Doctor’s Annual Allowance – What You Need To Know!

Doctor’s annual allowance has been the talk of the healthcare industry for some time now, as aggravation about pensions continues to boil over. Doctor’s are angrily sharing their frustrations on how they believe that they are being unfairly treated and negatively impacted by the strict structure being put onto the NHS pension scheme.

To add to the irritation felt by numerous members of the medical industry, the BMA (British Medical Association) is now calling for the government to reform both annual allowances and tapered allowances for doctors when it comes to the NHS pension scheme.

So, what is the annual allowance for Doctors?

The annual allowance was introduced in 2006, and originally set up with the intentions of limiting the amount of money that could be saved each year into a pension each year, before a tax charge is applied.

The annual allowance was originally set at a healthy £215,000 but has since drastically dropped through revision, to just £40,000. Each revision has put the risk of running over the annual allowance at an all time high for doctors, which has intensified since the introduction of the tapered allowance too.

How does tapered allowance affect doctors?

In 2016, the government introduced tapered annual allowance, to further the restrictions on the amount of pension tax relief available to those on already high earnings and target those with already high pension savings.

The scheme has consequentially caused more trouble than it is worth, as many doctors saw huge tax bills, that has resulted in them removing themselves from the NHS pension scheme.

Any breach in annual allowance is tax charged at the individuals’ highest tax rate. This will be either 40 per cent or 45 per cent.

A large amount of doctors are now refusing to take on additional work as a way of keeping income down which will therefore help them to avoid tax charges where their pensions are concerned.

Although a surge of doctors are removing themselves from the NHS pension scheme, the benefits of the scheme could outweigh the negative impacts when it comes to annual allowances.

Every single doctor’s circumstances are different, so it’s important to make sure you keep your clients best individual interests at heart of what you do and keep yourself up to date on the ever changing schemes.

The FT adviser has suggested a great way for doctors to get on top of what they’re earning and how they could be affected by advising;

“A practical step that doctors can take is to work out their threshold income by adding together their gross income from all sources and deducting their pension contributions to establish if they exceed the £110,000 limit.”