The NHS (and HSC in Northern Ireland) pension scheme is a generous and secure system to ensure dentists can enjoy an income in retirement. It offers pension provision to more than 3 million people in the UK. It has been changed significantly in recent years and further changes are expected. Despite changes (in the past or in the future) it will remain the most secure form of pension savings vehicle available to NHS dentists.
The NHS operates three separate pension arrangements which each offer a guaranteed income in retirement. The most recent pension scheme, introduced in 2015 as part of wider government reforms to public service pensions, is offered to anyone who began NHS work after March 2015. Older, longer serving dentists were allowed to remain in the previous pension schemes (called the 1995 and 2008 schemes).
Part of the 2015 reform package introduced established a system of cost control which would trigger automatic changes to the 2015 pension scheme if costs change.
The most recent assessment of the cost of the pension schemes has shown that changes are needed. A reduction in the expected future life expectancies means that the cost of the pension schemes has decreased and as a result the 2015 scheme must be made more favourable to scheme members. Any change is expected to be implemented from April 2019.
A wide range of changes are possible – but they must be agreed by NHS Trade Unions, NHS Employers and Government. BDA has stated a preference for reducing the level of contributions paid by scheme members, but at the time of writing it is clear that Government are unlikely to agree to this. This is because the contributions paid by NHS Pension Scheme members (more than £4bn in England and Wales alone) form a significant part of Government income and HM Treasury will not want this to reduce. Moves to increase the amount of pension that members build up, will mean more generous pensions in retirement. This will mean that Government expenditure in future years and decades will increase, but this is clearly preferable to HM Treasury to a reduction in income now. In addition, higher amounts of pension benefits will mean that more dentists will have to pay extra tax charges under the system of Annual and Lifetime Allowances (see below).
Tax – the Annual and Lifetime Allowances
Governments are keen to encourage people to save for retirement, and offer income tax relief on pension contributions. However, since 2006 an upper limit to this relief has been imposed through a restriction on the growth in pension savings in any tax year (the Annual Allowance) and a restriction on total pension savings held at the point of retirement (the Lifetime Allowance).
The higher the growth in your pension in any tax year the more likely you are to breach the Annual Allowance, and the higher your overall value of pension savings are the more likely to you are to breach the Lifetime Allowance. Breaches will incur special tax charges – Annual Allowance breaches are taxed at your marginal income tax rate, and Lifetime Allowance breaches are taxed at up to 55%.
Whilst Chancellor, George Osborne oversaw massive reductions to these Allowances. They currently stand at an Annual Allowance of £40,000 in the tax year (with a convoluted lower amount applying to high earners) and a Lifetime Allowance of £1.03m over an individual’s working life. At the time of writing, the 29 October Budget has not yet been heard, but rumours are circulating that further reductions to these Allowances will be announced.
Many dentists who are members of the NHS Pension Schemes are breaching the current Allowances, and facing tax charges accordingly. The NHS generally is seeing significant numbers of higher earners opting out of pension saving, refusing promotions or overtime, and an increase in early retirements from scheme members who are seeking to avoid these tax charges.
In response to this, BDA has asked for the Pension Schemes to allow members flexibility to pay lower contributions for a lower NHS Pension. This will help manage exposure to the Annual and Lifetime Allowances. This request is supported by other NHS trade unions, NHS employers and pay review bodies have made similar calls.
What BDA has been asking for
BDA has engaged with Governments, employers and other NHS trade unions to give a strong clear, voice representing the wishes of dentists. Our positions are formulated in consultation with representative committees, most notably the Pensions Committee. Our aim is to ensure that dentists can continue to have access to quality pension savings vehicles provided by the NHS.
We have called for the NHS Pension Schemes to:
· Reduce contribution rates for all members in the NHS Pension Schemes, and if this is not achievable to reduce the higher rates of member contribution paid by the highest earners.
· Introduce flexibility for members to elect to pay lower contributions in exchange for lower pension rights.
The position in respect of changes to the NHS Pension Schemes and on potential changes to the tax system remain fluid, and BDA will continue to represent dentists’ interests in our work on this. BDA members will be updated on developments as they occur.
Getting Information about your NHS pension
The NHS Pension Schemes produce annual information to members highlighting your pension benefits. This information comes in two forms:
· A Benefit statement. This outlines the entitlement to a promised pension that a member has built up. Benefit statements are provided to all members.
· A Savings Statement. This is used for Annual Allowance tax purposes, and confirms the growth in pension savings that has been seen over the previous tax year. The pension scheme in England and Wales aim to send one of these to every practitioner, but all dentists are encouraged to contact their pension scheme to request that they receive this information. This information should be shared with your accountant and/or financial adviser.
The BDA website (www.bda.org/pensions ) contains guidance on how the NHS Pension Schemes work as well as the HMRC pensions tax allowances. The websites of the NHS Pensions schemes also contain a wealth of information and contact details:
England and Wales - www.nhsbsa.nhs.uk/nhs-pensions
Scotland – www.sppa.gov.uk
Northern Ireland - www.hscpensions.hscni.net
BDA members can discuss pension matters with BDA’s pensions officers, Phil McEvoy (020 7563 4161) or Jo McKeown (020 7563 6897). We are not permitted to give regulated financial advice.