If you have been affected by the tapered annual allowance (AA) and have a charge to pay, you can either pay this directly to HM Revenue & Customs (HMRC) or ask the NHS Pension Scheme to pay on your behalf. This option is called Scheme Pays.
Earlier this year, figures obtained by Quilter showed 38% of NHS staff who exceeded the annual allowance in 2018/19 elected to use Scheme Pays.
In the March 2020 budget, the chancellor made changes to the annual allowance taper to mitigate the impact of the taper for clinicians.
However, these changes came in too late to help those already affected in 2019/20, so NHS Engand and NHS Wales introduced a compensation scheme for those affected that year (you can read more about this below).
What is Scheme Pays?
Scheme Pays allows members of the NHS Pension Scheme who have been hit by an annual allowance charge to ask the scheme to pay the charge to HMRC in exchange for a permanent reduction in their pension benefits in retirement.
NHS pension schemes generally offer both mandatory and voluntary Scheme Pays facilities. Offering mandatory Scheme Pays is, of course, mandatory, while voluntary Scheme Pays is at each scheme’s discretion.
Mandatory Scheme Pays can be used when a clinician’s pension input for the year into either the 1995/2008 NHS Pension Scheme or the 2015 NHS Pension Scheme is more than the standard annual allowance of £40,000.
It used to be the case that the annual allowance charge for the year also needed to exceed £2,000, but this requirement was removed last year.
Voluntary Scheme Pays can be used where the scheme member has not met the requirement for mandatory Scheme Pays, but still has some kind of charge to pay.
For example, if you are a member of both NHS schemes, and the pension input in one or both schemes is under the standard annual allowance, but the total pension input amount across both schemes is more than the standard annual allowance.
Clinicians must notify their pension scheme that they want to use Scheme Pays by 31 July in the year following the tax year of the annual allowance charge.
If you are a member of both the 1995/2008 NHS Pension Scheme and the 2015 NHS Pension Scheme, and you want both schemes to pay some or all of your annual allowance charge, these are counted as separate requests, so you need to state how much of the annual allowance charge you want each scheme to pay.
Any payment made by a pension scheme on a voluntary basis usually needs to be paid by the member’s normal self-assessment tax return deadline. However, for 2019/2020, this has been extended to 31 March 2022.
Different rules apply to Scheme Pays in Scotland.
What is the Annual Allowance Compensation Scheme?
NHS England and NHS Wales have introduced a compensation scheme for those affected for the year 2019/20. The NHS will allow clinicians to access their pension pot to pay the tax bill, but will then top up their pension pot before they reach retirement so they do not have a reduced pension.
If you work for NHS England or NHS Wales, incurs an annual allowance charge and elects to pay this via Scheme Pays for the year 2019/20, you should be eligible for the compensation scheme. You must not pay this tax bill themselves.
Applications will be accepted on a voluntary Scheme Pays basis, meaning any interest charges that may apply for late payment will need to be met by the scheme member. The NHS, therefore, advises members to claim sooner rather than later.
For GPs, their application must be endorsed by Primary Care Support England (PCSE) before it can be processed by the NHS Business Authority.
1 October 2021
- PCSE closes second window for endorsement of GP compensation scheme applications.
6 October 2021
- NHS Pensions deadline for issuing annual allowance pension savings statements to members.
13 December 2021
- PCSE opens third window for endorsement of GP compensation scheme applications.
15 December 2021
- Doctors will receive their refreshed total reward statement update.
11 February 2022
- PCSE closes third window for endorsement of GP compensation scheme applications.
1 April 2022
- Start of NHS 2022/23 pension scheme year.
31 July 2022
- Voluntarily Scheme Pays and annual allowance charge compensation scheme form deadlines. Clinicians must usually notify their pension scheme that they want to use mandatory Scheme Pays by 31 July in the year following the tax year of the annual allowance charge, but this has been extended this year due to Covid-19