NHS pensions: what do changes to the lifetime allowance mean?

Nothing has happened to NHS pensions specifically. But like all pensions they will be affected by an announcement, made by the UK chancellor Rishi Sunak in the budget on 3 March,1 that the lifetime allowance will remain at its current level of £1 073 100 until April 2026. The lifetime allowance is a limit on the amount of pension benefit that can be taken without triggering an extra tax charge. All pension benefits, except the state pension and certain exempt smaller pensions, count towards the lifetime allowance.2 In the simplest terms it means that, over time, high earners are now more likely to exceed the limit and pay tax on their pension. The rate of tax payable on any excess over and above the lifetime allowance depends on how your pension benefits are paid. For members of the NHS pension scheme this money will normally be paid as part of your annual pension “income.” This means that you will be taxed at a rate of 25% on anything over the £1 073 100 limit. NHS Pensions will deduct this tax charge from your pension before it’s paid to you. So, as Rachael Hall, principal partner at Sandringham …