeal info from NHSP

”.. The SIHC test is more stringent than the NHS Pension Scheme’s Tier 2 test, the difference being that acceptance for Tier 2 is for any employment of like duration whilstthe SIHC is for any other paid work to the extent that this is significant.  “

We’ll bang  an appeal in…

hugheskevi

deejay24 said:

Many thanks!!
I Appreciate it greatly 


according to the appeal info from NHSP

”.. The SIHC test is more stringent than the NHS Pension Scheme’s Tier 2 test, the difference being that acceptance for Tier 2 is for any employment of like duration whilstthe SIHC is for any other paid work to the extent that this is significant.  “

We’ll bang  an appeal in…

Interesting, looked it up in more detail and it looks like the test for NHS Tier 2 is that the individual is expected to be unable to undertake any employment of like duration to their NHS job, ie unable to undertake full-time or part-time. 

Whereas the HMRC test is expected to be unable to undertake any significant paid work.

So it seems the assessment from the NHS Scheme Medical Adviser that your wife is expected to be unable to undertake any employment that would be equal to her current working pattern, but is expected to be able to undertake some significant paid work, albeit with fewer hours.

Assessing an individual's expected ability to undertake work over the next 18 years is rather difficult, so it would be worth appealing the HMRC severe ill-health test result. In general, the further out from retirement an individual is, the lower the confidence that they will be unable to work again, so your wife must have quite a severe condition in which case a review may come to a different conclusion.

Also to note that all your Annual Allowance calculations should be based on Pension Inputs supplied by the NHS pension scheme which you can put into the HMRC Annual Allowance calculator, not your own calculations of the Pension Inputs or tax charge due (though fine to do that for estimating likely charge of course).

deejay24

Thanks very much for your in-depth response. Appreciate it greatly 
🙏