1. The NHS Pension Scheme - Pension tax
Purpose of the slide: opening title slide
Notes for delivery: The purpose of this presentation is to give an overview of the NHS Pension Scheme and pension taxation, its impact on NHS staff, organisations and service delivery, alongside information on the solutions being explored at local and national levels.
Points to note: This presentation and information included within it are correct at the time of publishing (September 2019). The presentation and information included in it does not form or provide any guidance or advice to employing organisations or their boards.

2. NHS Pension Scheme – the basics
Purpose of slide: Section break only

3. Defined benefit and defined contribution schemes
Secure income for life, which increases each year. Retirement income is based on how many years a member has worked for their employer and the salary they have earned.
The NHS Pension Scheme is a defined benefit scheme and benefits are guaranteed by the government.
Defined benefit
Purpose of slide: To explain the difference between defined contribution schemes and defined benefit schemes (such as the NHS Pension Scheme)
Notes for delivery:
Defined benefit schemes are a guaranteed income in retirement. Benefits are determined by length of service and salary. The NHS Pension Scheme is a defined benefit scheme. Benefits in the NHSPS are guaranteed by the government.
Defined contribution schemes are based on what the member and employer pays in, plus the investment performance and the choices a member makes at retirement. Therefore, benefits are not guaranteed.
Defined contribution
Retirement income depends on factors including the amount a member and employer pays in, investment performance and the choices a member makes at retirement.

4. The schemes
The 1995/2008 Scheme is a final salary scheme, split into two sections:
1995 Section – benefits in retirement based on best of last three years’ pensionable pay
2008 Section – benefits in retirement based on average of best three consecutive years in the last 10.
1995/2008 Scheme
Purpose of slide: To introduce the different schemes.
Notes for delivery:
Explain the changes in the NHS pension offering through the various schemes.
Some employees might have benefits in both Schemes.
The 1995/2008 Scheme is a final salary scheme, where benefits in retirement are calculated based using final salary at retirement (or earlier leaving). The scheme is split into two sections:
1995 Section – benefits in retirement based on best of last three years’ pensionable pay
2008 Section – benefits in retirement based on average of last three consecutive years in the last 10 years.
The 2015 Scheme is a career average revalued earnings (CARE) scheme, where benefits in retirement are calculated using the average of a member's pensionable earnings throughout their whole career.
The 2015 Scheme is used for auto-enrolment and new starters cannot join the ‘old’ 1995/2008 Scheme.
Points to note / warnings: Total Reward Statements will show which Scheme employees are in.
2015 Scheme
The 2015 Scheme is a career average revalued earnings (CARE) scheme.
Benefits in retirement based on the average of a member’s pensionable earnings throughout their career.

5. NHS Pension Scheme – the benefits
Purpose of slide: Section break only

6. The benefits of the NHS Pension Scheme
A valuable part of overall reward offer.
Helps to recruit, retain and encourage staff to return to the service.
Provides a wage in retirement (defined benefit scheme).
Access to a range of insurance benefits.
Retirement benefits underwritten by government.
No defined contribution scheme would provide the same level of benefits.
Purpose of the slide: to explore the positives of the NHS Pension Scheme and what it offers staff
Notes for delivery:
The are a number of positives that are unique to the NHS Pension Scheme.
The range of insurance benefits include life assurance.
Once accrued, benefits cannot be lost, they are are not invested.
Retirement benefits are underwritten by the government, so they are guaranteed.
The scheme is not comparable with others in terms of the level of benefits provided in retirement.

7. £525 billion is the value of the pension liabilities of the Scheme as at 31 March 2018.
As the NHS Pension Scheme is an unfunded scheme, these liabilities are underwritten by the Exchequer.
Figures from the NHS Pension Scheme Accounts and valuation reports.
£525 billion
Purpose of slide: To introduce the independent research conducted on behalf of NHS Employers
Notes for delivery:
£525 billion is the value of the pension liabilities of the Scheme as at 31 March This is an increase of £16.7 billion from the liabilities at 31 March 2017 of £509.4 billion.

8. Pension tax – annual allowance
Purpose of slide: Section break only

9. Annual allowance overview
The maximum amount of pension growth permitted each year free of tax – not contributions.
Includes all pension benefits.
Tax relief claw back on benefits earned over the allowance.
Purpose of the slide: To explain what annual allowance is
Notes for delivery:
Annual allowance is the amount of tax-free pension growth in a year.
BUT, it’s important to remember that it’s not the amount of contributions made each year. It includes all pension benefits (not just the NHS Pension Scheme)
A tax charge would be applicable on benefits earned over the allowance.
This is added to the rest of a member’s taxable income, to determine the tax liability (taxed at marginal rate) – creating the tax charge amount.
Value of benefits earned over the year
‘Pension Input amount’
Annual allowance
Excess

10. Annual allowance limits
Annual allowance limits are set by HMRC.
Reduced over recent years.
A wider range of NHS staff are affected, not just high earners.
Purpose of the slide: To explain what annual allowance is
Notes for delivery:
Annual allowance limits are set by HMRC and have been reducing over recent years, which has led to a wider range of NHS staff being affected.

11. Tapered annual allowance
Purpose of the slide: To explain what the tapered annual allowance is and how it is calculated.
Notes for delivery:
The tapered annual allowance was introduced in April 2016 with the intention of reducing pension tax relief for high earners. It applies to those with adjusted incomes (taxable income and pension savings) of over £150,000 and threshold incomes (taxable income excluding the value of pension savings) of over £110,000. 
Threshold income = taxable income, includes earnings from all employment, income from other sources (e.g. rental properties, investments & pensions)
Adjusted income = includes threshold income plus value of pension savings
The rate of reduction in the annual allowance (from the current maximum of £40,000) is by £1 for every £2 that the adjusted income exceeds £150,000, up to a maximum reduction of £30,000 at £210,000. This means an individual's tapered annual allowance will be between £40,000 and £10,000. 
Benefits are tested against the tapered annual allowance by applying a factor of 16 to the increase in the benefit (the pension input amount) over the year.

12. Options for affected staff
Carry forward
Scheme pays
Pay the tax charge
Employees can use any leftover annual allowance from the previous three tax years.
Employees may ask the scheme to pay the tax charge to HMRC, in return for lower benefits in retirement.
Now available to all staff submitting a notification by the deadline.
The employee may pay the tax charge directly to HMRC from existing funds or savings.
Purpose of the slide: To highlight the options available to staff affected by an annual allowance tax charge.
Notes for delivery:
There are three options for staff affected by annual allowance.
Carry forward allows leftover annual allowance from the previous three tax years to be used to offset current annual allowance
Scheme pays – employees can ask the NHS Pension Scheme to pay the tax charge to HMRC. This is in return for lower benefits in retirement.
Pay the tax charge themselves from personal funds or savings.
Staff will have to complete a self-assessment form on the HMRC website to confirm the amount of tax charge owing.

13. Annual allowance – the complexities
OUTCOME ONLY KNOWN AFTER THE TAX YEAR HAS ENDED
Annual allowance tapering depends on all taxable income
Pensionable pay + non- pensionable pay + other taxable income
INDIVIDUAL AND ADVISER TO:
CALCULATE CARRY FORWARD
COMBINE TAXABLE INCOME
ASSESS ANY TAX CHARGE
CHOOSE HOW TO SETTLE
Purpose of the slide: To highlight the complexity of annual allowance and emphasise that a lot of input is required from the affected/possibly affected staff to understand whether they have breached annual allowance.
Notes for delivery:
In summary:
Value of benefits measured by pension growth, not contributions
Staff won’t know the outcome until after the end of each tax year – there could be a number of things throughout the year which may impact on whether they are affected by annual allowance
Tapering depends on all taxable income
The NHS Pension Scheme only notifies members who breach the £40k annual allowance – in one scheme (i.e. the 1995 section, 2008 scheme, 2015 scheme) – if a member is in more than one scheme, it may not trigger a letter, but the member may still have a tax charge. The emphasis really is on the individual and their adviser to:
calculate carry forward if applicable
combine all taxable income
asses the charge payable
choose how they would like to settle any arising tax charge.
As an employer, our responsibilities are to:
Provide accurate data to NHS Pensions
Help answer queries from staff
Signpost staff to an independent financial adviser, where necessary (the resources slide later will show how we can do this – NHS Employers have resources to help).
Scheme only notifies members who breach the £40k annual allowance

14. Pension tax research
Purpose of slide: Section break only

15. The research
NHS Employers commissioned First Actuarial to research the impact of pension taxation, this included:
How widespread pensions tax charges are in the NHS.
The size of pensions tax charges faced by affected employees.
Any impact of these charges on the working behaviour of employees – and how this impacts the objectives of the NHS and on the NHS Pension Scheme.
Purpose of slide: To introduce the independent research conducted on behalf of NHS Employers
Notes for delivery:
NHS Employers commissioned First Actuarial to undertake an online survey of employees, receiving 2,521 completed responses. Majority were consultants (1,800) and 300 senior managers.
The survey was sent to employees earning over £60k who are more likely to be impacted by pensions tax issues.

16. Research findings - summary
Financial advice
Actions taken
Employer impact
Those that have breached annual allowance in the past are much more likely to have reduced their hours as well as avoided any additional work or promotions.
Half of those who have not breached in the past have taken some kind of action.
Employers specified impacts such as time taken to deal with queries and manage requests from members such as opting in and out of the Scheme.
Results showed that 2 out of 3 respondents intend to take or have taken financial advice on their pensions tax position.
Purpose of the slide: To highlight some of the findings from the independent research.
Notes for delivery:
These are just some of the key findings from the research that may be of interest to employers and boards.
The full research report is available on our website, along with a two-page summary of the findings.

17. Possible solutions
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18. National action
DHSC consultation on new proposals to change the NHS Pension Scheme to address the impact of pension taxation on NHS staff, organisations and service delivery.
The new proposals are designed to:
make the scheme more flexible
enable members of the scheme to control the value of their pension growth.
Purpose of slide: To outline the national actions currently being explored, including the DHSC consultation on new proposals to reform the NHSPS.
Notes for delivery:
You can find the full consultation on the gov.uk website:

19. National action DHSC is seeking views on:
introducing a new flexible accrual option, which would allow senior clinicians to choose to build up a lower level of pension benefits and pay correspondingly lower employee contributions (the options available would range from almost zero to 100 per cent, in 10 per cent increments)
allowing scheme members to phase their pensionable pay increases over a set period to avoid spikes in pay which can create annual allowance issues
who pension scheme flexibilities should be available to
improving scheme pays
support and guidance for individuals
the equality impact assessment of the proposals.
Purpose of slide: To introduce the DHSC consultation on proposals to amend the NHS Pension Scheme
Notes on delivery:
You can find the full consultation on the gov.uk website:

20. Have your say
We are keen to hear your views and collate evidence to support our response to the consultation. Please share your comments and evidence with NHS Employers before Friday 4 October 2019 by ing or completing our online survey. The deadline for submitting consultation responses to DHSC is Friday 1 November 2019.
Purpose of slide: The channels through which you can respond to the government consultation.
Notes on delivery:
NHS Employers are keen to receive evidence to inform and support our response to the consultation. DHSC have expressed that they would like to receive evidence to support responses.

21. The importance of independent financial advice
General lack of understanding and knowledge about pensions tax.
Pension tax position depends = taxable income from all sources.
Employers can signpost staff to information and resources and provide general advice.
Individuals who are unlikely to be affected by the tapered annual allowance may turn down additional work unnecessarily.
Employers should be mindful that they are not able to provide regulated financial advice on an individuals tax position as they do not know their overall financial or pension tax position.
Purpose of slide: To highlight the possible local employer options to help support staff who are affected by annual allowance tax charges.
Notes for delivery:
It is right to support staff who think they may be affected by pension tax issues, however, employers are not regulated to provide independent financial advice to employees about their pension tax position.
Because pension taxation is based on all taxable income, individuals should seek independent financial advice to understand their pension tax position and make informed decisions. Employers are not regulated to give financial advice. 
Employers should advise employees to seek advice on their specific pension tax position. 
Resource: NHS Employers published a list of organisations who are able to give expert guidance and advice on pension tax issues for members of the NHS Pension Scheme.

22. local optional measures
There are a number of local options that NHS organisations are able to explore, including:
Existing flexibilities to enable employees to remain in the NHSPS
Managing pensionable pay.
Local Clinical Excellence Awards.
Designing innovative TOIL arrangements.
Use of multiple contacts of employment.
Establishing new organisations for service delivery.
Possible arrangements for employees who decide to opt out:
Opting out of the Scheme for a proportion of the scheme year.
Paying the employer contributions as additional salary.
Purpose of slide: To highlight the possible local employer options to help support staff who are affected by annual allowance tax charges.
Notes for delivery:
There are a number of local options that NHS organisations are exploring at the moment, including:
Managing pensionable pay such as making local payments non-pensionable or temporary payments being non-pensionable
Converting old CEAs to new ones, which are non-pensionable
Designing TOIL arrangements which help reduce pensionable pay
An employee having multiple contracts of employment, opting out of the scheme for one ‘employment’
Establishing new organisations to deliver services, which have different terms for staff
Staff opting out of the Scheme for part of the scheme year
Paying employer contributions to staff as additional salary (to those who have opted out of the Scheme).
There are a number of considerations with each of these options which employers should discuss to decide which is the most appropriate for to take forward.
NHS Employers has produced guidance, which explores each of these options in detail, including considerations to take into account when deciding which options are most suitable for your workforce.
Resource: NHS Employers has published guidance outlining the optional local measures that employers can take to support staff who are likely to be affected by pension tax issues:

23. Resources for employers
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24. Resources
NHS Employers has a range of resources to support employers, including:
Pension tax guidance for employers.
Pension tax briefings on annual and lifetime allowances.
Employer briefing on responding to pension tax and pay queries.
Guide to options for affected staff.
Infographic on key annual allowance dates and actions.
Purpose of slide: To highlight the range of NHS Employers resources designed to support employers with pension taxation.

25. Key actions
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26. Actions for boards
Identify and engage with staff who may be affected or think they may be affected by pensions tax.
Communicate the range of resources and guidance available to staff.
Encourage staff who think they may be affected to seek independent financial advice about their specific financial position.
Consider the decisions made by staff who think they may be affected and the impact this is having on staff, the organisation and service delivery.
Explore the range of optional local measures you could take and decide which are appropriate for individuals or staff groups.
Work in partnership with trade union colleagues to reach agreed solutions.
Review any agreements regularly to ensure the arrangements remain appropriate for the individual or staff group and you as the employer, and to ensure any national solutions developed at a later stage can be taken into consideration.
Purpose of slide: To highlight the range of actions that employers may wish to consider taking.
Notes for delivery:
Considerations for boards on the actions that could be taken to minimise the impact of pension tax on staff, the organisation and service delivery.