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Scheme Pays

1. Introduction

2. What is Scheme Pays?

3. I am considering Scheme Pays - what is an irrevocable election?

4. When do I have to tell my pension scheme I want to use Scheme Pays?

5. When will the Scheme Pays amount be recovered?

6. How will it be recovered?

7. How much will it cost me?

8. What and when is the relevant (implementation) date?

9. What happens if I die?

10. Will it affect my dependents benefits?

11. What happens if I exceed the Annual Allowance again?

12. Further Information on Scheme Pays

 

1. Introduction

This factsheet provides information for members of all scheme administered by SPPA , who are considering whether or not to elect for the relevant scheme to pay the Annual Allowance (AA) charge on their behalf.

 


 

2. What is Scheme Pays?

If you are subject to an AA tax charge, you can either pay this yourself directly to HMRC using the self-assessment system, or in certain circumstances, you can ask your pension scheme to pay the charge on your behalf.

If you have asked your pension scheme to pay your AA tax charge this is known as 'Scheme Pays'.Your pension scheme will provide the Scheme Pays facility. This can only be used when there is an AA charge on any excess growth in your pension of at least £2,000.

If you ask you pension scheme to pay you AA tax charge, your final pension entitlement will be reduced.

 


 

3. I am considering Scheme Pays - what is an irrevocable election?

It is your decision to opt for Scheme Pays. Once you have entered into a Scheme Pays election, it means that your decision cannot be revoked or withdrawn at a later date, but it may be amended if the amount of the annual allowance charge changes.

 


 

4. When do I have to tell my pension scheme I want to use Scheme Pays?

You must tell your pension scheme by the 31st July in the year following the year to which the AA tax charge relates. For example, if yu want your schem to pay your AA tax charge for 2016/17, then you must tell your scheme no later than 31 July 2018. You will have to send your election before the deadline 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

If you do not have the information available to calculate the exact amount of Annual Allowance charge, for the relevant year, you can estimate this. You can then complete a scheme pays election using the estimated figures.

Once you have received a final Annual Allowance statement you can amend your tax return within 12 months of submitting the original. You can then send a revised scheme pays election to SPPA.

 


 

5. When will the Scheme Pays amount be recovered?

The amount will be recovered when your benefits are paid at retirement or if you transfer out of your pension scheme.

 


 

6. How will it be recovered?

The Scheme Pays amount will be recovered by reducing your pension and, where appropriate, your lump sum as well.

 


 

7. How much will it cost me?

Your pension is increased by CPI to keep it in line with inflation. This is based on the CPI figure the previous September. Scheme pays debits are also increased with CPI and will be recovered from your award benefits by factors or directly from any transfer amount. 

 


 

8. What and when is the relevant (implementation) date?

The relevant date is 5 April of the tax year to which the tax charge relates.

 


 

9. What happens if I die?

If you die whilst still a member of your pension scheme, then any recovery due because of Scheme Pays will be written off and your estate will receive the same level of benefits as if you didn't utilise Scheme Pays.

 


 

10. Will it affect my dependents benefits?

No, your dependents benefits will be based on your pension before any recovery for Scheme Pays.

 


 

11. What happens if I exceed the Annual Allowance again?

The process will be repeated for each occasion Scheme Pays is requested.

 

12. Further Information on Scheme Pays

HMRC have published a comprehensive members' guide for Scheme Pays which can be accessed by clicking on the following link: HMRC

 

 

 

 

Link to Scottish Government Website