Retrospective payment of pension benefits for doctors who have retired from the NHS Pension Scheme
April 2007
On 6 April 2006 the government introduced a new limit on pension savings known as the lifetime allowance (LTA) which was set at £1.5 million for 2006/07. Where pension benefits are taken on or after 6 April 2006 and the total value of all registered pension savings exceeds the LTA, the excess may be subject to a recovery charge. Protection against all or part of the recovery charge may, depending on circumstances, be obtained by applying to Her Majesty’s Revenue and Customs (HMRC) for enhanced or primary transitional protection. The deadline for applying for protection is 5 April 2009.
Many doctors retired from the NHS Pension Scheme prior to 6 April 2006 in the belief that the lifetime allowance would not apply to them. However, it has emerged that where a doctor receives a retrospective pension or lump sum payment on or after 6 April 2006, their benefits will be tested against the lifetime allowance. Retrospective payments can arise for a variety of reasons, for example due to the late implementation of dynamising factors for GPs or because of the correction of a previous error in a doctor’s pay or service record.
The BMA does not believe that doctors should be responsible for a recovery charge that is incurred as a result of an error by their employer or the pension scheme administrator. The BMA pensions department is willing to consider each case on its own merit and make representations for members where an error can be identified.
Whilst the benefits in payment prior to 6 April 2006 are not themselves subject to the recovery charge, they are taken into account in calculating the overall value of pension savings which determines whether the pension or lump sum payment made after that date is subject to the charge. If a recovery charge does apply, the additional benefits in the NHS Pension Scheme will be reduced in order that the scheme administrator can pay the charge on behalf of the member. The recovery charge is 55% if the excess is taken as a lump sum and 25% if taken as pension.
Doctors who have not previously applied for protection but whose pensions savings exceed the LTA may now wish to consider whether they require protection. HMRC has confirmed that pension and lump sum payments to which a doctor became entitled prior to 6 April 2006 but were not paid until after that date can be included in the capital valuation of benefits as at 5 April 2006. This may mean that some doctors whose benefits did not previously exceed the LTA as at 5 April 2006 are now able to apply for primary protection and that doctors who already have primary protection should request a revised certificate. We strongly recommend that doctors seek independent financial advice if they may be affected.
The BMA pensions department can be contacted at BMA House, Tavistock Square, London, WC1H 9JP, by telephone on 020 7383 6166 or by email at pensions@bma.org.uk