Understanding the lifetime allowance – frequently asked questions
For all pension schemes, there are rules about the amount of tax relief you can secure on your pension contributions, taking account of all your pension savings from all registered pension schemes, not just those in the NHS Pension Scheme.
Paying a tax charge depends on whether the growth in your pension scheme benefits exceed the amount set for each tax year and the overall growth in your pension scheme benefits when you retire.
There are two allowances which apply to pension scheme benefits:
- Annual Allowance – if you pension scheme benefits grow by more than £40,000 in a tax year, you may have to pay a tax charge. This is unlikely to affect most staff who work in the NHS.
- Lifetime Allowance – if your lifetime pension benefits from all registered pension schemes (not just the NHS Pension Scheme) exceed the Lifetime Allowance, which is currently £1,073,100, you may have to pay a tax charge. This is unlikely to affect most staff who work in the NHS.
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You do not have to pay the Annual Allowance tax charge immediately. You can apply for ‘Scheme Pays’ which allows the Scheme to pay all or some of your tax charge, by reducing your pension benefits when you retire.
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Your employer will not pay the tax charge for you, they can however support eligible staff to make a ‘Scheme Pays’ application.
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Pension tax matters are very specific to the varying circumstances of each individual and the nature of the payment. If you are affected by pension tax please discuss your concerns with your employer.
There may be local arrangements that could help make an informed decision and consider what is right for you and your loved ones.
If your pension is still growing and you’re getting close to going over the lifetime allowance amount, you might be thinking about retiring soon to avoid paying a tax charge. However, even if you reach the lifetime allowance, it may be better to carry on building your pension, even if it is less than it would otherwise be as a result of a lifetime allowance charge. Staying could mean an increase to your annual income at retirement as well as a larger lump sum. Staying in the Scheme means you are covered for benefits like Life Assurance and other family benefits.
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In 2015, the Government made changes to public service pension schemes. These changes didn’t apply to people closest to retirement, who were allowed to stay in their old pension schemes.
The Court of Appeal later found that this discriminated against younger scheme members, and so the Government is taking steps to put this right.
This decision is also known as the McCloud judgment, and it means that any NHS Pension Scheme members affected will be offered a choice to make sure they get the pension benefits that are right for them. McCloud intro video
If you are affected and you’re retiring soon, base your decision on today’s rules and NHS Pensions will get in touch with you about your choice once the relevant legislation is in place to make sure you haven’t lost out. If you’re retiring after October 2023, you’ll be given your choice when you come to retire.
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For active members of the scheme, from 1 April 2022 membership will move to the 2015 NHS Pension Scheme. However, if you have membership in the 1995 Section or the 2008 Scheme you will still be able to claim your pension at the normal pension age for that section of the Scheme. This means that when you claim your pension, you might have membership in up to three different parts of the NHS Pension Scheme.
No. If you have membership in the 1995 Section or the 2008 Scheme you will still be able to claim your pension at the normal pension age for that section of the Scheme.