helping NHS staff

how pension plans work & what options they give when you come to retire

As many of you know already, Sapphire Financial Planning regularly speaks at the various NHS trusts regarding the NHS pension scheme and the inner workings.

Pensions are not the easiest to understand which isn’t helped when legislation is always changing too.

We are here to help if:

You have questions about how annual allowance and the annual allowance compensation scheme affects you.

You would like advice around the changes that will occur in your life once you retire.

You want to know what the ‘financial world’ can offer you now and in the future.

If you’re looking for more information right now then please read on.

If you would like advice, or wish to talk to someone about the information please don’t hesitate to call or email us.

Click on the questions to find our reply…



What is Annual Allowance?

What is a Pension Annual Allowance?

The Pension Annual Allowance is a limit set by the government on the amount of money you can contribute to your pension scheme each year while still receiving tax relief.

How does it work?

You can contribute up to the Annual Allowance amount to your pension scheme each year. Any contributions within this limit qualify for tax relief, meaning the government adds money to your pension based on your contributions and your income tax rate. Contributions beyond this limit may not receive tax relief and could be subject to additional tax charges.

What are the maximum and minimum amounts?

The maximum Annual Allowance for most individuals is £60,000 per tax year. However, for higher earners, or those that have triggered their Money Purchase Annual Allowance (MPAA_ this allowance may be tapered down, potentially reaching a minimum of £10,000. It’s essential to keep track of your contributions to ensure they stay within the Annual Allowance limits.

The calculation within the NHS scheme is more complex than simply being the combined value of new contributions into the scheme, it’s actually the value of the increase in the annual pensionable income.

What is Annual Allowance tax charge?

An Annual Allowance Tax Charge is a tax imposed on individuals in the United Kingdom who have contributed more than their annual pension allowance into their pension scheme(s). The annual allowance is the maximum amount of pension contributions you can make in a tax year while still receiving tax relief.

How does it work?

The annual allowance is set by HM Revenue & Customs (HMRC) and is subject to change. For the current tax year (2024/25), the annual allowance is £60,000, although this can be subject to tapering for higher earners. If your pension contributions exceed this limit, you may be subject to an Annual Allowance Tax Charge.

What is the tax rate for the Annual Allowance Tax Charge?

The tax rate for the Annual Allowance Tax Charge depends on your income tax rate. It is charged at your marginal income tax rate, which could be 20%, 40%, or 45% depending on your total income for the tax year.

Are there any exceptions or special circumstances?

There are certain situations where individuals may be able to carry forward unused annual allowance from previous tax years, which can help mitigate the tax charge. However, it’s essential to seek professional financial advice to understand the specific rules and implications in your situation.

How do I know if I’m subject to an Annual Allowance Tax Charge?

It is advisable to review your pension contributions regularly and consult with a financial advisor to ensure compliance with tax regulations.

What should I do if I’m subject to an Annual Allowance Tax Charge?

If you find yourself subject to an Annual Allowance Tax Charge, it’s crucial to report this accurately to HMRC and pay any tax due promptly to avoid further penalties or interest charges. Seeking guidance from a tax advisor or financial planner can also help you understand your options and plan for future contributions effectively.

What happens if you’re unaware if you have a tax change?

If you’re unaware that you have a tax charge due to exceeding the annual allowance, it’s essential to take prompt action once you become aware of the situation. Failure to address the tax charge can result in penalties and interest accruing on the outstanding amount.

Steps to Take:

1. Review Your Pension Contributions: Start by reviewing your pension contributions to determine if you’ve exceeded the annual allowance. Your pension provider should provide statements detailing your contributions and any potential tax liabilities.

2. Contact HMRC: If you suspect that you may have exceeded the annual allowance and incurred a tax charge, contact HMRC as soon as possible. They can provide guidance on how to calculate the tax owed and any steps you need to take to rectify the situation.

3. Pay Any Tax Owed: Once you’ve determined the amount of tax owed, it’s crucial to pay it promptly to avoid additional penalties and interest charges. HMRC will provide instructions on how to make the payment.

4. Seek Professional Advice: Consider seeking advice from a tax advisor or financial planner to help you navigate the tax implications and ensure compliance with HMRC regulations. They can provide personalized guidance based on your individual circumstances and help you plan for future contributions effectively.

Consequences of Non-Compliance:

Failure to address a tax charge promptly can result in penalties and interest accruing on the outstanding amount. HMRC may also take further enforcement action if the tax remains unpaid, which could include legal proceedings and additional charges.

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