More than 7,600 applications for ‘scheme pays’ – where members pay pensions tax from their pots – were received from members of the NHS Pension Scheme in the year to July, a marked increase on previous years.

 

‘Scheme pays’ means that instead of paying a pensions tax charge in cash up front, NHS pension scheme members have the charge value plus interest taken off their pension pot at retirement. 

 

A mallowstreet freedom of information request to the NHS Business Services Authority has revealed that 7,671 scheme pays applications were made by members in the year from August 2018 to July 2019, with 98% of these going through.*  

 

The NHS Pension Scheme has around 1.5m members, but while the applications represent only a fraction of the membership – about half a per cent – they are still substantially more numerous than in previous years.

The Authority put the number of members using scheme pays at 3,869 119 for (tax years) 2016/17, 414 for 2015/16 and 704 for 2014/15, according to an FOI response given earlier this year.

Number of scheme pays elections per tax year:*
2017/18: 3,869 
2016/17: 1,126 
2015/16: 768 
2014/15: 347

 

In the NHS scheme, any amount of tax can now be settled in this way; from 2017/18, the facility to do so was extended so that members no longer have to have an annual allowance charge of more than £2,000 to ask for scheme pays. 

 

Doctors have been lobbying the government to remove pensions tax, after it became clear that many senior clinicians had to pay tax for breaching their annual pensions allowance. 

According to the British Medical Association, 42% of GPs and 30% of consultants have already reduced their hours due to pensions tax, leading to staff shortages. Of those that haven’t reduced their hours, 37% said they plan to do so in the next 12 months, and nearly half of all respondents plan to retire early because of the tax. 

 

 

The rapid increase in scheme members using ‘scheme pays’ is a further indication that they are becoming much more aware of the tax implications of their pensions. Some might be unable to settle high tax bills in cash, or simply prefer not to, while the extension of scheme pays to amounts below £2,000 could also have contributed to the increase. 

 

The government seems keen to make scheme pays easier to understand. As part of a recent consultation on how to address pensions tax in the NHS, it has proposed to change the way ‘scheme pays’ operates in the NHS, proposing to introduce annual member benefit statements.  

These would show the scheme pays deduction as a pension debit, together with the change to a member’s pension as it increases with interest each year, rather than the current way of creating a notional defined contribution pot for the calculation. This change, the consultation claimed, would mean that “staff can more clearly see the impact of using scheme pays on their pension at retirement”. 

 

The ongoing consultation, which closes on 1 November, also proposes to extend the previously mooted 50:50 solution for the NHS Pension Scheme – where members can choose to accrue only half their pension – to one where members can choose the percentage of accrual in 10% steps. The BMA has already said that the proposed solution does not go far enough, demanding the removal of the tapered annual allowance, annual allowance and lifetime allowance. 

 

*NHSBSA Copyright 2019 

 

Ros Altmann

Malcolm McLean

Ian Neale

Chris Clifton