Monday, August 8, 2022

Senior NHS doctors reveal complex pension tax rules are forcing them to retire

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An influential panel of MPs has branded pension tax rules, which are increasing pressure on the NHS, as a “national scandal”.

An influential panel of MPs has branded pension tax rules, which are increasing pressure on the NHS, as a “national scandal”.

A new government report has revealed that complex pension tax rules for high earners are forcing large numbers of senior NHS doctors to retire.

A survey conducted by the Royal College of Surgeons of England found that over two-thirds (69 per cent) of respondents had reduced working hours as a direct result of pension tax regulations.

A separate 2019 survey by the Royal College of Physicians found that 50 per cent of 2,800 doctors surveyed had retired ahead of schedule, with most citing pension concerns as the reason.

The pension tax cut kicks in when someone has an ‘adjusted income’ of over £240,000 and a ‘threshold income’ of over £200,000 – but senior doctors who work overtime are unlikely to know exactly what their annual hours or earnings are will be.

Taper reduces your available annual allowance by £1 for every £2 of adjusted income over £240,000 to a minimum of £4,000 for those with adjusted income over £312,000.

Mr Wayne Jaffe, a consultant plastic and reconstructive surgeon at North Midlands University Hospital NHS Trust, told researchers his resignation came “almost against his will” in the context of “a hand-picking of senior doctors” who dealt with “unfair and punitive… additional” taxes that I have to pay every year because of my seniority.”

He revealed that he “pays tens of thousands of pounds of extra tax every January because pensions are going up, which I can’t do anything about”.

Tom Selby, head of pensions policy at AJ Bell, said: “The UK pension tax system has become a complex quagmire, confusing savers as to what they can contribute each year and leading to hugely damaging unintended consequences for the NHS.

“The Selection Committee has urged the Government to seek solutions that specifically address issues in the NHS pension system. However, it would make far more sense to abolish the annual deduction throttle altogether.”

In an attempt to help employees cope with pension tax regulations, Ioutlines some options around accessing retirement savings and the tax tips that can help make the most of it, with the help of Jenny Holt, Managing Director for Customer Savings and Investments at Standard Life.

When you access your retirement savings, you can typically take a quarter — 25 percent — of your total pot tax free. You can earn it in chunks over multiple tax years if your pension plan allows, but you won’t get a new 25 percent tax-free entitlement every year.

If you have a defined contribution pension, you are free to take your tax-free entitlement, provided you are over 55. You can get it all at once, but you don’t have to – and it’s important to remember it’s gone, it’s gone.

Ms Holt said: “Just because you can doesn’t mean you should take all of it – or any of it. The longer your money stays untouched in your retirement plan, the more potential it has to grow tax-efficiently, and the higher your tax-free entitlement could be.

“Of course, that’s not guaranteed, and because the money stays invested in your retirement plan, its value can go down as well as up and could be worth less than what was paid into it in the future.”

When and how you draw your pension can make a big difference in how much tax you pay. Borrowing little and often can make all the difference so you don’t pay more tax than you need to.

Most people have a Personal Income Tax Allowance, which means they are taxed on the first £12,570 of their income (for 2022/23), such as B. Salary or rental income, do not have to pay taxes.

However, if your annual income is over £100,000 you may not receive all of these personal allowances and your personal circumstances, including your UK residency, may also affect the tax you pay and laws and tax rules may change in the future .

If you take money from your retirement savings over your tax-free entitlement, it’s taxable like any other income — as is state pension when it accrues. That means you pay income tax on anything in excess of your tax-free entitlement Personal Allowance you receive each year.

How much income tax you pay depends on which tax bracket your income falls into. By taking just enough to stay in the lowest possible tax bracket, you could keep more of your money overall during your retirement.

You’ll still pay income tax on your pension money if you work if you access it. However, it’s important to understand how collecting your retirement money can affect the amount you’re able to put in.

Once you start having flexible access to taxable income from your pension savings, the amount that can be paid into any of your pension plans while still receiving tax benefits will be capped at £4,000 per tax year – known as the annual money-making allowance.

If an employer contributes to your pension, it is worth calculating whether you will continue to benefit from their full contribution while also receiving retirement income.

Ms Holt added: “Life after 55 is full of opportunities – whether it’s to keep working, work less, start your own business or do some travel. Whatever your plans, taking out only what you need and leaving the rest in your retirement plan until you need it might be a sensible move for many people.

“That’s because you keep your money invested with growth potential. If you withdraw more than you need to and put it into a low-interest checking or savings account, for example, you lose that growth potential, and if costs rise with inflation, you can afford to buy less with your savings.”

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