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 |
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
