Making your NHS pension really work for you

PAUL BURTON of accountancy firm Barlow Andrews looks at the rules surrounding tax relief on pensions for health service workers and answers some common questions.

If you’re working in the NHS and contributing to a pension scheme, the government helps your pot go further through tax relief.

Perhaps you’re paying into an NHS pension direct from your salary? If so, the payment will be deducted from your gross salary before income tax is charged – meaning that you save tax at your marginal rate on the amount you’ve contributed.

Alternatively, you may be contributing to a private pension. If that’s the case, you’ll receive an additional 25% of your contribution from HMRC, subject to certain limits. In that way, £20 is added to every £80 you’ve chipped in, to make a total of £100.

What if I’m a higher rate or additional tax payer?

Your pension contributions will attract higher or additional rates of tax relief, if your income takes you above the relevant thresholds.

What’s the maximum gross amount on which I can receive tax relief?

You can receive tax relief on 100% of what are described as ‘net relevant earnings’, but these are capped at the annual allowance (see below). This takes into account contributions made by your employer.

What is my annual allowance?

The standard annual allowance has been £40,000 since April 2016. If, however, you have a taxable income of over £110,000 and taxable income plus pension inputs of £150,000 (adjusted income), your pension annual allowance for the tax year will be reduced by £1 for every £2 of adjusted income over £150k. Once adjusted income reaches £210,000, the annual allowance is reduced to a minimum level of £10,000.

What is the lifetime allowance?

This is the overall limit on UK tax-relieved contributions. If your total tax-relieved contributions exceed the lifetime allowance of £1m, you may be subject to charges when making pension benefits.

If you have any queries over your NHS or private pension, it is always worth taking further professional advice.