Pensions and the NHS

Louise Peters

Head of Medical & Business Advisory Partner

22 March 2023

The Spring Budget 2023 announced some interesting changes on the pension front which are of particular relevance to some individuals in the NHS.

These past few years we have been supporting large numbers of GPs, doctors and dentists who have had annual allowance tax charge issues, which in many cases have led to large numbers of individuals dropping hours or retiring early. Many have also come out of pension schemes early due to the lifetime allowance having been breached.

The Budget’s three main changes on the pension front were:

Pension Lifetime Allowance tax charge will be removed from April 2023 and abolished in 2024 (was previously £1,073,100)
Pension Annual Allowance increased from £40,000 to £60,000 from April 2023
Tapered Annual Allowance increased from £4,000 to £10,000 from April 2023 with the Adjusted Income threshold being increased from £240,000 to £260,000

Jeremy Hunt’s goal is likely to get early retirees back into the workforce, with many high earners (particularly doctors) having retired early on account of their pension savings being too close to the previous Lifetime and Annual Allowance maximums, and on top of that, being impacted heavily with Annual Allowance tax charges. It is also hoped that those who have perhaps cut hours will be encouraged to increase their hours again without the worry of excessive Annual Allowance tax charges or breaching the Lifetime Allowance.

The most surprising pensions legislation change is the commitment to remove the Lifetime Allowance charge from April 2023 and fully abolish the Lifetime Allowance by 2024. This allows for much higher pension contributions over the lifetime of an individual’s career and will not see investment growth punished. Additionally, those that have previously been unable to make further contributions on account of various pension Lifetime Allowance Protections might now be able to make further contributions.

Although the Lifetime Allowance is due to be abolished, within the fine print of the Budget it is noted that the maximum tax-free element of a pension has been frozen at 25% up to a maximum of £268,275, in line with the previous Lifetime Allowance (for those without prior Lifetime Allowance protection).

Here at Johnston Carmichael we have a specialist Medical & Healthcare team who are used to dealing with Annual Allowance and Lifetime Allowance tax issues. Our Wealth team are also on hand to help guide our healthcare clients with pension planning.

It is worth noting that Labour Government has already stated that if they win the next election they will reverse abolition of the Lifetime Allowance, so proceed with caution before making any changes!

These changes, although welcomed, will not relieve the staffing pressure that the NHS are clearly facing, and it will be interesting to see what effect this actually has on bringing early retirees back into the workforce. We look forward to seeing what Jeremy Hunt’s long-term workforce plan will be, which he promised this week will be published shortly.