Pensions and Tax
Registered pension schemes are subject to tax rules and limits. These tax limits are laid down by HM Revenue and Customs as tax legislation.
This section of the website covers the main tax rules that apply to members of the NHS Pension Scheme.
Annual Allowance - The Annual Allowance is the amount that your Pension Benefits can grow by each year.
Lifetime Allowance - The Lifetime Allowance is the total amount of pension savings that an individual can have before being subject to tax.
For more detailed information about Tax implications, The Finance Act, Transitional and Primary protection with the tax charges that could be applicable, Annual Allowance and some changes to tax in relation to this, please refer to the our Technical Guidance section.
Additional tax considerations
You will normally receive tax relief on your contributions to the NHS Pension Scheme.
NHS Pension Scheme contributions are taken from your pay before tax is taken off. This means that your contribution reduces the amount of your pay subject to tax, so that you can effectively receive income tax relief at your highest marginal rate.
For example, if you are a basic rate taxpayer, you can receive 20% tax relief on the NHS Pension Scheme contributions you pay. If you are a higher rate taxpayer, you can receive 40% tax relief on the contributions you pay.
Some higher and additional rate taxpayers will receive different rates of tax relief on their contributions, if some of their earnings are near the earnings thresholds.
For example: if the higher rate threshold is £45,000 and you earn £46,000, then up to £1,000 of your contribution will receive higher rate tax relief, and the residual amount will receive basic rate tax relief.
As a NHS Pension Scheme member, you will normally also pay a lower rate of National Insurance. This can reduce the actual amount that you pay to between 3.5% and 5.1% depending on your contribution rate, earnings level and personal rate of income tax.
Additional pension is deducted from your pay and receives tax relief in the same way as ordinary contributions (see paying into your pension section above).
GPs or dentists
If you are a self-employed GP or dentist and contribute to the NHS Pension Scheme you should claim tax relief for ordinary and additional pension contributions through your Self Assessment tax return.
Receiving your pension
When you start to receive your pension, it will be taxed in the same way as your earnings, with any income tax deducted at source. No National Insurance contributions are deducted from your pension.
More sources of information
Finding an independent financial adviser (IFA)
NHS Pensions and NHS employers cannot give members financial advice. If you do not have a financial adviser but want to find one, the following organisations may be able to help:
Association of Professional Financial Advisers. Tel: 020 7628 1287 www.apfa.net
IFA Promotions can give a list of independent financial advisers in your local area www.unbiased.co.uk
The Consumer Financial Education Body provides facts on pensions and retirement. www.moneymadeclear.org.uk
If you belong to a trade union or professional organisation they may be able to provide access to organisations that can give financial advice.
Documents available on the HMRC website
Registered Pension Scheme Manuals:
HMRC Pension Schemes Services
The Lifetime Allowance is the total amount of pension savings that an individual can have before being subject to tax.
The Annual Allowance is the amount that your Pension Benefits can grow by each year.