Your guide to ‘Scheme Pays’ elections

If the value of the benefits across all your pensions arrangements increase by more than £40,000 in a year, you’ll be subject to an Annual Allowance tax charge. This charge can either be paid directly through HMRC’s self-assessment arrangement or you can choose to have it paid on your behalf through a ‘Scheme Pays’ election. Effectively, this means the pension scheme pays the charge on your behalf and reduces your future pension entitlement.

There are two types of Scheme Pays: mandatory and voluntary.

Mandatory Scheme Pays can be used if:

  • your Pension Input amount within a single scheme exceeds the £40,000 Annual Allowance; and
  • your total tax charge is over £2,000; and
  • your Scheme Pays election applies to the benefits within that scheme only.

Voluntary Scheme Pays

If you do not meet the mandatory conditions, SPPA voluntarily accepts the Scheme Pays elections where the total SPPA tax charge exceeds £1000, the charge is due to growth in combined SPPA scheme benefits (i.e. final salary and 2015 CARE benefits) and/or you are subject to the tapered annual allowance.

Guidance on working out your reduced (tapered) annual allowance can be found at:

https://www.gov.uk/guidance/pension-schemes-work-out-your-tapered-annual-allowance
 

Scheme pays election deadlines

The deadline set by HMRC for mandatory elections is 31 July in the year following the year to which the annual allowance charge relates.

You'll have to send your election earlier if:

  • You expect to retire - your completed election must be sent to SPPA before your pension is authorised.
  • You reach age 75 - your completed election must be received by SPPA before your 75th birthday.

You’ll have to calculate your liability for an Annual Allowance charge based on the information contained in your annual statement.

As General Medical Practitioner members will not know their pension input amounts before the Scheme Pays election deadline on 31 July, we recommend that you submit your Scheme Pays election with an estimated tax in order to meet the HMRC deadline. This can be amended later and processing will be held until you receive your statement and confirm the charge yet to be paid, via a second election form if the amount differs from your initial election.

Payment Deadlines

Mandatory Scheme Pays

For mandatory Scheme Pays the scheme administrator becomes jointly and severally liable (with the member) for the annual allowance charge and must pay this to HMRC within a given timescale. No interest is payable if SPPA makes payment by 14 February following the mandatory scheme pays deadline.
 

Voluntary Scheme Pays

Annual allowance charges that do not meet the mandatory Scheme Pays conditions are due to be paid to HMRC at the normal self assessment deadline, the January after the end of the tax year for electronic returns. If you meet the conditions and SPPA accepts your Voluntary Scheme Pays election, late payment charges and interest may be payable to HMRC from this date until the charge is paid. You will be liable for any such charges. SPPA will aim to pay the tax due in the next routine tax return (submitted quarterly) following receipt of a completed election and all required information from the member and employer.

Following receipt of an initial election notice within HMRC's deadline, you can complete a second election if there’s a change to the amount of your Annual Allowance charge. This could occur if you received a provisional statement and your final statement shows the AA charge has either increased or decreased.

Election notice changes can be made up to 3 years after the original mandatory deadline. 

Apply for Scheme Pays

Further reading

HMRC Pensions Tax Manual