NHS Pension Annual Allowance June 2026 update

The NHS pension is a defined benefit scheme, so benefits are driven mainly by earnings rather than contributions. Growth* in those benefits is tested against the Annual Allowance, being the amount by which pension benefits can grow in a year, without incurring a tax charge.  The Annual Allowance has been £60,000 a year since 6 April 2023.

The standard £60,000 Annual Allowance can gradually reduce, called ‘tapering’, when ‘threshold’ income of £200,000 and ‘adjusted net income’ of £260,000 is exceeded. Threshold income is broadly net income, and adjusted income is broadly threshold income plus pension growth, in the context of defined benefit schemes.

The Annual Allowance can reduce to a lower limit of £10,000 at the rate of £1 per £2 of additional ‘adjusted net income’ once the threshold and adjusted net income thresholds are exceeded. This can create significant additional tax exposure for those unaware of the impact of breaching the income threshold. If the annual allowance is fully tapered to £10,000, the extra tax due to tapering could be as much as £22,500.

*The amount of ‘growth’ that is assessed against the annual allowance in any year for those in a defined benefit scheme, is broadly the increase in the value of the individual’s promised benefits over the pension input period. The increase is the difference between the value of the individual’s benefits immediately before the start of the pension input period (the opening value) and the value of the individual’s benefits at the end of the pension input period (the closing value) – The opening value is uplifted by Consumer Price Index from the previous September.  If the difference is negative in one of the NHS pension schemes, this amount can be offset against growth in another. It is also possible to utilise unused annual allowance amounts from the previous three tax years.

Implications

In recent years, pension growth for officer (non-GP) members has been volatile because of changing inflation and corrective pay awards. For these officer members who have service in the 1995/2008 schemes, benefits remain linked to whole-time equivalent pay and service. GP pension benefits are based on total uprated earnings over time. Although the 1995/2008 schemes closed on 31 March 2022 and all members (where active) commenced in the 2015 scheme on 1 April 2022, officer members retain a link to their final salary, and GP members still receive above-inflation uplifts on uprated earnings each year.

For consultants, pay awards above or below inflation can create sharp peaks and troughs in pension growth for their 1995/2008 schemes, leading to high charges in some years and much lower growth in others. This makes planning difficult.

For GPs, growth in all schemes is easier to predict, but only where earnings are stable. For GP partners, pensionable profits are usually not known until after the tax year ends. Remember, non-GP partners are also officer members, so spikes in practice profits can create high growth.

Examples of pension growth for officer members

To illustrate the peaks and troughs, below are two years with very different impacts on pension growth – These relate to officer members who had 1995/2008 service, and now contribute to the 2015 scheme:

2023/24: With September 2022 inflation at 10.1% and pay rises in-year of around 6%, most officer members saw negative growth for their 1995/2008 schemes (pay rises were below inflation). Under current rules, that negative growth can be offset against 2015 scheme growth, reducing the overall amount assessed against the annual allowance. 2015 growth is based on a proportion of in-year earnings, plus an above inflation uplift of any previously built pension benefits. Overall, many members had low growth for 2023/24 resulting in carry forward allowances to 2024/25.

2024/25: With September 2023 inflation at 6.7% and in-year pay rises of 15%+, pension growth for officer members was high in the 1995/2008 scheme. Factoring in growth in the 2015 scheme also and considering the impact of any unused allowances from 2023/24, many officer members still had annual allowance tax charges to pay.

For GP partners, the risk of a charge for exceeding the annual allowance is generally higher where they work close to full time, have highly profitable practices, or have built up many years of scheme membership. They are no longer subjected to large fluctuations based on changes in inflation rates.

Looking ahead and actions to take

Since the 31 January 2026 deadline for filing 2024/25 tax returns, HMRC appears to be increasing its focus on Annual Allowance reporting for that tax year and we assume, years moving forward. Some taxpayers have received letters from HMRC stating they believe the Annual Allowance was exceeded but no tax charge was reported. There may be valid reasons for this, including brought forward allowances, but the issue is clearly receiving more attention. This shows HMRC have an increased appetite to target annual allowance tax charges as a possible additional revenue stream.

Although statements and information from NHS Pensions can be difficult to obtain, the rules are established and specialists can calculate pension growth to estimate any tax charge.

If the position is not reviewed and a charge applies, interest and penalties may arise and the option to use ‘Scheme Pays (where the tax charge is paid by the pension fund) could potentially be lost. To use ‘Scheme Pays’ a member must give a ‘Scheme Pays’ notice by 31 July in the year following the year in which the tax year to which the annual allowance charge relates ended. Submissions before the deadline will not result in interest charges, whereas a submission after will attract interest and are submitted on a voluntary basis. In theory, NHS pensions do not have to agree to accept the election.

For example, if you had a 2024/25 tax charge and want to use Scheme Pays, the election deadline is 31 July 2026. Also, if you didn’t assess your exposure to Annual Allowance for that year, you can still do so.

For 2025/26, Annual Allowance charges are still expected for many officer members. September 2024 inflation was 1.7% and doctors received a 4% pay rise, so high growth is still likely in the 1995/2008 schemes. This will be in addition to the growth generated in the 2015 scheme. Any unused allowances from previous years may be limited or have been used up in the 2024/25 tax year.

GP partner profits can fluctuate each year because of funding changes and cost pressures. If profits rose in 2025/26, more partners may be subject to Annual Allowance charges.

Tax returns for 2025/26 are due by 31 January 2027. Any exposure to Annual Allowance should be assessed, reported and payment options considered.

For 2026/27, officer members of the 1995/2008 NHS schemes may again see negative growth in that scheme. This is because the September 2025 inflation figure was 3.8% and current DDRB (doctors and dentists review body) pay awards for doctors are 3.5%, although this could change if pay deals are revised. As above, negative growth can now be offset against growth generated in the 2015 scheme.