Pension changes – What do they mean for dentists?

On 15^th March, The Chancellor Jeremy Hunt unveiled his Spring budget. Amongst many radical changes in regard to pensions, Hunt revealed that there would be a significant change to the lifetime allowance.

After some speculation, he confirmed that the Lifetime Allowance Charge would be removed and the Lifetime Allowance – currently £1,073,100 – is to be abolished, meaning there will be no pension limit.

There have been assumptions as to why the decision to abolish the lifetime allowance was made, a running contender being medical professionals in the NHS were opting out or leaving work because they were accumulating large pension pots, and paying tax on the excess. The removal of the charge and abolishment of the allowance is thought to incentivise those to continue working.

But what do these pension changes really mean for dentists? We’ve asked Tom Slevin, Dental Client Services Director, for his comments on the decision to abolish the lifetime allowance, and what new factors could come into play for those in the dental industry.

Take it away Tom…

For dentists, the pension lifetime allowance being removed from 2023, before being abolished in 2024, is welcomed news. The government have also said that negative real growth in legacy schemes will now be able to be offset against pension input in the open schemes.

Here’s what else The Chancellor announced as a shake up to pensions:

Annual allowance

The tapered pension annual allowance will now be a minimum of £10,000 from £4,000, which is welcomed relief for the higher earning dentists, both NHS and private. Adjusted income threshold also increasing from £240,000 to £260,000 is again a positive change. Pension annual allowance increasing to £60,000 from April 2023, in conjunction with the NHS pension legislation changes regarding the impact of inflation on pension input, would see a large number of dentists who were paying pension annual tax charges much better off.

Aggregating Pension Schemes for annual allowance

Although more of a technical change, the Chancellor is now allowing Pension Growth across multiple NHS schemes to be combined, and possibly counterbalance against one another. This will have less impact for principal and associate dentists but may have more of an impact for salaried dental officers.

Tax freeze on lump sum for retirement

A big attraction of pension saving is the provision of tax free cash upon retirement. Until now, the maximum allowed tax-free lump sum is 25% of the lifetime allowance, being £268,275. Despite rumours hinting that this tax free lump sum would be abolished, it has been decided that the maximum level would freeze. If it stays at this level for a number of years, the value of the tax free lump sum will be eroded by inflation.

Flexibility around retirement

For those who are considering taking their pension, there are new flexibilities that will be introduced. Previously, restrictions have been put on individuals who would seek to retire from the 1995 NHS pension scheme and carry on with NHS work. These restrictions are now being reduced, and include:

• 16-hour rule – up until now, anyone drawing a 1995 scheme pension has to restrict NHS activity to a maximum of 16 hours per week, for at least one month. This requirement is set to be abolished from 1 April 2023
• Pensionable re-employment – up until now, anyone drawing a 1995 scheme pension has been excluded from building up any further NHS pension from ongoing NHS work. This restriction will be abolished from 1 April 2023
• Partial retirement – at present, anyone seeking to draw upon a 1995 scheme pension must take a break from their NHS contract of at least 24 hours. This is a problem for sole trader dental practice owners who have to set up a temporary partnership in order to retain continuity of their NHS contract

Age discrimination solution

The McCloud Remedy is still ongoing. As a reminder, this is being put in place to remedy the unlawful age discrimination in 2015 with the implementation of the 2015 NHS Pension Scheme, which some older members were not transferred into and remained in the legacy schemes.

Part of the remedy was to close the legacy schemes on 31^st March 2022, with all active members of the NHS pension scheme now accruing benefits within the 2015 scheme.

The second part of the remedy will remove the effect of the transitional protections. For members impacted by the discrimination, the retrospective remedy will return members who moved to the 2015 scheme back into the legacy scheme from 1^st April 2015 to 31^st March 2022. The scheme will also offer a choice of whether to receive legacy scheme benefits or 2015 scheme benefits on retirement so no one will be worse off and many dentists actually finding themselves with higher pension benefits as a result.

It remains the case that all such members will be offered this choice at retirement.  For those already retired (or who might retire before October 2023) this choice will be presented as early as possible after October 2023, with back payments of any extra pension due.

Final thoughts

As described as a slimmed down plan by The Chancellor himself, there are actually significant changes that will be introduced that will affect pensions of those in the dental industry, despite no mention of the profession in the actual budget document.

If you have any queries about what has been announced, and the upcoming pension changes, we are here to help. You can speak to one of our specialist team members by calling 0151 348 8400.