NHS pensions have now started to send out the Pension Savings Statements (PSS1) for the 2021-22 tax year to dentists and you may have already received the PSS1s in the post. You should receive a PSS1 for each NHS pension scheme you are a member of. For those who have been in the 1995/2008 pension scheme and were then transferred into the 2015 pension scheme, you’ll receive a PSS1 for each pension scheme.
It’s important that dentists send these statements to their accountants. At DJH Mitten Clarke (previously Morris & Co), we ask all clients to send these to us for two reasons:
- Calculate whether there are annual allowance pension tax charges due on the pension input.
- Ensure the pension input figures are accurate to the NHS earnings in the year.
We’ve already received pension savings statements from some clients where the pension input figure on their active pension scheme differs greatly from the expected pension input based on their NHS earnings in 2021-22. It’s important that this is raised with NHS pensions so your pension records are accurate.
We’ve also received many questions from clients who are members of both the 1995/2008 and 2015 pension schemes and have noticed that their 1995/2008 pension input is much higher than previous years.
Why is that?
The dreaded ‘I’ word – Inflation!
Impact of inflation on 2021-22 pension input
Our previous article on the expected impact of inflation on the 2022-23 pension input, which is available here, explains the disconnect built into the pension input calculations where inflation rises sharply in a tax year. Although inflation has risen dramatically in the 2022-23 tax year, the rise in inflation had already started by the end of the 2021-22 tax year.
The result of this can be seen clearly on a dentist’s 1995/2008 PSS1 for 2021-22 where they’ve already been transferred into the 2015 pension scheme.
If a dentist is an active member of the 2015 pension scheme, their NHS earnings will be accruing pension benefits within the 2015 pension scheme. However, they also have pension benefits accruing in the 1995/2008 pension scheme which are revalued each year. This revaluation, where inflation is higher at the end of the tax year compared to the start of the tax year, results in positive pension input.
This is especially significant for older dentists who have significant pension accrual within the 1995/2008 pension scheme. For example, a dentist with a closing value of £600,000 on 5th April 2021 in their 1995/2008 pension scheme will see the closing value rise to £625,200 on 5th April 2022, despite no longer contributing to this scheme. Pension input for tax purposes for this dentist would be £22,200.
With the standard pension annual allowance being £40,000, more than half of this has been used up by the 1995/2008 pension input for this dentist, despite the pension accrual on their pensionable earnings for 2021-22 not being accounted for yet.
Dentists who already have significant pension values in either or both of the pension schemes are more likely to have total pension input above £40,000 this year compared with previous years if they are still working within the NHS.
It is very important that dentists seek specialist tax advice on this, especially with the ongoing changes in the NHS pension scheme and its legislation.
If you are a dentist currently contributing to the NHS pension scheme and are looking for advice on your NHS pension and other financial aspects of your business, then we would love to help you. You can get in touch here.
If you are an existing client, then please send your PSS1 to us and we will check it over for you.