The Annual Allowance Charge: A Practical Guide for NHS Doctors

What the annual allowance actually measures

The most common misunderstanding among NHS Pension Scheme members is that the annual allowance measures what you pay in. It doesn't. For a defined benefit scheme, it measures the growth in the value of your promised pension, converted into a notional capital figure using a factor of 16.

This matters. You can have a year where your take-home pay barely moves while your pension input amount spikes — after a promotion, a merit award, or a jump in pensionable profits — and receive a five-figure tax bill for a benefit you won't touch for twenty years.

The standard annual allowance is £60,000, unchanged since 6 April 2023 when it rose from £40,000.

How the pension input amount is calculated

For the 2015 CARE scheme:

1. Opening value — accrued annual pension at the start of the pension input period × 16 (plus any separate lump sum for legacy 1995 Section benefits).
2. Revaluation — increase the opening value by the previous September's CPI.
3. Closing value — accrued annual pension at the end of the period × 16, plus lump sum.
4. Pension input amount = closing value − revalued opening value.

Any excess over your available allowance is taxed at your marginal rate.

The revaluation alignment — a fix worth understanding

The 2015 scheme revalues accrued benefits at CPI + 1.5%. Historically, the opening value for annual allowance purposes was uprated by CPI only — and, critically, the scheme revaluation fell on 1 April while the pension input period ran to 5 April. This meant a different CPI figure was used on each side of the calculation.

In the high-inflation year of 2022, this produced catastrophic results. The September 2022 CPI figure used to revalue members' accounts in April 2023 was over 10%, while the CPI figure applied to the opening value for the annual allowance calculation was 3.1% — a mismatch of roughly seven percentage points applied to an entire career's accrued pension.

This was fixed. The CARE revaluation date was moved from 1 April to 6 April each year, so the same CPI is now used to revalue the scheme as is used to calculate the annual allowance. The 2022/23 tax year was treated as a transitional year to facilitate the change.

What this means in practice: the CPI element now cancels out. Your pension input amount is driven by genuine growth — your new accrual for the year, plus the 1.5% differential above CPI on your existing pot, plus any pay increase. For 2026/27, with September 2025 CPI at 3.8%, the CARE revaluation is 5.3%, of which only the 1.5% element counts as input.

This is a substantially calmer environment than the 2022–2024 period. Doctors who received alarming statements in that window should not assume the same pattern continues.

The tapered annual allowance

Higher earners face a reduced allowance, and both tests must be failed for the taper to bite:

• Threshold income over £200,000 — broadly all taxable income (salary, self-employed profits, dividends, rental, savings interest), excluding pension contributions.
• Adjusted income over £260,000 — threshold income plus the value of pension savings, including the deemed employer contribution.

The allowance reduces by £1 for every £2 of adjusted income above £260,000, down to a minimum of £10,000 once adjusted income reaches £360,000.

If your threshold income is under £200,000, you are not subject to the taper regardless of your adjusted income. This is the single most useful fact in the whole regime, and it's where planning happens. Note also that the test is exceeds £200,000 — threshold income of exactly £200,000 does not trigger it.

The rounding point almost every guide gets backwards

HMRC rounds the reduction down to the nearest £1, not the allowance (PTM057100). The practical effect is that the allowance rounds up by up to 50p.

Adjusted income of £277,595 is £17,595 over the limit. Halved, that is £8,797.50, which rounds down to £8,797 — so the allowance is £51,203, not £51,202. Several adviser guides state the lower figure because they round the allowance instead. It is a pound, but it is a pound that changes your excess and therefore your charge, and it is the sort of discrepancy that costs an hour when you are reconciling against a scheme statement.

A worked example

A consultant with £220,000 threshold income and an £80,000 pension input:

• Adjusted income = £300,000
• Excess over £260,000 = £40,000, halved = £20,000
• Tapered allowance = £60,000 − £20,000 = £40,000
• Excess input = £80,000 − £40,000 = £40,000
• Charge at 45% = £18,000

Now the same doctor makes a £25,000 personal contribution to a SIPP. Threshold income falls to £195,000 — below the £200,000 test — and the taper disappears entirely. The full £60,000 allowance is restored. This is why threshold income management matters far more than most doctors realise.

Carry forward

You can carry forward unused allowance from the three previous tax years, used oldest-first, provided you were a scheme member in those years. For 2026/27, that means unused allowance from 2023/24, 2024/25 and 2025/26.

Three points frequently missed:

• Carry forward works against the tapered allowance in the year of the charge, but the amount carried forward is based on the allowance in each earlier year. Carrying forward from a year in which you were tapered yields only the tapered balance.
• Membership, not contribution, is the test (PTM055100). If you were fully deferred for an entire pension input period, the annual allowance rules don't apply to you for that year — but you were still a member, so the whole allowance for that year carries forward. Active, deferred and pensioner members all qualify. A year in which you were in no registered scheme at all carries nothing.
• A prior year that was itself over its allowance does not just contribute nothing — it eats into the earlier years' unused allowance. This is the one naive calculators get wrong.

Why adding up three years overstates your pool

Take unused allowance of £20,000 from 2023/24, a year of £75,000 input against a £60,000 allowance in 2024/25, and £10,000 unused in 2025/26.

Add up the positive years and you get £30,000. The correct answer is £15,000: the £15,000 over-allowance in 2024/25 is absorbed by the 2023/24 balance first, leaving £5,000 there, plus the £10,000 from 2025/26. The right way to think about it is a running pool that is topped up and drawn down year by year, floored at zero:

pool = 0
for each of the three prior years, oldest first:
    pool = max(0, pool + allowance − input)

The annual allowance calculator does this properly and shows you what survives from each year.

Scheme Pays

Where a charge arises, you can ask NHS Pensions to pay it in exchange for a permanent reduction to your eventual benefits.

Mandatory Scheme Pays applies where the charge exceeds £2,000 and your input exceeded the standard £60,000 allowance — never the tapered one. Both tests are "exceeds": a charge of exactly £2,000, or input of exactly £60,000, does not qualify.

The 1995/2008 Scheme and the 2015 Scheme are separate schemes for this test. They are tested individually and never added together, and they take separate SPE2 elections; the NHS money purchase AVC scheme is a third. A GP with £45,000 of input in the 1995/2008 section and £35,000 in the 2015 scheme has £80,000 of pension growth and no mandatory right at all, because neither scheme on its own is over £60,000. If both schemes are to pay, you have to say how much each should contribute.

NHS voluntary Scheme Pays is more generous than the general position, and it is where most tapered GPs actually land. It is available where your combined NHS pension input exceeds your available — that is, possibly tapered — allowance, and since 2017/18 there is no £2,000 minimum charge for it. The scheme is not obliged to accept a voluntary election in the way it must accept a mandatory one.

The deadline is the same for both routes: 31 July in the year following the 31 January on which the charge was due. For 2026/27 that means the charge is due 31 January 2028 and the election deadline is 31 July 2028. You will see it claimed that voluntary deadlines are earlier and stricter; NHSBSA applies the same 31 July date to both.

Only NHS growth can go through an NHS facility. If part of your charge arises from a SIPP or personal pension, that part has to be paid personally — or through that provider's own scheme pays, if it offers one and you meet the mandatory test with it.

The trade-off: Scheme Pays converts a cash bill today into a permanently reduced pension. The reduction is calculated actuarially and compounds with revaluation over the remaining years to retirement. For a doctor twenty years from NPA, a £15,000 charge paid via Scheme Pays can cost considerably more than £15,000 in lifetime benefit. It is not free money — and equally, paying it in cash is not free either if it means liquidating something. Which way round that lands depends on your age, your scheme and what else you would do with the money, and it is a question worth putting to a specialist adviser rather than a calculator.

What goes on your tax return

This is the part that is genuinely hard to find written down, and it catches people out every year: you have to report an annual allowance charge on your Self Assessment return even if Scheme Pays settles all of it. An election does not remove the reporting obligation. It changes who writes the cheque, not whether HMRC is told.

The boxes are on the SA101 additional information pages, page Ai 4, in the "Pension savings tax charges" section:

Box 10 asks for the excess input, not the tax on it. Entering the charge there is the single most common error.

The PSTRs for the England and Wales NHS Pension Scheme, published by NHSBSA:

• 00328820RJ — 1995 and 2008 Section
• 00820574RJ — 2015 Scheme
• 00328923RA — NHS money purchase AVC

SPPA in Scotland and the Northern Ireland scheme have their own references.

If both NHS schemes are paying, the form has room for one figure and one PSTR. Add the two amounts together in box 11, put either PSTR in box 12, and set out the split — how much each scheme is paying, and the other PSTR — in the "Any other information" box on the main return.

HMRC's HS345 helpsheet and working sheet walk the same calculation by hand, including the Scottish rates, if you want to check a figure independently.

GPs: expect to estimate. Your pension input amount depends on Type 1 or Type 2 certificates being processed, which routinely runs a year or more behind. Filing a provisional figure and amending later is a normal and accepted workflow — tick the provisional-figures box and say so in the additional information, rather than filing late.

Getting your figures

Pension savings statements are issued each October relating to the previous tax year. Crucially, the scheme will not necessarily know if you are subject to tapering — if you are, you should request a statement.

For GPs this is compounded by the practitioner data lag. Your input amount cannot be finalised until your Type 1 or Type 2 form has been processed, which routinely runs a year or more behind. NHSBSA can only produce an Annual Benefit Statement once it holds complete information for the year and all previous years — so a single unfiled certificate anywhere in your history stalls the figures you need for annual allowance purposes.

Many GPs are estimating on their tax return and amending later. Build that into your planning rather than treating the October statement as gospel — and if your statements have gone quiet, check whether an unfiled Type 1 or Type 2 form is the cause.

Practical takeaways

1. Check the threshold income test first. If you're under £200,000, the taper is irrelevant to you and the analysis is much simpler.
2. Don't extrapolate from 2022–2024. The revaluation misalignment that caused those charges has been fixed.
3. Personal pension contributions reduce threshold income. For someone hovering just above £200,000, a modest SIPP contribution can be worth many times its cost. Note the direction of travel for a self-employed GP: your superannuation is deducted in the tax return, so it behaves like net pay — it reduces threshold income and is added back into adjusted income. A personal SIPP behaves the other way round. Getting these two crossed is the most common error in the whole calculation.
4. Don't add up three years of unused allowance. A prior year that was over its allowance consumes the earlier years' balance.
5. Model Scheme Pays properly rather than treating it as a default. Compare the cash cost now against the discounted lifetime reduction — and check which of the two NHS routes you actually qualify for, because they are tested differently.
6. Report it either way. A charge settled by Scheme Pays still goes on the SA101.
7. GPs: your data will be late. Assume estimation and amendment as the normal workflow.

Run your own figures through the annual allowance calculator — it shows the taper workings, the carry-forward sequencing and the band-by-band charge rather than just a total.

Sources

Verify the figures and rules in this article against the primary sources before acting:

• HMRC Pensions Tax Manual, PTM050000 to PTM057100 — the allowance, the taper (PTM057100), carry forward and the membership test (PTM055100), and the charge (PTM056110 to PTM056130)
• HMRC helpsheet HS345 and its working sheet — an independent step-by-step calculation of the charge, including the Scottish rates
• HMRC form SA101 and its notes — the box numbers quoted above
• NHSBSA annual allowance pages, Scheme Pays / SPE2 guidance, and the tapered annual allowance factsheet
• BMA pensions tax guidance
• NHS Employers Annual Allowance Ready Reckoner

A note on advice

This article is general information, not personal financial advice. Pension tax interacts with your wider circumstances; consider a specialist medical accountant or IFA before acting.