Members are liable for an annual allowance charge if their total pension growth - across all their pension schemes in a tax year, shown on their annual allowance pension savings statement as their pension input amount - is more than their available annual allowance.
Members are responsible for making arrangements to pay their annual allowance charge to HM Revenue and Customs (HMRC). They can either:
- Pay the tax charge directly to HMRC; or
- Ask NHS Pensions to pay it for them in an arrangement known as ‘scheme pays’.
NHS Pensions offers two types of scheme pay; mandatory and voluntary. From tax year 2017/18 onwards we are introducing more flexibility in our voluntary scheme pays facility:
- Mandatory scheme pays
This is available if the pension input amount in either the 1995/2008 NHS Pension Scheme or the 2015 NHS Pension Scheme is more than the standard annual allowance and the annual allowance charge is more than £2,000.
The maximum amount of annual allowance charge that a member can ask us to pay by mandatory scheme pays is based on the pension input amount in the NHS scheme that is more than the standard annual allowance.
The standard annual allowance is currently £40,000.
- Voluntary scheme pays
Voluntary scheme pays for tax years 2015/2016 and 2016/2017
This was available to members of both the 1995/2008 NHS Pension Scheme and the 2015 NHS Pension Scheme. If the pension input amount in one or both NHS schemes was under the £40,000 standard annual allowance but when added together the total pension input amount from both schemes was more than £40,000.
Voluntary scheme pays for tax year 2017/2018 onwards
In addition to our existing mandatory and voluntary scheme pays facility we are extending our voluntary scheme pays facility to include members who are subject to an annual allowance charge, arising in 2017/18 onwards, as a result of having an available annual allowance lower than £40,000.
Members with a threshold income of more than £110,000 and an adjusted income of more than £150,000 are affected by the tapered annual allowance and as a result will have an annual allowance lower than £40,000. The £40,000 is tapered down by £1 for every £2 of adjusted income over £150,000, therefore for an adjusted income of £210,000 or more, the tapered annual allowance is £10,000 (£40,000 - £30,000).
Voluntary scheme pays is now also available for the tapered annual allowance charge calculated from the part of the pension input amount:
- In the 1995/2008 NHS Pension Scheme or the 2015 NHS Pension Scheme - that is under £40,000 but over the member’s tapered annual allowance; or
- Across both schemes when added together - that is more than their tapered annual allowance.
In addition, it is no longer a condition that members must have an annual allowance charge of more than £2,000.
What the extension means
From 2017/18 we can now pay 100% of a member’s annual allowance charge to HMRC, if they ask us to, either using mandatory scheme pays only or by using both mandatory and voluntary scheme pays.
Members should be aware, when asking for voluntary scheme pays, that they will remain solely liable for their annual allowance charge until it is paid by us. They are responsible for any interest that HMRC may charge if payment for voluntary scheme pays is made after the self-assessment tax return deadline of 31 January.
Applying for scheme pays
To pay some or all of their 2017/18 annual allowance charge, members need to complete the Scheme Pays Election Notice (SPE2), which we must receive by 31 July 2019. The scheme pays election deadline for an annual allowance charge incurred in a tax year before 2017/18 has now passed.
Once accepted, members cannot revoke an election but they can change it and have up to 4 years to do this. This provision is useful if they have estimated their annual allowance charge.
More details about these deadlines are available on our website.
As soon as possible we will be introducing a new version of the Scheme Pays Election Notice (SPE2), to include our extended voluntary scheme pays facility, and updating our scheme pays guidance and factsheets. Watch out for these on our website.
Members who have already applied for scheme pays for 2017/18
Some members have already sent us a scheme pays election for 2017/18 and we will be writing to them soon to let them know about our extended voluntary scheme pays facility and to ask if they want to change their election.
Pension Savings Statement Guide
NHS Pensions has published a Pension Savings Statement Guide to accompany the 2017/18 statements recently issued. This is available on our website at www.nhsbsa.nhs.uk/member-hub/annual-allowance.
The aim of the guide is to:
- help explain why a member has been sent a statement;
- give important information about the annual allowance;
- take members through the figures on their statement and highlight the next steps that they may need to take; and
- explain how they pay and report an annual allowance charge to HMRC.
The statement along with the information provided in the guide should assist members in determining whether they have an annual allowance tax charge to pay and also provides details about our extended voluntary scheme pays facility.