Foxley Kingham

Foxley Kingham Medical


The impact of inflation on GP pensions

There is plenty of news coverage at the moment about the UK being in the grip of the fastest rising inflation rate in 40 years. That’s why Foxley Kingham wrote to all their GP clients in May, regarding their concerns high inflation will have on pension tax charge. 

With inflation still rising, and concerns not dissipating anytime soon, Foxley Kingham wanted to reiterate these concerns, and what GPs need to be aware of when it comes to the effects on their pensions. 

We spoke to Zeeshan Hussain from FK Medical who is a specialist in medical practitioners’ financial affairs, to get the facts.

“We can help GPs understand the situation” 

Zeeshan says, “We are not in a position to offer financial advice on pensions, but we can inform on the facts, and the implications of the unprecedented level of inflation. At the moment, we do have concerns that GPs need to be in full knowledge of how inflation is affecting their pension pot and potential tax liability.” 

The impacts of inflation on GP pensions

Current UK inflation is at 9.1% and rising, with the Bank of England predicting further rises this year, potentially to as high as 11%. 

“We believe this increase will lead to significant pension tax charges for our GPs in the 2022/23 tax year (and potentially 2021/22 tax year),” explains Zeeshan. “This applies to current active members of the scheme, and potentially for members who contributed at any point in the current tax year (2022/23).”

Annual growth exceeding £40,000 attracts tax bill

For the purposes of the annual allowance calculation, two different CPI figures are used in a single year, A GP’s earnings are dynamised at the rate of inflation (September 22) plus 1.5% which is compared to the opening value (increased for CPI September 21). This difference in rates is the reason there is an increase in those instances where the annual allowance of £40,000 is exceeded. 

“This is the crux of the concern. Even those GPs on moderate pension rates are exceeding the annual allowance, which attracts a tax bill that GPs may be unprepared for.” 

On the flip side…

“Of course, the large tax bill is the negative way of looking at what will be high-growth in your pension pot. Your pension is growing faster due to inflation, so when you come to retire, you’ll have a larger pot. 

Some options for consideration

While every GP’s individual circumstances differ, Foxley Kingham must stress that these options do not constitute financial advice, you must speak to a medical specialist financial adviser to see which option works for your personal circumstance.

  1. Pay the tax bill

Pay the tax bill on the growth of your pension pot. 

  1. Ask your NHS pension scheme to pay the tax bill on your behalf

This option is called the NHS Pension Scheme Pays Election, where you ask your pension scheme to pay the tax bill for you, then, when you retire, they recover the amount, plus interest.

You can find more details at NHS Business Authority Services.

  1. Stop contributing

To limit your exposure to tax liability, you could decide to leave the pension scheme temporarily to stop contributing. However, as we are now into the tax year, this may only reduce the tax burden.  

“One thing to keep in mind is, if you decide to stop contributing, you won’t attract the tax relief on pension contributions,” explains Zeeshan.

GPs should seek specialist financial advice

“There are many knock-on effects of all options, and we strongly recommend GPs affected to speak to a medical specialist financial advisor before proceeding. 

“We continue to be in touch with all our GP clients to help them to be aware of the facts and will continue to do so. And GPs shouldn’t hesitate to contact us if they need help understanding the situation.”

The BMA calculator

If GPs want to find out more, and how they may be affected, the BMA has released a calculator on their website, along with some background on why the current increase in inflation has the potential to cause sizeable tax implications: CPI Modeller for GP pension scheme (