Where the nhs pension 
scheme gets really complicated

Liz Densley describes the complications and pitfalls of keeping accurate records regarding the NHS pension scheme.

Problem area

We’re now well into the season of preparing accounts and tax returns for GPs with self employed income, and by far the biggest problem area is (unsurprisingly) pension contributions. We are finding more and more that not all income is pensioned – either because a doctor chooses to drop out of the scheme for part of the period, or because they have worked more than 6 months for a practice or because they simply don’t get the locum B form in on time. From an accountant’s point of view, trying to tie up each invoice to a locum B, and check that the form was actually submitted and the contributions paid over, can be hugely time consuming. Just taking the GP’s word for it can be dangerous and cause problems later.

Evidence to protect from fraud

When a locum has charged the practice with employer contributions but not paid them over, they should return them to the practice (retaining them for personal gain is fraud). Some practices will renegotiate the fee so that the amount they have paid is agreed to be the full fee for the service and don’t expect the money back – but it’s important to have evidence of this to protect the locum should it ever be questioned.

Current tax year

For tax relief purposes for 16-17, you need to know:

  • The level of pension contributions actually paid in the year (not the amounts due to be paid)
  • Any overpayment of contributions (because HMRC say that overpaid contributions cannot be pension contribution and therefore need to be disallowed in the period the payments were made – not when the refund is made)

This means that we need to complete the Type 2 pension certificate (or at least the calculations for it) at the same time as the tax return is completed. It is irritating that the form is not issued at the beginning of the year (and last year the form was amended very late, leading to the risk of a lot of forms having been incorrectly completed.)
Since the move to 2015 scheme, the calculation of pension tier rate has become very much more complicated, with an ‘annualising’ calculation being required where there are gaps in service – and this can give rise to unexpected results.

Keep a record

If your bookkeeping system doesn’t allow you to note the date that the pension payment actually went through (LocumDeck does, by the way - Ed) and do check this – some payments seem to have disappeared into a hole and never gone through the bank) – then do please annotate your copy of the Locum B form to show when payment went through your bank. Not only does it help your accountant tie things up, it is also one step towards ensuring that your pensionable income gets through to your pension record.

Pay by BACS

Submitting your forms electronically and paying by BACS is probably safer than sending by post – please read the recently updated guidance carefully – because, as highlighted by the NASGP, if you don’t get the reference number right, the pensionable income will not show up on your pension record (but that won’t stop them accepting your money apparently).

Annual Allowance Charge

High earning and/or long serving NHS scheme members must also consider the Annual Allowance Charge (AAC). Working out whether a charge will exist is a very complex calculation, but as the Pensions Agency will not provide a figure until long after the tax return needs to be submitted, it is a calculation that is needed to avoid submitting an incorrect return (for which you could be charged penalties). You should obtain a Total Rewards Statement on-line annually to make sure that your pension record is being updated correctly, and this statement can help your accountant to determine whether a detailed AAC calculation is necessary or whether a reasonable estimate is sufficient.

" Since the move to 2015 scheme, the calculation of pension tier rate has become very much more complicated, with an ‘annualising’ calculation being required where there are gaps in service – and this can give rise to unexpected results."

The government have added to the complexity of this calculation by reducing the amount on which relief can be claimed where income is high. Not many locums have taxable income (net of pension contributions) in excess of £110k or gross taxable income over £150k – but at this level the £40k of tax deductible contributions permitted starts to get reduced to as low as £10k – which can cause very high Annual Allowance charges.

So what can you do to help?

  • Deal with your pension paperwork in time so you don’t have unplanned income dropping out.
  • Complete the forms carefully to reduce the risk of them not being processed.
  • Keep clear records reconciling invoices issued to income pensioned.
  • Check your bank statements to ensure pension payments go through the account.
  • Get an annual Total Rewards Statement so you can pick up any missing income promptly.
  • Get your information to your accountant as early as possible, so there is time to review it properly and give you reasonable warning of tax/NIC and superannuation amounts due.

Liz Densley is medical specialist partner with Sussex Chartered Accountants, Honey Barrett, and is secretary of AISMA (the Association of Independent Specialist Medical Accountants). Contact her at liz.densley@honeybarrett.co.uk.

2 Responses

  1. Adam Sandell
    Thanks for this helpful guidance. One minor clarification: it's not quite correct that retaining employer contributions "for personal gain is fraud". It could be but, to be fraud, the locum would also have had to have been dishonest at the time of obtaining the employer contributions: see section 2(1) to (4) of the Fraud Act 2006. That would probably mean billing for the employer contribution with no intention, at the time of billing, of passing the contribution on to the NHS pension scheme. An honest muddle wouldn't amount to fraud. There are lots of good reasons for processing employer contributions properly, but locums needn't worry too much about committing criminal offences by accident (any more than the perennial but misplaced worry that discussing fees, without reaching any anticompetitive agreement, is somehow unlawful).
  2. Steve
    Why is it so difficult to get your NHS pension? I left the NHS in 2008, have jumped through numerous hoops to get to the stage where I can claim what I'm owed now I have a 12 page form to negotiate. I'm on benefits due to ill health and the paper work I need will cost over £100 and I simply can't afford it. Why do I have to go through all this rigmarole to get my own money????

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