You can increase the amount of benefits you receive at retirement by paying extra contributions; paying additional contributions is voluntary and there are different ways of doing this and each buys you different benefits.
Contributions paid to the NHS Pension Scheme and its Money Purchase providers to increase benefits qualify for full tax relief but cannot exceed 100% of your taxable pay.
Since 6 April 2006 HM Revenue and Customs (HMRC) has set an individual lifetime allowance (LTA) limit on tax free pension savings in all registered pension schemes. The limit mainly affects high earners and for most people it results in more tax relief being available for savings to increase their retirement benefits.
The LTA applies to all your pension savings including those through additional contributions.
HMRC will not allow you to withdraw a tax-free lump sum and receive further tax relief by reinvesting the money back into a registered pension scheme. This is known as ‘recycling lump sums’ and could apply if the money is reinvested as a lump sum or in monthly payments. It is possible that you could be affected by this rule if you retire within two years of making an election to buy additional benefits. If you think you could be affected discuss your plans with a professional financial adviser before proceeding.
The Annual Allowance is currently £40,000. However this can reduce to £30,000 if you access the new pension flexibilities on or after 6 April 2015 and contribute £10,000 or more to a defined contribution scheme; this includes the NHS Money Purchase AVC Scheme. The Annual Allowance is the maximum amount of tax free growth that your pension savings can grow by, excluding any State Pension, in a tax year. Growth in the NHS Pension Scheme includes any added pension or added years purchased or being purchased during that tax year. If the growth in the NHS Pension Scheme (and any other pension arrangement, including contributions to Money Purchase benefits) exceeds the Annual Allowance you may incur an Annual Allowance charge. More information about the Annual Allowance can be found here.
Additional information regarding the options available can be found by following the links below: