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EPN309 - Annual Allowance – Changes to the Ill-Health Retirement process

Audience: This Notice will be of particular interest to: 

  • Staff responsible for referring cases to the Scheme Medical Adviser
  • Staff responsible for paying the Scheme Medical Adviser 
  • HR managers 
  • Occupational Health advisers (where applicable)

Action:

  • To implement the additional process required when dealing with ill health retirement (IHR) referrals 
  • To take action on both ongoing and retrospective IHR cases

Timing: Immediate

  1. In November 2010 we advised you of changes to the pension tax regime applicable from tax year 2011/12 (EPN286). It has taken some time for the full details to be confirmed by HM Revenue & Customs and for the appropriate legislation to be laid, and so we have been unable to update this guidance until now. Full information on the impact of the tax changes will be issued in the next few weeks in a further EPN with an office notice for staff. This EPN is to advise you of one specific change that has arisen as a consequence of the changes and which has an impact on the IHR process.
  2. One of the consequences of the tax changes is that people leaving on IHR could potentially incur an Annual Allowance tax charge, particularly if they receive an enhancement to their pension benefit.
  3. HMRC has issued guidance that gives exemption from the Annual Allowance tax charge to individuals who meet the HMRC ‘severe ill-health’ criteria. However the severe ill-health criteria do not match the scheme criteria for ill-health retirement, and so for individuals to gain the exemption status they will need an additional assessment. All individuals who left the scheme on IHR from 1 January 2011 could potentially be affected. 
  4. We have arranged for the Scheme Medical Adviser to carry out the additional assessment for individuals who we identify as being at risk of incurring an Annual Allowance tax charge in the Civil Service pension scheme.
  5. Please implement the new process detailed below for all cases referred to the Scheme Medical Adviser from now onwards. We will identify all of those in the at risk group who have already left after 1 January 2011. Your Pension Service Centre (PSC) will contact you about these on an individual basis with guidance on the action to take.
  6. Annex ‘A’ details the costs that you will be charged for these additional assessments. You will not be charged for the cases being looked at retrospectively (all individuals who have left or leave on IHR between 1 January and 31 October 2011), as the Cabinet Office has agreed to meet these costs.

New process

  1. At an early stage, and preferably before the individual has completed the IHR1 form, please contact your PSC and ask them to calculate whether the individual would breach the Annual Allowance if they were to receive enhanced PCSPS benefits on IHR. You only need to give your PSC enough information so that they can identify the individual. Your PSC will contact you if they need any further information.
  2. If the reply from the PSC is that the individual would not be at risk of breaching the Annual Allowance, you should continue with the usual IHR process. You do not need to take any further action with regards to Annual Allowance.
  3. If the PSC calculate that the individual would be at risk of breaching the Annual Allowance then they will send you an Illustrative Annual Allowance Estimate (Annex B) for the individual showing the potential increase in their pension. The PSC should also tell you the State pension age of the individual as this is needed if the extra assessment request is sent to the Scheme Medical Adviser.
  4. Please send the individual the Illustrative Annual Allowance Estimate with the additional fact sheet and consent form (Annex C). These should ideally be sent to the individual at the same time as they are requested to complete the IHR1.
  5. If the individual returns the completed consent form, opting to go ahead with the additional assessment, you should send it to the Scheme Medical Adviser with the IHR1.
  6. The fact sheet at Annex C explains the extra information you need to know about the reasons for the additional assessment.

Ongoing cases

  1. You need to identify any ongoing IHR cases that have been referred to the Scheme Medical Adviser or are awaiting referral.
  2. Please contact your PSC for an Illustrative Annual Allowance Estimate for each of these cases (please see para 7 onwards).  Retrospective cases
  3. Your PSC will write to you about the action to take for people who have already left on IHR and who are at risk of being affected by the changes to the Annual Allowance.

Assessment outcomes

  1. The Scheme Medical Adviser will notify you of the outcome of the HMRC severe ill health assessment at the same time as the scheme IHR assessment, and include the outcome on the certificate that they issue.
  2. Please advise your PSC of the outcome of the severe ill health assessment and where exemption has been granted, send them a copy of the certificate.

IHR1 Application Form

  1. A small change has been made to the consent section of the IHR1 form. Please use the new form on the Civil Service Pensions website. If you are unable to access the website please contact mycsp.basingstoke@dwp.gsi.gov.uk.

Reference

EPN286

Contacts: Enquiries about content, distribution or to receive in a different format

Mycsp.basingstoke@dwp.gsi.gov.uk