October 2024 is a crucial period due to the McCloud Remedy re-calculations which could potentially impact your Annual Allowance. The familiar, often dreaded, NHS Pension Scheme (NHSPS) Annual Allowance statements are set to return in early October 2024, with significant implications for many pension members.
This year’s statements will reflect re-calculations by the NHS Pensions Agency, affecting Annual Allowance positions dating back to 2015 as part of the McCloud Remedy. These re-calculations could affect your Annual Allowance status for earlier years as well. The deadline for issuing these statements is October 6th.
Annual Allowance statements are typically issued each October for the previous tax year. However, no statements were issued for the 2022/23 tax year due to the McCloud Remedy. Now, statements for both 2022/23 and 2023/24 are due to be issued, as detailed in a previous article.
Before we get into that let’s run through the basics of annual allowance.
What is my annual allowance?
The annual allowance is the amount of pension savings you are permitted each tax year before incurring a tax liability.
How much is my annual allowance?
In the 2023 Spring Budget, the Annual Allowance was increased from £40,000 to £60,000. However, for higher earners, the Tapered Annual Allowance could reduce this amount to as low as £10,000 from 6 April 2023, up from the previous minimum of £4,000.
It’s important to note that the NHS Pension Scheme does not calculate whether your Annual Allowance is tapered—you’ll need to determine this yourself. Your Annual Allowance statement will assume you are entitled to the full allowance. To ensure accuracy, contact your accountant for assistance or use the HMRC’s calculator to work out your adjusted Annual Allowance.
Work out your reduced (tapered) annual allowance >
Why are these new Annual Allowance statements so important?
Due to the McCloud Remedy, any NHS Pension Scheme service between 1st April 2015 and the 31st of March 2022 (called the remedy period) could be subject to change as your service will be ‘rolled back’ into your legacy scheme (either the 1995 or the 2008 scheme depending on the scheme you were previously a member of) for your service during this period.
This re-calculation will have a knock-on effect on your pension growth for the affected years, directly impacting your Annual Allowance position. For most clients, we anticipate this will result in a reduced Annual Allowance. However, in some cases, some individuals may see an increase in their liability.
If you faced Annual Allowance liabilities between 1 April 2015 and 31 March 2022, these may have changed and require re-examining.
As no Annual Allowance statements were issued for tax year 2022/23 the HMRC extended the deadline for declaring and paying any liability. It would be prudent to check your Annual Allowance for the past two tax years, as failure to pay any tax owed will lead to penalties and interest. HMRC has also introduced a digital tool to allow members to submit updated information.
Deadline Extension: The deadline for adjusting figures related to Annual Allowance tax charges from 2015/16 to 2022/23 has been extended to 31 January 2025. Although there is talk of a deadline of 3 months from the date of receipt of your AA statements in recognition that not all members will be receiving these at the same time. Don’t delay once you receive yours! Your deadline if you have an AA liability and want to use NHSPS Scheme pays will be 31st July 2025.
The NHS in England, Wales and Northern Ireland will issue combined Annual Allowance Statements. However the Scottish Public Pensions Agency (SPPA) will not issue these, so Scottish members must manually request all necessary statements and calculate their combined position if they have service in both legacy and current NHS Pension Schemes.
What should you do if you think your Annual Allowance tax liability has changed?
If any of your tax years during the ‘Remedy Period’ now have different Annual Allowance charges, either greater or smaller, there is a process in place to resolve this.
Any overpayments will be repaid via the method you used to settle the liabilities, e.g. Scheme Pays or via your tax return with an accompanying personal payment. This can be applied for via the HMRC online digital service.
If you have underpaid you will be given the opportunity to use Scheme Pays or pay them directly. However, don’t forget not all tax years are ‘in scope’, only years 2019/20 onwards are liable for paying underpayments. Underpayments due before this will not need to be paid.
To check if you are affected go to the HMRC website >
You will need to know the following before using it:
- Whether you were a member of the NHSPS between 1 April 2014 and 31 March 2022
- If you or the NHSPS Scheme Pays paid an Annual Allowance tax charge for any tax year between 6 April 2014 and 5 April 2022
- Whether you or the NHSPS Scheme Pays paid a Lifetime Allowance charge for any tax year from 6 April 2015
- If you hold or held Lifetime Allowance protection at any time
To calculate your changed liability and to report it you need to use the HMRC website >
You will need the following information to use this:
- Details of your total taxable income, adjusted income and threshold income.
- Revised new Annual Allowance statements from the NHSPS.
- Details of your personal allowance from the tax year 2015 to 2016 to the tax year 2022 to 2023.
- Self-assessment tax returns, if you filed them.
- Details of any Annual Allowance or Lifetime Allowance charges paid.
- Retirement Statement or a Benefit Crystallisation Event Statement, if you have retired.
Your accountant should be able to help you with this as it’s a declaration of tax. Your specialist financial adviser can also offer additional help if required.
It’s going to be a busy next few months! Your specialist financial adviser or accountant will be braced and ready to help but remember they will be inundated due to these revised Annual Allowance Statements. So, if you think you need some help get in touch asap.
As always, we are here to help you through another NHS Pension Scheme minefield!
Tax is dependent on your own circumstances and personal situation, and is subject to changes based on UK legislation and taxation regime. This article is based on our understanding of current legislation. This article is not specific advice. We would always suggest that you get specialist advice in this area.