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In 2016, the Government introduced legislation to limit the amount that can be paid into a pension and how much a pension can grow in a year. The impact of these changes is now being felt in the NHS as doctors, surgeons and other health workers are reducing their overtime hours to restrict pension growth which could trigger large tax bills.

NHS employees are unable to choose how much they contribute to their pension pot, it is mandatory based on their level of earnings, and they also benefit from a generous ‘employer’ contributions.  The only way to control how much goes into their pension is to limit what they earn.

The medical profession is urgently lobbying the Chancellor, Philip Hammond, to review the legislation as the reduction in overtime is having serious consequences for hospital waiting times with reports of the NHS in ‘meltdown’. With the significance of the changes only just being realised by some, as they receive unexpected tax bills in the tens of thousands, the situation is expected to worsen as more clinicians pull back to working just their standard hours.

How pensions are taxed

The new ‘taper’ for higher earners means that the current standard annual allowance of £40,000 can reduce to £10,000 and those who exceed the limits are penalised. The way these tax bills are calculated is not only complex but often involves them being done several years in arrears which is why the bills are now filtering through with no advanced warning.

There is generally more awareness of the issue amongst GP partners because they run practices and employ accountants.  Less well advised hospital doctors often won’t be aware of the issue until they have excess contributions.

The pension annual allowance tapering rules have two trigger points:

  1. ‘Threshold income’ (broadly speaking total income from all sources, less personal pension contributions) exceeding £110,000; and
  2. ‘Adjusted income’ (broadly total income from all sources plus your employers pension input amount) exceeding £150,000.

If both levels are crossed, then the standard annual allowance for pension contributions of £40,000 is reduced by £1 for each £2 by which ‘adjusted income’ exceeds £150,000, subject to a minimum annual allowance of £10,000.

Lower earners and those with less generous private sector pensions may have little sympathy with the plight of these high earners but, when you look at the calculations, the financial consequences of working overtime to prop up the NHS are clearly unfair.

The all-or-nothing nature of the triggers can mean that just an extra £1 of earnings brings the taper rules into play. That additional £1 could therefore result in an additional tax bill of much more than £1.

The table below shows how the impact of exceeding the limits:



Total Pension


Adjusted income


Threshold income


Revised pension limit


Pension levy


Additional tax on pension


Effective tax rate above 125k


125,000 39,519 150,750 111,231 39,925
140,000 44,784 168,840 124,056 30,580 14,204 5,682 78%
150,000 48,294 180,900 132,606 24,550 23,744 10,685 83%
160,000 51,804 192,960 141,156 18,520 33,284 14,978 84%
175,000 57,069 211,050 153,981 10,000 47,069 21,181 85%
200,000 65,844 241,200 175,356 10,000 55,844 25,130 77%
250,000 83,394 301,500 218,106 10,000 73,394 33,027 70%


We wait to see if the lobbying, and the strain on the NHS, will persuade Mr Hammond to relax the rules but in the meantime, those effected should seek professional advice to calculate the likely impact on their pensions and look at strategies that might ease the problem.

Want to know more? Call us on 01432 273189 or email

About the author

Doug Robshaw

Doug worked as a Tax Inspector with HMRC before joining Ernst & Young in London in their Private Clients Division. Having relocated to the West Midlands he became Tax Partner in a local firm in 1995 before joining Haines Watts Hereford in December 2011.

He has a wide range of experience in all aspects of income and capital taxes, tax mitigation and planning, residency and domicile issues, tax investigations and employment taxes. He also holds the Financial Planning Certificate.

Married and living in rural Herefordshire, Doug spends his spare time maintaining the vegetable patch and working orchard at home. When not enjoying the fruits of the harvest, he likes walking and sampling real ale or a glass of something red.

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