I have received my Pension Saving Statement (PSS) for 2022/23. How would this have affected my access to Scheme Pays for tax year 2022/23?
HMRC advised the following in newsletter 172 includes the following: -
Public service pension remedy — mandatory scheme pays deadline for active and deferred members
We are aware that some schemes are still issuing statements relating to the public service pension remedy. So that those members do not lose out, ministers have now agreed to move the mandatory scheme pays deadline to 6 July 2027 to align with the deadline for pensioner members. This will apply to all members that have already submitted a scheme pays election to HMRC as part of the public service pensions remedy for the tax years 2019 to 2020 through to 2022 to 2023 where they missed the original deadline for mandatory scheme pays of 6 July 2025.
We intend to include provisions to this effect in our next set of regulations and we expect all remedy scheme pays elections to be treated as mandatory until the new, later date. GOV.UK guidance for scheme administrators and affected members will not be updated until the regulations are in effect. However, HM Treasury have agreed to extending the deadline before the regulations have been enacted and you should treat the deadline as 6 July 2027 from now on.
Will these pension changes result in any tax changes for members?
The vast majority of members will see no changes to their tax position.
In some cases, individuals may be due an Annual Allowance tax charge refund or pay higher Annual Allowance charges, but typically only where their projected pension at retirement has increased. Similarly, a small number of members that are already in receipt of their pension may need to pay additional Lifetime Allowance charges when the total value of their pension has increased.
Where a member’s tax liability does increase, this will not exceed what they would have paid had they always been a member of the scheme they are moving into or receiving equivalent benefits.
Where a member has previously chosen to use scheme pays to pay the tax charge; then this will be adjusted. Members who see an increase in their tax charges; will have the opportunity to use scheme pays for the increased charge.
How will the changes affect my past Annual Allowance position?
Impacted members will have received their Remedy PSS and know their position.
How many individuals will need to pay extra tax?
Given that the remedy relies largely on a member’s choice, which will differ depending on their circumstances, it is not possible to give a meaningful estimate of the number of tax corrections needed as a result of the remedy.
However, the majority of members will see no changes to their tax position or will receive a refund as a result of the remedy.
In the instances where a member’s tax liability does increase, in the vast majority of cases, this will reflect an increase in value of their pension benefits.
What changes are being made for tax?
The tax system will, in most instances, work in the usual way and follow the new pension rights accrued from the remedy taking effect. There are some situations where changes to pension rights due to the McCloud remedy produce disproportionate tax results that cannot be resolved through powers provided in the Public Service Pensions & Judicial Offices Act 2022 (PSP&JOA 2022).
Therefore, the Government will be making changes to tax legislation, using provisions contained in the Finance Act that received Royal Assent on 24 February 2022, to ensure that the remedy can be implemented smoothly.
HMRC consulted on the first set of tax regulations from December 2022 to January 2023; these regulations were subsequently made and laid on 6 February 2023. Further tax regulations will be consulted upon and finalised, ahead of implementation of the remedy.
Why are you making people pay tax on their legacy pension benefits when they might ultimately choose new scheme benefits?
When individuals were moved back into their legacy schemes, they are legally entitled to receive legacy benefits which have accrued during remedy period years – and that needs to be reflected in their tax treatment.
In the majority of cases this is likely to result in a refund of overpaid tax and/or compensation (in the form of increased pension benefits, or a cash sum), rather than additional tax being due. If an active or deferred (someone who is no longer building up entitlement) member then chooses new scheme benefits when they retire, those benefits will be adjusted at that point, and tax applied as appropriate – not with retrospective effect.
Where the choice of new scheme benefits which arrive all at one point means a higher tax bill that year than if the individual had chosen to keep legacy benefits for remedy period years, the Government will intervene. This is because the design of the remedy could trigger a disproportionately high AA charge.
Tax implications of member’s choices will be complex and require specialist support – what plans does the Government have to resource support systems and enable members to make the best choices?
Where possible, the Government and schemes will take proportionate steps to minimise the administrative burden on members. Although ultimately, decisions made by members will be individual choices.
There is also further guidance to complement existing HMRC guidance and schemes’ processes which are already in place to help individuals with their tax affairs.
Schemes will also be able to provide compensation where a member has incurred reasonable additional costs as a result of an agent, i.e. where receipts or invoices can be provided by a tax adviser or accountant, who helped to resubmit information to HMRC.
The tax changes are all far too complicated – how do you expect anybody to comply?
This is a unique set of circumstances that the Government is addressing.
The existing legislation and scheme rules covering public service pensions were not created with a view to making retrospective pension provision. So the changes made by the Public Service Pensions & Judicial Offices Act 2022 (PSP&JOA 2022) and other legislation are not straightforward but, as far as individuals are concerned, the complex changes are being made ‘under the bonnet’.
Individuals will have a choice to make, and they will have the necessary information available to them when they come to do so. The majority will be provided with a simple choice between two options.
However, for more complicated scenarios, the Government acknowledges the need to provide clear and accurate communication and information to members going through this process. There is also further guidance to complement the existing HMRC guidance and schemes’ processes which are already in place to help individuals with their tax affairs.
What measures will be in the Public Service Pensions & Judicial Offices Act 2022 (PSP&JOA 2022), Finance Act and Scheme Regulations?
The PSP&JOA 2022 contains the core remedy, as well as the bespoke remedy measures for the Judicial Pension Scheme and Local Government Pension Scheme and was published on 20 July 2021. It sets out what the core remedy will mean for members’ contributions, benefits, pension payments and compensation.
Some elements of the Act concerning contributions, timing of changes to pension rights, and deeming provisions regarding which schemes are making or receiving payments have been included to ensure proportionate and reasonable tax outcomes, in line with policy set out in the consultation and published response document.
The tax system will, in most instances, work in the usual way and follow the new pension rights accrued from the remedy taking effect.
There are some situations where changes to pension rights due to the McCloud remedy produce disproportionate tax results that cannot be resolved through powers provided in the PSP&JOA 2022. Therefore, the Government will be making changes to tax legislation, using provisions contained in the Finance Act that received Royal Assent on 24 February 2022, to lay tax regulations, which will ensure that the remedy can be implemented smoothly. HMRC consulted on the first set of tax regulations from December 2022 to January 2023; these regulations were subsequently made and laid on 6 February 2023. Further tax regulations will be consulted upon and finalised in the coming months.
What guidance is available from HMRC?
The HMRC Digital Service
Your pension tax position in remedy period years may be affected due to rollback. HMRC have introduced a new digital calculator and interactive guidance, to help you identify whether you need to take any action. This can be found here:
If you’ve any new annual allowance charges or changes to your annual allowance charges, due to rollback, you can use the service to:
reassess any previous annual allowance charges during the remedy period tax years
make an application for a refund of any previously overpaid annual allowance charges for tax years 2019/20, 2020/21 and 2021/22
make an application to claim compensation for any previously overpaid annual allowance charges for tax years 2015/16 to 2018/19
pay any underpaid annual allowance charges for tax years 2019/20, 2020/21 and 2021/22
The digital service will also apply to other tax charges such as lifetime allowance charges and unauthorised payments charges.
