There are a tremendous amount of things to think of and organise when you’re having a baby. While it’s infinitely more exciting to plan names and organise all of the items you’ll need for your new-born, it’s equally important to plan financially for the new arrival.

This three-part series will give you an insight into some of the financial considerations of being self-employed and on maternity leave. In this article we are looking at NHS Pensions.

You may have recently heard the word ‘annualisation’ bandied about with regards to NHS Pensions but what does it mean and how does it apply to your maternity leave and why do you need to plan for it?

Annualisation is a means of setting a GPs tier rate for pension contributions where there are ‘gaps’ in pensionable pay within the NHS’s pension input period (the year from 1 April to the following 31 March).

Under the current rules a ‘gap’ occurs if you:

• do not have pensionable income on the first day of the pension input period (ie. 1 April)

• do not have pensionable income on the last day of the pension input period (ie. following 31 March)

• as a locum, have gaps in your pensionable income in excess of 3 consecutive months

In any (or all) of the above cases apply, your actual earnings for the year will be ‘annualised’ to give earnings for a ‘full year’s equivalent’ and your pension tier rate will be based on this higher figure. How does this affect you as a locum on maternity leave? Let me give you an example:

You earn £5,000 a month for the first 6 months of the year (£30,000 in total), pensioning all of this income at 9.3% (because this is the tier rate your actual earnings fall into). You then take the remaining 6 months of the year as maternity leave and do not earn any further income in the year.

Your £30,000 of actual earnings will be annualised to £60,000 (£30,000 divided by 6 months, multiplied by 12 months).

This means that the tier rate due to be paid will now be 12.5% instead of 9.3% (and extra 3.2% on your pensionable earnings). That’s an extra £864 that you probably weren’t expecting to have to pay.

We are often asked what happens if you don’t pay over the extra contributions. At worst, you may have the year’s pensionable pay set to ‘nil’ on your record, effectively meaning that you could miss out on a year of pension when you come to retire – so getting the tier rate correct is very important.

So what are the options? You can ask your accountant to evaluate whether or not annualisation will apply to your pension tier rate and set aside the extra money – forewarned is forearmed.

You can discuss your maternity plans in advance with your accountant and let them help you select a tier rate that will take annualisation into account – you can’t avoid it but it feels a bit nicer paying a small amount extra as you go along compared with a big chunk at the end.

If you’re able to, you can consider sessions (even half days) of work while you are on maternity leave to keep your ‘gaps’ down.

Our specialist medical team would be happy to discuss these options and more with you – it’s worth a phone call to keep your Pension Record up to date and avoid nasty surprises.

Next in the series – Child Benefit