For 2017, this annual allowance has been reduced significantly for those with 'adjusted income' in excess of £150,000. Many doctors do not realise that the calculation of the adjusted income basically includes income from all sources subject to tax, less their own actual cash pension contribution, plus the growth on their pension pot during the year as adjusted for inflation.

This is because the NHS schemes are defined-benefit schemes. These guarantee a specified level of pension at retirement that is based on salary, not on performance of the actual contributions made.

The growth on the pension pot for the annual allowance is tested by the change in value, after adjustment for the consumer prices index (CPI) at the end of the PIP - now aligned with the tax year - against the value at the start of the year. This value is then multiplied by 16 and any automatic lump sum is added, according to the scheme.

How might doctors' pensions be affected?

The problem many doctors face is that they are invested in more than one scheme, and this single annual allowance limit is applied across all schemes. From April 2016, this annual allowance of £40,000 was tapered by £1 for every £2 exceeding adjusted income of £150,000, subject to a maximum reduction of £30,000. So those enjoying an adjusted income in excess of £210,000 will receive tax relief on only £10,000 of contributions.

The annual allowance is not the maximum amount by which your pension savings can grow; growth depends upon salary levels and can be greater than £40,000, particularly if you receive an increase to pensionable pay during the year.

Pensions tax changes for independent practitioners

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Pensions tax changes for independent practitioners