NHS Pension Annual Allowance and Taper: A Complete Guide for Doctors

What is the annual allowance?

The annual allowance (AA) is the maximum amount your pension can grow in a tax year before a tax charge applies. For 2025/26, the standard AA is £60,000. This was restored to £60,000 from 6 April 2023 after the previous £40,000 limit was increased to address the NHS retention crisis.

Growth is measured as the increase in the value of your NHS pension benefits over the year, not just your contributions. For defined benefit schemes like the NHS Pension Scheme, HMRC calculates the pension input amount (PIA) using a factor of 16 times the increase in your accrued annual pension, plus any lump sum increase.

Tapered annual allowance: who it affects

The taper reduces the AA for higher earners. It applies when both of the following are true:

• Your threshold income exceeds £200,000 in the tax year
• Your adjusted income exceeds £260,000 in the tax year

Threshold income is broadly your total income from all sources, excluding pension contributions. Adjusted income adds back employer pension contributions (and for defined benefit schemes, the employer notional input).

When the taper applies, the AA reduces by £1 for every £2 of adjusted income above £260,000, down to a minimum of £10,000.

Worked example: taper in practice

Suppose your adjusted income is £310,000 in 2025/26:

• Adjusted income above £260,000: £50,000
• Reduction: £50,000 / 2 = £25,000
• Your annual allowance: £60,000 - £25,000 = £35,000

If your pension grew by £50,000 in the same year, the excess is £15,000. At an additional rate taxpayer position (45%), the tax charge would be £6,750.

Carry-forward relief

You can carry forward unused AA from the three previous tax years to offset an excess. The rules are:

• You must have been a member of a registered pension scheme in the carry-forward year
• You use the current year's AA first
• You then use unused AA from the oldest qualifying year first
• The carry-forward AA from any tapered year is the tapered amount, not the standard £60,000

Carry-forward can completely eliminate a charge in the year it is used. Many doctors with a one-off spike in earnings (for example, a large pension revaluation or a locum-heavy year) find that three years of modest growth has accumulated enough unused allowance to absorb the excess.

Scheme pays

If your AA charge is £2,000 or more and your pension input amount exceeds the AA, you can elect for the NHS Pension Scheme to pay the charge on your behalf. The scheme deducts an actuarially reduced amount from your eventual pension. This is called mandatory scheme pays.

Voluntary scheme pays is also available where the charge is below £2,000, at the scheme's discretion. The deadline to elect scheme pays is 31 July in the year following the tax year in which the charge arose (with an extension to the self-assessment deadline where applicable).

McCloud remedy: 2015 transitional protection

The McCloud judgment established that the 2015 NHS pension reforms discriminated against younger members. As a result, members who were in the scheme before 1 April 2012 are given a deferred choice at retirement: they can take benefits under the pre-2015 arrangement (1995 or 2008 final salary scheme) or the 2015 CARE scheme for the remedy period (1 April 2015 to 31 March 2022).

This may affect historical AA calculations for the remedy period. NHS BSA has issued revised pension savings statements for affected members. If you received a revised statement, you may have additional carry-forward available or an adjusted charge for one or more years in the remedy period.

Reading your pension savings statement

NHS BSA issues annual pension savings statements (previously called pension input statements) to members whose PIA exceeds the AA or who request one. The statement shows:

• Your pension input amount for the year
• Your annual allowance for the year (including any taper)
• The excess (if any)
• Carry-forward available from the previous three years

Request your statement from NHS BSA if you believe you may have a charge, or if you want to plan carry-forward use. Statements are typically available by October following the end of the relevant tax year.

Planning actions

If you are approaching the taper threshold, consider:

• Checking your adjusted income: this is not just your salary. It includes locum income, private practice income, and, for NHS consultants, the employer notional input to the defined benefit scheme (typically 20.6% of pensionable pay).
• Pension carry-forward modelling: model the three previous years before assuming a charge will arise.
• Voluntary pension contributions: additional voluntary contributions (AVCs) to the NHS scheme increase the PIA but may reduce threshold income in a way that takes you below the taper trigger.
• Timing of private income: where you have flexibility on when private income is recognised, the tax year in which it falls can affect whether the taper applies.
• Opt-out analysis: opting out of the NHS Pension Scheme avoids an AA charge but permanently reduces your retirement benefits. The decision requires modelling both the charge cost and the long-term pension value. This is a complex calculation that should be done with a specialist.

Reporting the charge on self-assessment

An AA charge must be declared on your self-assessment return for the tax year in which the excess arose. If you are using scheme pays, the election must be made before you file the return (or within the scheme pays deadline, whichever is later).

Failure to declare an AA charge is a reportable error. HMRC can raise assessments for up to four years (or 20 years for deliberate errors). With pension savings statements becoming more widely issued, HMRC awareness of charges has increased significantly.

When to take specialist advice

The NHS Pension Scheme, the McCloud remedy, and carry-forward interact in ways that make self-assessment genuinely difficult. An error in the pension input calculation, the wrong carry-forward year order, or a missed remedy election can mean either overpaying or underpaying by thousands of pounds.

We work with senior NHS clinicians and consultants whose AA position changes from year to year as locum work, private income, and pensionable pay fluctuate. The model above gives you the structural picture. For your specific numbers, a one-to-one review with a specialist accountant is the right next step.