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NHS pension – doctors must understand implications of alternative cash rewards

Many higher earning NHS employees have been affected by changes to the amounts they can save, tax-free, into a pension.

As a result, some trusts have now begun piloting an alternative reward policy based on giving a cash payment to those who leave the NHS Pension Scheme.

But deciding whether this option works for you is far from straightforward and should only be undertaken with professional advice.

How it works:

If your trust offers the alternative reward policy, and you can prove you will be affected by either the annual or lifetime allowance, you could choose to opt out of the NHS Pension Scheme and instead receive a cash payment equivalent to approximately 17.75% of pensionable pay.

This will be paid in equal monthly installments and will be subject to income tax and national insurance contributions, similar to a one-off cash bonus.

The benefit is that this would lead to more money in your monthly take-home pay, which can then be invested in other products such as ISAs and personal pensions.

Although the benefits are unlikely to be as generous as the NHS Pension Scheme, your trust might also arrange an alternative workplace pension for you, to meet its legal responsibilities as an employer.

Questions to ask yourself:

If you are considering leaving the scheme and taking the cash payment, there are two key questions you should consider.

  • Firstly, what exactly will be the impact of leaving the NHS Pension Scheme on your current retirement benefits? Even with an annual allowance tax charge, the NHS Pension may still be the best way for you to retire how and when you want.
  • Secondly, leaving the scheme will also result in a reduction in ill-health pension and death benefits. How valuable are these benefits to you? How would your family get by if you were to become ill or die?

Other options – Scheme Pays:

Finally, there are other options available that don’t involve leaving the scheme – such as Scheme Pays.

Under Scheme Pays, the scheme will pay your annual allowance charge for you and recover the amount paid, with interest, by reducing your pension benefits when you retire.

This allows you to remain in the pension scheme without the need to find the cash to pay the annual allowance excess charge.

Conclusion

Deciding which of these options is best for you is not easy and it all depends on your personal circumstances and what you value most.

Before you make any decisions, it is important you discuss your options with a professional adviser that specialises in and understands the medical market.

Wesleyan provides specialist financial advice and services to doctors. Visit www.wesleyan.co.uk or call 0800 092 1990.

Tax treatment depends on individual circumstances and can change in the future. The information contained in this article does not constitute financial advice.

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