Using "scheme pays"

The annual allowance is the annual amount your pension benefits can increase by without having to pay an additional tax charge. If you exceed the annual allowance and you have to pay a tax charge, we may be able to pay this on your behalf in exchange for a permanent deduction to your annual pension.

This is known as "scheme pays" and you can use it to meet some or all of the annual allowance tax charge.

There are two types of scheme pays options, mandatory and voluntary. For both options you can only apply if:

• the tax charge arises solely as a result of your Buckinghamshire LGPS pension. You cannot ask us to pay the tax charge arising from another pension you pay into
• you are not receiving your pension
• you have not transferred your pension out or taken a refund
• you submit your election form by the appropriate deadline
• you have not passed your 75th birthday when we received your election form
• the permanent deduction does not reduce your annual pension to nil or is more than we can deduct from your pension

If your tax charge is more than £2,000 you will only be able to use the mandatory scheme pays option. If your tax charge is less than £2,000 we may consider your application for voluntary scheme pays.

Please ensure that you meet these conditions and are aware of the relevant deadline before you apply to use scheme pays.

If you apply for scheme pays the tax charge will be recovered from your annual pension by reducing it permanently. The deduction is calculated based on factors issued by the government. The amount it is reduced by will depend on:

• the tax charge amount to be paid
• your current age
• your Normal Pension Age (NPA)

If you take your pension earlier than your Normal Pension Age, your pension will be subject to early retirement reductions. The scheme pays deduction will also be reduced according to the early retirement reduction table if the pension is put into payment before Normal Pension Age.

If the pension is paid later than normal, late retirement increases would also be applied to the scheme pays deduction.

When you die, the scheme pays deduction will not apply to any dependent or survivor pensions. It applies to your pension only. It will not affect the death in service grant if you die while you are currently paying in. However, if you die while your pension is deferred or in payment, any death grant payable will be reduced by the scheme pays deduction.

If you have a scheme pays deduction, it is the capital value of your reduced benefits at Buckinghamshire Pension Fund that are tested against the lifetime allowance.

If the increase to your LGPS pension benefits exceed the annual allowance, or are close to exceeding, we will issue you with a pension savings statement by 6 October. This will include a form which you can complete and return to tell us how much of the tax charge you want to use scheme pays for and the relevant tax year in which the tax charge occurred. We will then be able to provide you with an estimate of the permanent pension deduction.

Please complete and return the election form sent with the estimate and we will action your request. Please note, once we receive your election form you won’t be able to change your mind at a later date. Your decision is final and binding.

Once we have processed your form, we will confirm this to you in writing and pay the tax to HMRC on the next available quarterly submission. If you don’t receive confirmation from us within 10 working days, please contact us to ensure that your form has been received. Please ensure you tell HMRC that you are using scheme pays to meet some or all of your annual allowance tax charge when you complete your self-assessment tax return.

There is a strict time frame for making a scheme pays election. If you want to use voluntary scheme pays, we must receive your application by 31 December in the year you receive your pension savings statement.

For example, if the year in which the tax arose was 2021 to 2022, we would have issued you with a pension savings statement by 6 October 2022, you would need to make an election to use voluntary scheme pays by 31 December 2022 and declare this on your self-assessment tax return by 31 January 2023.

For mandatory scheme pays, we must receive your election by the 31 July, following the January in which the annual allowance charge was declared on your self-assessment tax return.

For example, if the year in which the tax charge arose was 2021 to 2022, you would need to declare the annual allowance tax charge on the 31 January 2023 and provide us with your election to use mandatory scheme pays by 31 July 2023.

However, if you retire and start receiving your pension, transfer your pension out of the Scheme, or reach age 75 before 31 January, you should tell us that you want to use scheme pays as soon as possible and before any of these events have passed.

We will need to issue you with a replacement pension savings statement if we have to recalculate your pension growth for a particular tax year. This may happen if:

• there is a change to the scheme rules
• we receive revised pay information from your employer

Where this is the case, we must inform you:

• on or after 2 May in the year following the end of the relevant tax year,
• and within six-years beginning at the end of the relevant tax year.

Unless you have already received payment of your pension, reached age 75 or transferred out, the deadline of 31 July would not apply. Instead, you would need to make an election:

• within three months of the date provided on the pension savings statement,
• or if earlier, within six-years beginning with the end of the relevant tax year.

If you had previously been notified of a tax charge and you elected to use scheme pays, you will need to provide an updated election based on the recalculated amounts.

If you had previously been notified of a tax charge and you did not elect to use scheme pays at the time, you will not be able to do so following the revised statement.

If the above extension does not apply and the deadline has passed, we can accept elections for scheme pays, that may have previously been mandatory, on a voluntary scheme pays basis. Any charges payable to HMRC for the late payment would fall to you, not the Fund.

We are unable to provide you with advice on whether or not to use scheme pays. We always recommend you take independent financial advice before making any decision that affect your pension benefits.

For more information, see Get help with decisions about your pension.