What your NHS pension statement isn’t telling you

Edited December 2023

For many dentists, understanding their NHS pension is crucial to helping them calculate how much money they’ll have when they retire. Unfortunately, the Annual Benefit Statement, provided by NHS pensions, doesn’t give you all the information you need to make informed choices about your future.

Thomas Dickson, Chartered Financial Planner at Wealthwide explains the five key parts that are missing and what you need to do to fully understand what your pension will be worth at retirement.

Annual Allowance - Scheme Pays

In recent years, many members have exceeded their annual allowance of £60,000 (or less if their income is over £260,000). If they had no unused allowances to carry forward from previous years, then this creates an annual allowance tax charge. They either had to personally this charge to HMRC or ask the NHS scheme to pay on their behalf by electing for scheme pays.

Scheme pays means that their final pension will be reduced to cover the tax the NHS has paid on their behalf (except for the 2019/20 tax year when NHS England agreed to paid this without reduction). The NHS charges interest at a set rate plus inflation.

To work out what impact this will have, you need to have a record of all the scheme pays elections you’ve made (you can contact NHS pensions if you don’t have this to hand), multiply each year by the interest rate plus inflation and divide by another factor based on when you plan to retire.

Lifetime Allowance

The Finance Bill 2023/24 includes the measures needed to abolish the lifetime allowance from 6 April 2024. However, any lump sums paid from pensions that are in excess of £268,275 [25% of £1,073,100] remain subject to income tax. Those with either Fixed or Individual Protection are entitled to a higher pension commencement lump sum.

Please note any personal pension values also need to be taken into account when calculating if you’re affected by the lifetime allowance.

McCloud judgment

Following the McCloud judgment, members benefits accrued from April 2015 to April 2022, will automatically fall into their 1995 or 2008 section pension. This means that these benefits can be paid at age 60 (1995 section) or 65 (2008 section) rather than being linked to the State Pension Age. NHS pensions are not yet able to provide the McCloud impact on retirement benefits (current expected date is October 2024), so the Annual Benefits Statement, available if you request your Total Rewards Statement, simply confirms the benefits accrued between April 2015 and April 2022 as payable in the 2015 section.

Many members may prefer to have the pension paid from an earlier age, but the decision largely depends on each members personal circumstances.