If your NHS pension grows by more than £60,000 in a single tax year, you face a tax charge. This guide explains exactly how it is calculated, who is caught, and your options for paying it — including Scheme Pays.
The annual allowance tax charge is a tax you pay when your pension benefits grow by more than the annual allowance in a single tax year. For 2026/27, the standard annual allowance is £60,000.
The excess pension growth above your allowance is added to your taxable income and taxed at your marginal rate. If you are a higher-rate taxpayer, the charge is 40% of the excess. For additional-rate taxpayers, it is 45%.
This charge catches a significant number of locum doctors because the NHS pension is a defined benefit scheme where pension growth (measured as the pension input amount) can far exceed the contributions you personally pay.
A locum doctor earning £120,000 with 23.7% employer contributions can see a pension input amount well above £60,000 — even though their personal contributions are only 12.5% of pensionable pay. The employer's contribution inflates the growth calculation, and many locum doctors working across multiple trusts don't realise the cumulative effect until they receive their Pension Savings Statement.
In a defined benefit scheme like the NHS pension, your pension input amount (PIA) measures the growth in the capital value of your pension benefits during the pension input period. It is not the same as the contributions you or your employer pay.
Dr Singh's annual NHS pension at 6 April 2026 is £18,000. By 5 April 2027, it has grown to £22,500. CPI for the relevant period is 3%.
Dr Singh's pension grew by £4,500 per year, but the × 16 multiplier converts this into £63,360 of notional growth — breaching the £60,000 allowance by £3,360.
If your income exceeds certain thresholds, HMRC reduces your annual allowance below £60,000. This is the tapered annual allowance, and it dramatically increases your exposure to the tax charge.
| Test | Threshold | What it includes |
|---|---|---|
| Threshold income | £200,000 | Total taxable income minus personal pension contributions. Both tests must be exceeded for the taper to apply. |
| Adjusted income | £260,000 | Threshold income plus employer pension contributions (including the NHS employer's 23.7%). |
| Taper rate | £1 per £2 | The allowance reduces by £1 for every £2 of adjusted income above £260,000. |
| Minimum allowance | £10,000 | Reached at adjusted income of £360,000. The allowance cannot go below this. |
Dr Okafor earns £180,000 from NHS locum work and £60,000 from private practice.
If Dr Okafor's pension input amount is £75,000, the excess is £75,000 − £48,670 = £26,330.
The interaction between the tapered allowance and the £100k personal allowance trap can create combined effective marginal rates exceeding 60%. This is one of the most complex areas of tax planning for high-earning locum doctors and requires specialist modelling.
Before paying any annual allowance charge, check whether you have unused allowance from previous years that can absorb the excess.
Dr Patel's 2026/27 pension input amount is £85,000. Standard allowance: £60,000. Excess: £25,000.
Unused allowance from previous years:
Total carry forward: £8,000 + £15,000 + £2,000 = £25,000
We model carry forward as part of every annual pension review. If you've recently increased your locum hours, changed trusts, or had a pay rise, the interaction between carry forward and the taper calculation gets complex quickly. Use our free NHS pension calculator for a quick check.
If carry forward doesn't eliminate the charge, you have two options: pay from personal funds via Self Assessment, or elect Scheme Pays and have NHS Pensions deduct it from your pension benefits.
| Feature | Pay from personal funds | Mandatory Scheme Pays | Voluntary Scheme Pays |
|---|---|---|---|
| When available | Always | Charge exceeds £2,000 AND PIA exceeds £60,000 | Any charge (at scheme discretion) |
| How you pay | Via Self Assessment tax return | NHS Pensions reduces your pension | NHS Pensions reduces your pension |
| Impact on pension | None | Actuarially fair debit | May use less favourable factors |
| Deadline (2025/26) | 31 January 2027 | 31 July 2027 | 31 July 2027 (or scheme discretion) |
| Best for | Small charges; doctors with available cash | Large charges; doctors close to retirement | Charges caused solely by the taper |
The answer depends on your age, the size of the charge, and your cash position. Scheme Pays converts a current tax liability into a permanent pension reduction. The debit is calculated actuarially, meaning:
The Scheme Pays election deadline for 2025/26 is 31 July 2027. If you miss this deadline, you must pay the charge from personal funds. Set a calendar reminder — or better yet, let your specialist locum doctor accountant manage it for you.
You cannot calculate or report your annual allowance charge without your Pension Savings Statement (PSS) from NHS Pensions. This is the document that tells you your pension input amount for the tax year.
NHS Pensions must issue a statement automatically if your pension input amount exceeds the £60,000 standard allowance. Statements are typically issued between October and December following the end of the tax year. If yours doesn't arrive, request it — don't assume you're below the threshold.
The annual allowance tax charge is reported on the SA101 additional information pages of your Self Assessment tax return. Your locum doctor accountant will handle this, but here is what's involved:
If you combine NHS pension income with private pension contributions (e.g. a SIPP), both pension input amounts are aggregated. Your total allowance applies across all pension schemes combined.
Claiming your allowable locum expenses reduces your threshold income, potentially keeping you below the £200,000 taper trigger. Every £1 of expenses can save up to £1 of annual allowance.
Check your pension input amounts for the three previous years. If you had lower-earning years (e.g. during training or a career break), you may have significant unused allowance to carry forward.
Personal contributions to a SIPP reduce your threshold income. If a £10,000 SIPP contribution takes your threshold income below £200,000, the taper doesn't apply and your allowance stays at £60,000.
If you operate through a limited company, the salary and dividend mix affects your threshold income. A specialist accountant can model the optimal extraction strategy against your pension position.
Your IR35 status determines whether you can access the NHS pension for a given engagement. If you're inside IR35 via direct engagement, pension contributions continue. If outside via a limited company, they typically don't — which may actually reduce your pension input amount.
Failing to request your Pension Savings Statement, missing the Scheme Pays deadline, or not claiming expenses are among the most costly errors. An annual pension review with a specialist accountant prevents all of them.
The standard annual allowance is £60,000. If your threshold income exceeds £200,000 and adjusted income exceeds £260,000, the allowance tapers down to a minimum of £10,000.
For the NHS defined benefit pension: (closing annual pension × 16) minus (opening annual pension × 16 × CPI uplift factor). This measures real pension growth, not contributions paid.
The excess pension growth is added to your taxable income and taxed at your marginal rate. For higher-rate taxpayers this is 40%, for additional-rate taxpayers 45%.
Yes. Unused allowance from 2023/24, 2024/25, and 2025/26 can be carried forward. You must have been a pension scheme member in each year.
31 July 2027 for mandatory Scheme Pays. Missing this deadline means you must pay the charge from personal funds via Self Assessment.
Request it from the Total Reward Statement portal at nhsbsa.nhs.uk, or from your employer's payroll department. NHS Pensions must issue one automatically if your PIA exceeds £60,000.
Not directly — the annual allowance measures pension growth, not contributions. However, the employer contribution funds the pension growth, and it counts towards adjusted income for the taper calculation.
On the SA101 additional information pages of your Self Assessment return. Your accountant will complete boxes 10–12 covering the excess, Scheme Pays amount, and net charge payable.
Kishan Kedia reviews pension input, carry forward and Scheme Pays for every AccTek locum client — from £19.99/month.
This guide is for general information only and does not constitute pension, tax, or financial advice. Annual allowance rules are subject to individual circumstances. Always consult a qualified Chartered Accountant or independent financial adviser before making pension or tax decisions. Rates and thresholds are for 2026/27 unless stated otherwise.
Kishan Kedia ICAI, CAMS is a specialist accountant at AccTek with 20+ years of experience in locum doctor tax, NHS pension annual allowance, landlord tax, Section 24 planning and Making Tax Digital for Income Tax. He holds the ICAI qualification and is a Certified Anti-Money Laundering Specialist (CAMS).
