The ready reckoner is designed to help staff understand the benefits they are building up in the scheme and their annual allowance liability. We have produced a checklist for employers and a checklist for staff to use alongside the tool.
Access annual allowance with the ready reckoner
The NHS Pension Scheme Annual Allowance (AA) and Tax Ready Reckoner is designed to help staff understand the benefits they are building up in the scheme and their annual allowance liability.
The ready reckoner will provide members of the NHS Pension Scheme with a broad insight into their AA position, including whether or not the tapered AA may apply to their circumstances. It will also provide an estimated breakdown of the total annual cost of scheme membership and estimate how much their NHS pension is projected to increase by. The ready reckoner looks at the 2021/22 tax year only.
After completing the ready reckoner, staff can download and save a summary of their results, which can be used to discuss potential annual allowance problems with their employer or financial advisor, if required.
For a demonstration of how to use the tool, watch our webinar recoding below.
Members of staff - before accessing the ready reckoner please read the staff checklist on this page below. This informs you of the important pieces of information you will need to have to hand when using the ready reckoner.
Employers - please read the employer guidance on this page below which will help you understand the tool and how you can support your staff.
We have set out below the information that you will need to have to hand when using the ready reckoner. We have created a downloadable version of the staff checklist information presented below.
The following documents will help you find all the relevant information:
- Your most recent Annual Benefit Statement(s) (dated 31/03/2021).
- Details of your expected pay and working hours (relative to the full-time equivalent for your role) for the 2021/22 Scheme year.
- Correspondence regarding any additional pension you may have purchased.
1995/2008 and 2015 membership
If you are/were a member of the 1995/2008 Scheme, then indicate which Section here. If you joined before 1 April 2015, this will apply to you.
If you are not sure which scheme category you are in, you can check your annual benefit statement. If there is a section entitled "Practitioner Dynamising Sheet" then you are in the practitioner category. If not, you are in the officer category. If you have a mix of officer and practitioner service, then select the category which reflects your main role.
This reckoner is not programmed to handle a mix of officer and practitioner service before April 2015 so may understate pension growth where this is the case.
If you joined on or after 1 April 2015, select the Officer category.
- 1995/2008 pensionable/reckonable service
This can be found on your TRS. This needs to include any added years you have purchased.
- Are you still protected in the 1995/2008 Scheme?
If you were within 10 years of your normal pension age (NPA) or were over your NPA on 1 April 2012, and were an active member of the NHS Pension Scheme between 31 March 2012 and 31 March 2015, then you have full protection, meaning that you did not and will not move to the 2015 Scheme if you remain an active member until your retirement.
If you were between 10 years and 13 years and 5 months from your NPA on 1 April 2012, and were an active member of the Scheme between 31 March 2012 and 31 March 2015, then you have tapered protection meaning that you move to the 2015 Scheme later than its introduction on 1 April 2015. The exact date of your transition to the 2015 Scheme is based on your date of birth but is between 1 June 2015 and February 2022. You can view your transition date using the tapered protection calculator under scheme protection arrangements on the NHS Pensions membership of the NHS Pension Scheme web page.
If you still have (tapered) protection at 31 March 2021, the ready reckoner will assume that you remain protected in your current scheme over the whole tax year.
However, this may be subject to change over the coming years as the government looks to rectify the age discrimination issues that these protections caused. This is often known as the ‘McCloud judgement’.
- 2015 Scheme pension to 31/03/2020
This can be found on your TRS (ABS 2015 Scheme) in the table under the standard benefits heading. See the current value of benefits column for your pension amount. If you opted out of the 2015 Scheme before 31/03/2021, your statement may not be updated to this date. If this is the case, you will need to use your most recent 2015 Scheme pension amount. This may slightly underestimate the value of your pension and pension growth.
- Have you purchased additional pension (AP)?
Are you contributing towards an AP contract over the 2021/22 tax year?
- AP building up over 2020/21 tax year
The value of an AP that will build-up over the 2021/22 tax year. You calculate this as follows:
Total AP being purchased
No. of years over which you will buy this AP
For example, if you have a contract to purchase £500 of AP that you will pay for over five years, then you would use £500 / 5 = £100. Do not enter any AP that you have already fully paid for.
You should refer to correspondence from NHS Pensions relating to the purchase of AP you may have for details.
AP contribution over 2021/22
The total amount that you expect to pay over the 2021/22 tax year towards your current AP contract. If you have a monthly payment plan, use the total (annual) amount that you expect to pay over the 2021/22 tax year. You should refer to correspondence from NHS Pensions relating to the purchase of any AP for this information.
Pay for 2020/21
NHS (whole-time equivalent) pensionable/reckonable pay
For 1995 pensionable pay, this is your whole-time equivalent pensionable pay as stated in your 31 March 2021 TRS (do not enter your actual 'part-time' pensionable pay).
For 2008 reckonable pay, we recommend entering your reckonable pay as stated in your 31 March 2021 TRS as the ready reckoner does not allow for any three-year averaging. Reckonable pay is determined using whole-time equivalent pensionable pay figures (do not enter your actual 'part-time' pensionable pay.)
This is needed to estimate your pension at 31/03/2021 and your pension growth over the 2021/22 tax year.
We will assume that this figure determines any 1995/2008 pension that you have built up to 31 March 2021. As highlighted above, if you have 2008 Section membership we recommend that you enter your 2019/20 reckonable pay as the Ready Reckoner does not allow for any three-year averaging.
Estimated pay for 2021/22
Total (actual) NHS gross pay and other taxable income
This is your total NHS gross pay (rather than NHS taxable pay as that excludes your pension contributions) and other taxable income that you expect to receive in the 2021/22 tax year that you will pay income tax on. Other taxable income includes, but is not limited to:
- any private practice income
- rental income
- investment income
- any other taxable income you expect to receive in the 2021/22 tax year.
(Actual) NHS pensionable pay
This is your estimate of the actual (not whole-time equivalent) pay that you expect to receive in the 2021/22 tax year that you will pay pension contributions on. This should be included in the total NHS gross pay and other taxable income you have entered above.
Percentage of full-time hours worked
If you work full time, this will simply be 100 per cent. If you are part-time, please enter the percentage of full-time hours that you work. If you think you will switch between full- and part-time hours over the course of the tax year, you should calculate your average estimated weekly hours over the year as a percentage of your whole-time equivalent weekly hours.
The importance of independent financial advice
Estimated figures from the ready reckoner do not replace and are not expected to match the actual figures from NHS Pensions. Also, the ready reckoner cannot replace what a tax accountant or an independent financial advisor can do. If you are at all uncertain about what to do next, then you should consider seeking professional guidance.
A green or amber rating does not necessarily mean that your pension growth will be under the annual allowance in practice as the outcome depends on your data inputs and there are several limitations as stated throughout the ready reckoner.
A red rating means that we estimate the growth in your projected pension benefits over 2021/22 will exceed the AA. This does not mean that you will necessarily have an AA tax charge to settle and, even if you do, it will often be the case that the scheme still provides good value for the cost of membership.
The ready reckoner is designed to provide members of the NHS Pension Scheme with:
- A broad insight into their annual allowance position.
- An indication as to whether or not the tapered annual allowance may apply to their circumstances.
- An estimated breakdown of the total annual cost of scheme membership.
- An estimate as to how much their annual NHS Pension is projected to increase by over the next year.
The tool is designed to look at the 2021/22 tax year only.
This guide will help you to:
- be prepared to support staff who are likely to be affected by pensions tax issues
- understand how the ready reckoner can be used by staff to understand their annual allowance position
- communicate with staff about the ready reckoner.
The ready reckoner
The ready reckoner presents staff with a traffic light system to assess the potential risk of breaching their annual allowance. The purpose of the traffic light system is to highlight when an employee can have relative comfort in their position or when they really ought to be seeking independent financial advice. If the employee is projected to be running a risk, then the ready reckoner will trigger either an amber or red signal. However, it will often be the case that the scheme still provides good value for the cost of membership.
The ready reckoner assesses the current financial or tax year (i.e. 6 April to 5 April, beginning with the 2021/22 tax year) and presents an individual with estimated figures based on their inputs.
Engage with your staff about the ready reckoner
You should engage with staff who are likely to be affected by pension tax issues, provide information on the local options for affected staff that are available and encourage them to use the ready reckoner.
Considerations for engaging with your staff:
- Communicate to staff about how they can access and use the ready reckoner to assess their pension tax position.
- Answer queries from staff on how they can use the ready reckoner to estimate their annual allowance pension tax liability. Staff can access a checklist which sets out the information that they will need when using the ready reckoner.
- Enable staff to discuss solutions to any annual allowance tax issues. The output of the ready reckoner can be used to help assess their options to mitigate their pension tax liability. Signpost staff to relevant information and an independent financial advisor where necessary.
Limitations of the ready reckoner
It is vital that staff are aware of the limitations of the ready reckoner. If not, they could end up taking actions or reaching incorrect conclusions that might adversely affect them.
The information provided on the ready reckoner should only be relied on as a guide to what steps staff could consider taking next and not as a definitive statement about their tax position. It is vital that staff seek advice from a tax accountant or an independent financial advisor if they are uncertain about what to do next. The calculations of pensions, pension growth and annual allowance are not simple and vary hugely from one individual to the next. For the purposes of simplification, the ready reckoner makes some assumptions and approximations. The main assumptions and approximations are listed on a summary page, which is generated for the user once all the required data has been inputted. Employers should encourage staff to read the assumptions and approximations carefully to understand how their personal situation could differ to that presented by the ready reckoner.
As well as inputting pensionable pay for the 2010/21 and 2021/22 financial years, individuals will be able to add all the taxable income that they expect to receive in the 2021/22 financial year. This includes but is not limited to NHS pay (whether pensionable or not), any private practice income, rental income, investment income, and any other taxable income. All taxable income, whether pensionable, non-pensionable or earned outside of their NHS employment, can affect an individual’s annual allowance.
The importance of independent financial advice
Our research into the impact of pension tax in the NHS shows there is a clear lack of knowledge and understanding about the NHS Pension Scheme and associated tax issues.
An individual’s pension tax position depends on their taxable income from all sources, including employment outside the NHS, investments, and income from rental properties. Pension savings from all pension arrangements including personal pensions and other workplace schemes are counted towards the annual and lifetime allowances. Employees should be strongly advised to seek independent financial advice to ensure their decisions are well informed, based on reliable and accurate information and positioned in the context of their overall individual financial position and long-term plans.
Employers can support staff by signposting to general information and resources to improve understanding and awareness of pensions tax issues. However, it is not appropriate for employers or NHS Pensions to give staff advice on their pension tax position - they are not regulated (by the Financial Conduct Authority) to give advice and they would not have sufficient information about an individual’s financial circumstances to make giving advice appropriate.
We have compiled a list of organisations that are able to give expert guidance and advice for members of the NHS Pension Scheme. This has been developed to support employers to provide access to education, guidance and advice. Please note we are not promoting or recommending the use of any organisation and may amend or update this list at any time.
Accessing and using the ready reckoner
The ready reckoner can be accessed by anyone and we encourage employers to become familiar with the ready reckoner so that you can support staff and answer any questions. If a member of staff is concerned that they may breach the annual allowance, we recommend employers direct them to the ready reckoner to estimate their position with regard to the annual allowance. Staff will be able to use the ready reckoner on their desktop, laptop and on their smartphone or tablet.
Staff will not be required to log in to the ready reckoner. We recommend they save the individual summary report for future reference. It is possible to go back to the data input sections to amend data/inputs.
The ready reckoner is user-friendly and presents for staff what they need to know in simple terms, providing guidance and support throughout. Staff will see a series of prompts for entering data into the input sections and will be presented with a series of outputs, including the estimated net cost of scheme membership, annual pension projected to build up in the financial year and their estimated pension input amount.
Most inputs and outputs have a question mark button (tooltip) to help staff understand what they need to input, where they can find the information, or what an output means in more detail.
Share the staff checklist with staff before they use the ready reckoner, so they have all the necessary information to hand before they start.
Staff will need to have the following information to hand:
- Their most recent Annual Benefit Statement(s) (dated 31/03/2021)
- Details of their expected pay and working hours (relative to the full-time equivalent for your role) for the 2021/22 Scheme year.
- Correspondence regarding any Additional Pension they may have purchased.
Outputs and what they mean
The ready reckoner will provide staff with a summary report, which they can save as a PDF document. The summary includes:
A green, amber or red warning
- Green indicates that the employee is projected to be well under the annual allowance.
- Amber indicates that the employee is projected to be reasonably close to the annual allowance, or to an income threshold that may impact tapering.
- Red indicates that the employee is projected to breach the annual allowance. (However, it will often be the case that the scheme still provides good value for the cost of membership)
A green or amber rating does not necessarily mean that pension growth will be under the annual allowance in practice as the outcome depends on individuals data inputs and there are several limitations as stated throughout the ready reckoner.
- A threshold income projection
Threshold income is taxable income, including earnings from all employment, and income from other sources such as rental properties, investments and pensions, less pension contributions made over the financial year. This will help the individual to identify whether their threshold income is projected to be below the threshold income test level of £200,000 (2021/22), reaching the upper end of this threshold, or is expected to breach the threshold. This will also indicate whether the individual may be subject to annual allowance tapering.
- Pension input amount (PIA)
A PIA is the difference between the value of NHS pension benefits at the beginning of the pension input period (the opening value), uprated for inflation over the year, and the end of this period (the closing value). The pension input period is the same as the tax year, 6 April to 5 April.
- What staff can do to further understand the results
This includes strongly recommending that they consult an independent financial advisor if they require further advice.