Exeter     7 March 2013Torquay    12 March 2013Plymouth   13 March 2013Truro      9 April 2013Luke BennettReduced PensionA...
Introduction   Luke Bennett – Truro office         luke.bennett@francisclark.co.uk   Stuart Cowen – Plymouth office       ...
NHS Pension Scheme –Impact of Changes   •    1995 v 2008 sections   •    Annual allowance   •    Lifetime allowance   •   ...
www.francisclark.co.uk
NHS Pension Choice                          1995 Section      2008 SectionNormal retirement age        60                 ...
NHS Pension Choice                          1995 Section       2008 SectionLump sum                  Normally 3 x     Mini...
Restriction of Tax Relief –Annual Allowance   •    £50,000 maximum   •    Reducing to £40,000 from 2014/15   •    Special ...
Restriction of Tax Relief –Annual Allowance            Annual pension input (growth in benefits) Example for consultants (...
Restriction of Tax Relief –Annual Allowance            Annual pension input (growth in benefits)Example for consultants (m...
Restriction of Tax Relief –Annual Allowance   Likelihood of being affected when annual allowance £50,000www.francisclark.c...
Restriction of Tax Relief –Annual Allowance                 Establish position at 31 March 2011 Simplified example for GP ...
Restriction of Tax Relief –Annual Allowance                 Establish position at 31 March 2012Simplified example for GP (...
Restriction of Tax Relief –Annual Allowance            Annual pension input (growth in benefits) Simplified example for GP...
Restriction of Tax Relief –Annual Allowance   •    Unused relief from previous three years can be carried forward   •    A...
Restriction of tax relief –Lifetime allowance   •    Lifetime pension savings limit reduced from £1.8 million to £1.5     ...
Restriction of tax relief –Lifetime allowance Example for member of 1995 Section                        £ Career earnings ...
Restriction of tax relief      Benefit of extra year’s membership         If neither                                      ...
Restriction of tax relief –Lifetime allowance       Benefit of extra year’s membership         If neither If lifetime     ...
Restriction of tax relief –Lifetime allowance      Benefit of extra year’s membership         If lifetime     If lifetime ...
Restriction of tax relief –Lifetime allowance Transitional Protection   •    Option to elect for fixed protection        ...
Increasing employee contribution rates                         2011/12   2012/13   2013/14    2014/15                     ...
Reduced monthly drawings fromApril 2013?     Pensionable profit   Before tax   After tax     £60,000                £120  ...
Hutton Report   •    Link normal pension age to state pension age   •    Final salary schemes replaced by career average e...
Government offer   •    New scheme from 1 April 2015   •    Those within 10 years of retirement at 1 April 2012 stay in ex...
Protection                         Age at 1 April 2012   Switch to new                         (if member of 1995      sch...
New NHS Pension Scheme   •    Career earnings for all members (GPs already on career earnings)   •    Dynamisation continu...
Protection for accrued benefits                          Value of new scheme compared with 1995 Section        100%       ...
Accountancy/Tax advice                               IFA advice    Annual allowance calculation     Stop paying into NHS S...
National Employment Savings Trust   •    All employers compelled to offer either a Qualifying Workplace        Pension Sch...
NHS Pension(average earnings £100,000 per annum)                         Lifetime        Retirement   Pension   Lump sum  ...
NHS Pension Personal Pension(average earnings £100,000 per annum)                         Lifetime        Retirement   Pen...
Disclaimer & copyright       (c) copyright Francis Clark LLP, 2013       You shall not copy, make available, retransmit, r...
Luke Bennett - Truro luke.bennett@francisclark.co.uk                 01872 276477         Stuart Cowen - Plymouth stuart.c...
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Reduced pension allowances

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  • LMB started working with GP practices in 2002 as negotiations for current GMS contract got underway. Still remember basic practice allowance, items of service etc.Sit on executive committee of AISMABetween us we act for nearly 80 practices
  • Very few GPs elected to join 2008 SectionSoon to be GPs who joined NHS scheme post 1/4/2008 so don’t assume. Also other staff
  • Compare position at end of year with position at the beginning of the year
  • Establish starting point – inflation adjusted
  • Highlight pay rise from £110,000 to £118,000
  • Table aimed at officers in NHS Scheme – Table doesn’t cope with significant increases in pay.Mention consultants – example of consultant who changed posts and got £27k pay rise: tax bill of £48k!Table doesn’t automatically translate to GPs as calculations are more complexOnly way of explaining this is to run through an example – stay with me for the next 3 slides
  • Reg 72 nowpara 9 Schedule 2 under Regulation RI of NHS Pension Scheme Regulations 1995Effectively means pre-practitioner service valued at average GP earnings which is (usually) beneficial. If not beneficial then officer service pension calculated separately and added to practitioner service pension.
  • Go back to previous slide to explain inflation anomaly CPI Dynamisation2008/09 1.8% (Sep 07) 6.5%2009/10 5.2% (Sep 08) 1.5%2010/11 1.1% (Sep 09) 4.6% (Sep 10 + 1.5%)2011/12 3.1% (Sep 10) 6.7% (Sep 11 + 1.5%)2012/13 5.2% (Sep 11) 3.7% (Sep 12 + 1.5%)
  • Minimum 15% penalty for careless error on tax returnAs accountants we won’t automatically know:Career revalued earningsService with scheme, before and after becoming a GPDetails of added years contract (only contribution rate)NHS Pensions will only issue annual pension input statement if annual allowance exceeded. Doesn’t help if also paying private contributions. We may well be writing to all our clients asking for statement to be issued to us.
  • Make it clear we have moved on from annual allowance to lifetime allowanceDon’t confuse career earnings with value for lifetime allowance purposes
  • Example assumes retirement at 60 so no early retirement abatement applying20 year collection of pension – doesn’t matter how long you actually live
  • Don’t automatically assume that if you are going to suffer an annual or a lifetime allowance you should stop contributing to the scheme.Imagine a GP getting close to retirement – should GP stay in the scheme for another year?Explain effective annuity rate in normal circumstances.
  • Lifetime allowance charge; £1,400 x 23 = £32,200 £32,200 x 25% over 20 years = £402.50
  • Annual allowance charge of say £5,000 – equates to being £12,500 over annual limit.Best annuity rate in market for 60 year old in good health with 50% survivor pension and index-linking
  • Other implications cease contributing – lose 1.5% dynamisation; loss of life cover; loss of ill health benefits
  • 2007/08 – flat 6%
  • £60,000 x 2.4% = £1,440 / 12 = £120 per monthIf practice is paying tax only need to reduce drawings by after tax column
  • If in 1995 Scheme:Age > 50 at 1/4/02 OK, Age 46.5 to 50 tapered reliefAnyone who has elected for Pension Choice will have normal retirement age of 65Example Age 51 fully protected under 1995 Section – Age 51 no protection under 2008 Section as 14 years from retirement
  • Assumes in 1995 section
  • Inflation = CPIAccrual rate compares with 1.4% + lump sum for 1998 Section or 1.87% for 2008 SectionState pensionBorn before 6/12/53 65 (60 to 65 for women)1954 to 1960 661961 to 1969 67After 1977 68
  • Presume abatement factor for early retirement about 5% per annum (so 35% if retire at 60 v 65)Someone aged 47 at 1/4/12: 26 years in old scheme, 9 years in new scheme. Loss is 9/35 x 35% = 9%, benefit = 91%Someone aged 45 at 1/4/12: 23 years in old scheme, 12 years in new scheme. Loss is 12/35 x 35% = 12%, benefit = 88%
  • Explain what advice each can give Pro-forma letter to NHS Pensions – in pack
  • Companies set up for private work; employed spouses; nannies etcIf employee opts out, no employer contribution either;Penalties for non-compliance
  • And finally35 x (14% + 7.5%) x £100k = £752,50040 x (14% + 7.5%) x £100k = £860,00043 x (14% + 13.5%) x £100k = £1,182,500
  • Before we finish – quick couple of slides on QOF
  • Reduced pension allowances

    1. 1. Exeter 7 March 2013Torquay 12 March 2013Plymouth 13 March 2013Truro 9 April 2013Luke BennettReduced PensionAllowances –Guide for Doctors
    2. 2. Introduction Luke Bennett – Truro office luke.bennett@francisclark.co.uk Stuart Cowen – Plymouth office stuart.cowen@francisclark.co.uk Sharon Austen – Exeter office sharon.austen@francisclark.co.ukwww.francisclark.co.uk
    3. 3. NHS Pension Scheme –Impact of Changes • 1995 v 2008 sections • Annual allowance • Lifetime allowance • Increasing contribution rates • Hutton report • National Employment Savings Trustwww.francisclark.co.uk
    4. 4. www.francisclark.co.uk
    5. 5. NHS Pension Choice 1995 Section 2008 SectionNormal retirement age 60 65Benefits 1.4% earnings plus 1.87% earnings lump sum minus lump sumSurvivor pension 50% 37.5% www.francisclark.co.uk
    6. 6. NHS Pension Choice 1995 Section 2008 SectionLump sum Normally 3 x Minimum 4.2% of pension earnings up to 31/03/2008 Maximum 5.36 x Maximum 4.28 x pension pensionAdded years Continue Cease but benefit tocontributions date transferredwww.francisclark.co.uk
    7. 7. Restriction of Tax Relief –Annual Allowance • £50,000 maximum • Reducing to £40,000 from 2014/15 • Special rules for defined benefit schemes • Measured against growth in benefits • 16 x growth in pension + growth in lump sumwww.francisclark.co.uk
    8. 8. Restriction of Tax Relief –Annual Allowance Annual pension input (growth in benefits) Example for consultants (member of 1995 Section) Salary at 31 March 2011 £110,000 Years of service 34 Pension rights at 31 March 2011 £110,000 x 34 / 80 £46,750 Increase by CPI (September 2010) 3.1% £48,200www.francisclark.co.uk
    9. 9. Restriction of Tax Relief –Annual Allowance Annual pension input (growth in benefits)Example for consultants (member of 1995 Section)Salary at 31 March 2012 £118,000Years of service 35Pension rights at 31 March 2012 £51,625£118,000 x 35 / 80Pension rights at 31 March 2011 £48,200Growth in pension in year £3,425Growth in lump sum in year (3 x pension) £10,275Annual pension input = 16 x pension growth + lump sum growth 16 x £3,425 + £10,275 £65,075Excess over annual allowance taxed at marginal rate £15,075 x 40%? £6,030www.francisclark.co.uk
    10. 10. Restriction of Tax Relief –Annual Allowance Likelihood of being affected when annual allowance £50,000www.francisclark.co.uk
    11. 11. Restriction of Tax Relief –Annual Allowance Establish position at 31 March 2011 Simplified example for GP (member of 1995 Section) Career earnings at 31 March 2011 £2,000,000 “Regulation 72 fraction” Years in NHS pension scheme 20 1.250 Years as a GP 16 Pension = 1.4% of career earnings x Reg 72 fraction 1.4% x £2,000,000 x 1.250 £35,000 Increase by CPI (September 2010) 3.1% £36,085www.francisclark.co.uk
    12. 12. Restriction of Tax Relief –Annual Allowance Establish position at 31 March 2012Simplified example for GP (member of 1995 Section)Career earnings at 31 March 2011 £2,000,000Dynamisation factor for 2012 (CPI to Sep 11: 6.7% £134,0005.2% + 1.5%)Pensionable earnings in 2011/12 £110,000Career earnings at 31 March 2012 £2,244,000“Regulation 72 fraction” Years in NHS pension scheme 21 1.235 Years as a GP 17Pension = 1.4% of career earnings x Reg 72 fraction 1.4% x £2,244,000 x 1.235 £38,808www.francisclark.co.uk
    13. 13. Restriction of Tax Relief –Annual Allowance Annual pension input (growth in benefits) Simplified example for GP (member of 1995 Section) Value of pension at 31 March 2012 £38,808 Value of pension at 31 March 2011 (after £36,085 allowance for inflation) Growth in pension in year £2,723 Growth in lump sum in year (3 x pension) £8,169 Annual pension input = 16 x pension growth + lump sum growth 16 x £2,723 + £8,169 £51,737 Excess over annual allowance taxed at marginal rate £1,737 x 40%? £695www.francisclark.co.uk
    14. 14. Restriction of Tax Relief –Annual Allowance • Unused relief from previous three years can be carried forward • Added years contracts complicate calculations and increase pension growth • Private pension contributions to be factored in • NHS Pensions required to calculate figures for 2011/12 and 2012/13 by October 2013 • Self assessment tax return for 2011/12 was due January 2013!www.francisclark.co.uk
    15. 15. Restriction of tax relief –Lifetime allowance • Lifetime pension savings limit reduced from £1.8 million to £1.5 million on 6 April 2012 • Further reduction to £1.25 million planned for 6 April 2014 • Calculation based on 20 x pension + lump sum (+ value of any private pension funds)www.francisclark.co.uk
    16. 16. Restriction of tax relief –Lifetime allowance Example for member of 1995 Section £ Career earnings at £4.7 million retirement Pension: 1.4% of £65,800 career earnings Multiply by factor of 20 1,316,000 Lump sum (3 x 197,400 pension) Value of pension 1,513,400 For retirement between 6 April 2012 and 5 April 2014 charge on excess over £1.5 million £13,400 x 25% £3,350 Pension reduced by 1/20th of lifetime allowance charge Pension therefore reduced from £65,800 to £65,632www.francisclark.co.uk
    17. 17. Restriction of tax relief Benefit of extra year’s membership If neither allowance exceeded £ Pensionable pay 100,000 Employer’s and employee’s contributions 27,500 Tax relief (40%) (11,000) Increased lump sum (4,200) Net cost 12,300 Annual pension 1,400 Lifetime allowance charge - Tax (40%) (560) Net benefit 840 Effective annuity rate 6.83%www.francisclark.co.uk
    18. 18. Restriction of tax relief –Lifetime allowance Benefit of extra year’s membership If neither If lifetime allowance allowance exceeded exceeded £ £ Pensionable pay 100,000 100,000 Employer’s and employee’s contributions 27,500 27,500 Tax relief (40%) (11,000) (11,000) Increased lump sum (4,200) (4,200) Net cost 12,300 12,300 Annual pension 1,400 1,400 Lifetime allowance charge - (403) Tax (40%) (560) (399) Net benefit 840 598 Effective annuity rate 6.83% 4.86%www.francisclark.co.uk
    19. 19. Restriction of tax relief –Lifetime allowance Benefit of extra year’s membership If lifetime If lifetime If lifetime allowance allowance and annual not exceeded allowance exceeded exceeded £ £ £ Pensionable pay 100,000 100,000 100,000 Employer’s and employee’s contributions 27,500 27,500 27,500 Tax relief (40%) (11,000) (11,000) (11,000) Annual allowance charge - say 5,000 Increased lump sum (4,200) (4,200) (4,200) Net cost 12,300 12,300 17,300 Annual pension 1,400 1,400 1,400 Lifetime allowance charge - (403) (403) Tax (40%) (560) (399) (399) Net benefit 840 598 598 Effective annuity rate 6.83% 4.86% 3.46%www.francisclark.co.uk
    20. 20. Restriction of tax relief –Lifetime allowance Transitional Protection • Option to elect for fixed protection  Maintains lifetime allowance at £1.5 million  No contributions after 5 April 2014  Election must be made by 5 April 2014 • Option to elect for personalised protection  Available if pension rights exceed £1.25 million at 5 April 2014  Maintains lifetime allowance at 5 April 2014 value (max. £1.5 million)  Can continue making contributionswww.francisclark.co.uk
    21. 21. Increasing employee contribution rates 2011/12 2012/13 2013/14 2014/15 (possible)Up to £15k 5.0% 5.0% 5.0% 5.0%£15k to £21k 6.5% 5.0% 5.3% 5.3%£21k to £27k 6.5% 6.5% 6.8% 6.8%£27k to £49k 6.5% 8.0% 9.0% 9.75%£49k to £70k 6.5% 8.9% 11.3% 12.5%£70k to £110k 7.5% 9.9% 12.3% 13.5%£110k and over 8.5% 10.9% 13.3% 14.5%www.francisclark.co.uk
    22. 22. Reduced monthly drawings fromApril 2013? Pensionable profit Before tax After tax £60,000 £120 £72 £80,000 £160 £96 £100,000 £200 £120 £120,000 £240 £144 £140,000 £280 £168www.francisclark.co.uk
    23. 23. Hutton Report • Link normal pension age to state pension age • Final salary schemes replaced by career average earnings schemes • Implement changes by 2015www.francisclark.co.uk
    24. 24. Government offer • New scheme from 1 April 2015 • Those within 10 years of retirement at 1 April 2012 stay in existing scheme • Date of joining new scheme delayed for those between 10 and 13.5 years of retirement at 1 April 2012www.francisclark.co.uk
    25. 25. Protection Age at 1 April 2012 Switch to new (if member of 1995 scheme scheme) <46.5 1 April 2015 47 1 April 2016 47.5 1 April 2017 48 1 April 2018 48.5 1 April 2019 49 1 April 2020 49.5 1 April 2021 50 N/Awww.francisclark.co.uk
    26. 26. New NHS Pension Scheme • Career earnings for all members (GPs already on career earnings) • Dynamisation continues at inflation + 1.5% • Accrual rate 1/54th = 1.85185% • Normal pension age linked to state pension age • State pension age = 67 or 68?www.francisclark.co.uk
    27. 27. Protection for accrued benefits Value of new scheme compared with 1995 Section 100% 98% 96% 94% 92% 90% 88% 86% 84% 82% 45 46 47 48 49 50 Age at 1 April 2012 Assumes member joined scheme at 25 and retires at 60www.francisclark.co.uk
    28. 28. Accountancy/Tax advice IFA advice Annual allowance calculation Stop paying into NHS Scheme? Lifetime allowance calculation Take early retirement? Prediction of NHS pension Elect for fixed protection?www.francisclark.co.uk
    29. 29. National Employment Savings Trust • All employers compelled to offer either a Qualifying Workplace Pension Scheme (e.g. NHS) or NEST • Will affect non-NHS employing bodies • Employer contribution 3% to 4% • Employee contribution 3% to 4% • Opt-out option for employee • Phased introduction up to 2017www.francisclark.co.uk
    30. 30. NHS Pension(average earnings £100,000 per annum) Lifetime Retirement Pension Lump sum contributions age £ £ £1995 Section 752,500 60 45,573 188,1252008 Section 860,000 65 56,883 215,000New scheme? 1,182,500 68 54,995 295,625www.francisclark.co.uk
    31. 31. NHS Pension Personal Pension(average earnings £100,000 per annum) Lifetime Retirement Pension Lump sum contributions age £ £ £1995 Section 752,500 60 45,573 188,125 14,7422008 Section 860,000 65 56,883 215,000 20,711New scheme? 1,182,500 68 54,995 295,625 32,086www.francisclark.co.uk
    32. 32. Disclaimer & copyright (c) copyright Francis Clark LLP, 2013 You shall not copy, make available, retransmit, reproduce, sell, disseminate, separate, licence, distribute, store electronically, publish, broadcast or otherwise circulate either within your business or for public or commercial purposes any of (or any part of) these materials and / or any services provided by Francis Clark LLP in any format whatsoever unless you have obtained prior written consent from Francis Clark LLP to do so and entered into a licence. To the maximum extent permitted by applicable law Francis Clark LLP excludes all representations, warranties and conditions (including, without limitation, the conditions implied by law) in respect of these materials and /or any services provided by Francis Clark LLP. These materials and /or any services provided by Francis Clark LLP are designed solely for the benefit of delegates of Francis Clark LLP. The content of these materials and / or any services provided by Francis Clark LLP does not constitute advice and whilst Francis Clark LLP endeavours to ensure that the materials and / or any services provided by Francis Clark LLP are correct, we do not warrant the completeness or accuracy of the materials and /or any services provided by Francis Clark LLP; nor do we commit to ensuring that these materials and / or any services provided by Francis Clark LLP are up-to-date or error or omission-free. Where indicated, these materials are subject to Crown copyright protection. Re-use of any such Crown copyright-protected material is subject to current law and related regulations on the re-use of Crown copyright extracts in England and Wales. These materials and / or any services provided by Francis Clark LLP are subject to our terms and conditions of business as amended from time to time, a copy of which is available on request. Our liability is limited and to the maximum extent permitted under applicable law Francis Clark LLP will not be liable for any direct, indirect or consequential loss or damage arising in connection with these materials and / or any services provided by Francis Clark LLP, whether arising in tort, contract, or otherwise, including, without limitation, any loss of profit, contracts, business, goodwill, data, income or revenue. Please note however, that our liability for fraud, for death or personal injury caused by our negligence, or for any other liability is not excluded or limited.www.francisclark.co.uk
    33. 33. Luke Bennett - Truro luke.bennett@francisclark.co.uk 01872 276477 Stuart Cowen - Plymouth stuart.cowen@francisclark.co.uk 01752 301010 Sharon Austen - Exetersharon.austen@francisclark.co.uk 01392 667000
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