Scheme Pays

If you exceed the Annual Allowance and a tax charge is due, you can ask the Scheme Administrator (MyCSP) to pay the charge on your behalf in exchange for a reduction in your benefits. This is called Scheme Pays.

There are two types of Scheme Pays: Mandatory and Voluntary.

Mandatory Scheme Pays

Can be used if all three of these apply to you:

  • your Pension Input Amount within a single Civil Service Pension Scheme is in excess of £40,000; and
  • the tax charge resulting from the excess within that scheme is over £2,000; and
  • your Scheme Pays deduction is applied to the benefits within that scheme only.

Members with a tapered (reduced) Annual Allowance must have a Pension Input Amount in excess of £40,000 in one particular scheme (for example, alpha or classic) to use Mandatory Scheme Pays for part of their tax charge.

For members with current benefits in both the Principal Civil Service Pension Scheme and alpha, if their Pension Input Amount in each scheme exceeds £40,000 then they may be able to use Mandatory Scheme Pays to pay the tax charge for one scheme. The remaining scheme would be paid on a voluntary basis. This facility would not be available for those with tapered Annual Allowance wishing to use Scheme Pays for their entire tax charge.

Voluntary Scheme Pays

Can be used if:

  • you don’t meet the Mandatory Scheme Pays criteria, but you still wish to pay your tax charge by Scheme Pays.

If I decide to use Scheme Pays, what are the steps involved?

You’ll need to advise HM Revenue & Customs (HMRC). This should be done via your self-assessment.

Please note: To prevent late payment charges being imposed by HMRC, regardless of the Scheme Pays method used to pay your tax charge, we encourage you to take note of the Scheme Pays deadlines which can be found in the table below.

Action

Deadline date

You receive a Pension Savings Statement

By 6 October 2020

Complete and return a Scheme Pays quote request form to:

Civil Service Pensions
PO Box 2017
Liverpool
L69 2BU

By 20 November 2020

We issue you with your Scheme Pays quote

By 11 December 2020

If you decide to go ahead with using Scheme Pays, you should complete and return your Scheme Pays form accepting the quote

By 24 December 2020

We process your Scheme Pays deductions

By 12 January 2021

You should notify HMRC that you have a tax charge owing and inform them of your intention to pay it using Scheme Pays

By 31 January 2021

If you’re using Voluntary Scheme Pays, we’ll pay your tax charge

By 31 January 2021

If you’re using Mandatory Scheme Pays, we’ll pay your tax charge

By 14 February 2022

Please note: once we’ve received your acceptance form, you won’t be able to withdraw your application; as at this point we’ll adjust your benefits accordingly and the tax charge will be paid to HMRC on your behalf.

Tax is your responsibility

If you do have a tax charge, you’ll need to follow the HMRC guidelines for calculating, declaring and paying any tax due.

There’s information about Annual Allowance and Scheme Pays on the HMRC website at: www.gov.uk/tax-on-your-private-pension/annual-allowance

HMRC provide a calculator to help you work out if you have a taxable breach. The calculator can be found at: https://www.tax.service.gov.uk/pension-annual-allowance-calculator

Tapered Annual Allowance

Individuals with adjusted income over £150,000 may be subject to a tapered (reduced) Annual Allowance.

From 6 April 2020, the adjusted income increased to £240,000 and the minimum reduced Annual Allowance decreased to £4,000.

Adjusted income is not based on your salary alone, if you have other sources of income you may need to include this when calculating your adjusted income.

Further information on how to calculate adjusted income and tapered Annual Allowance can be found at: www.gov.uk/guidance/pension-schemes-work-out-your-tapered-annual-allowance