NHS Pensions and changes to scheme pays

29th July 2022

Background

Following the recent remediation measures announced after the McCloud age discrimination case, some individuals may suffer retrospective increases to their historic pension growth which in turn could result in annual allowance excess charges.

 

In the most recent finance act the government has announced changes to the scheme pays legislation to enable individuals to make use of their schemes mandatory scheme pays facility where they have suffered retrospective increases in their pension growth.

 

What is scheme pays?

Scheme pays is a mechanism whereby an individual can ask their pension scheme to pay their annual allowance excess charge for a given tax year. If prescribed conditions are met they are eligible to make a mandatory election, this is where the pension scheme administrator has to pay the charge. However, if you do not meet the conditions for a mandatory election, the NHS pension scheme has a voluntary election facility where an individual can ask the scheme administrator to pay their excess charge on a voluntary basis.

 

It is worth bearing in mind that by making a scheme pays election you suffer a permanent reduction in the pension benefits that you will receive in retirement.

 

What are the changes to Scheme Pays?

Historically, an individual had to notify their scheme administrator by 31 July of the calendar year immediately following the calendar year in which the tax year concerned ended if they wanted to use the scheme pays facility.

 

The new measures will be effective from 5 April 2022 but will be retrospective to 6 April 2016. The changes apply to individuals where their pension input for a previous tax year has been retrospectively increased. Under the revised rules the deadline for notifying your scheme administrator is extended, rather than a fixed period of time after the end of a tax year, an individual will have three months from being notified by the scheme administrator or the sixth anniversary of the end of the tax year in question, if earlier, to use scheme pays.

 

As an example, a scheme administrator informs a member of a revision to their pension input for 2019/20 on 1 May 2022. Before the introduction of the changes the deadline would have been 31 July 2021, whereas under the revised rules the member now has until 31 August 2022 to use scheme pays.

 

If you have any questions about your annual allowance or scheme pays, please contact your usual point of contact at Whitings or call 01284 752313.

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