A recent HM Revenue and Customs’ (HMRC) pension schemes newsletter addresses changes impacted by the McCloud judgement and the public services pensions remedy.
Following the ruling on the McCloud case, certain public service pension schemes have been working towards revisiting and recalculating benefits.
For individuals who were members in 2012 and remained members in 2015, subsequently moving to accrue benefits in the new schemes (usually referred to as 2015 schemes), all benefits accrued in the 2015 schemes will be moved back to the legacy scheme from joining to 31 March 2022.
After that date, any further accrual will go towards the 2015 schemes, with an earnings link to the legacy scheme applicable, as long as they remain an active member.
This recalculation isn’t expected to be communicated until October at the earliest. The recalculations could mean retrospective tax charges could apply in relation to the annual allowance or lifetime allowance for the years 2019/20 to 2022/23.
The uncertainty with regards to reporting and retrospective tax charges has caused numerous questions to be asked of HMRC, mostly in a bid to avoid members experiencing any further disadvantages.
Delayed reporting requirements
Due to the work within the schemes, the pension savings statements will not be issued under the usual timescales (6 October 2023 for the tax year 2022/23). Therefore, members who may have a charge for that year will not be able to declare any charges on the self-assessment before the deadline of 31 January 2024.
To combat this issue, an electronic form has been introduced and the deadline to report this charge extended to the 31 January 2025. Other annual allowance charges due because of the remedy will have a reporting deadline of 31 January 2027.
Scheme pays extension
Scheme pays is only available to those that haven’t taken their benefits from the scheme, due to issues with recalculating benefits, as well as a possible impact on any lifetime allowance charges.
However, delays in reporting and the extension of the reporting requirements on any annual allowance charges mean it will be possible to apply for mandatory scheme pays after benefits have come into payment. This will avoid anyone wanting to use this option having to delay their retirement.
Overpaid tax
Scheme administrators have been granted extensions to reclaim any overpaid tax on lifetime allowance charges or annual allowance charges.
Lifetime allowance implications
As mentioned, changes to the scheme accrual, pension input amounts, annual allowance charges and/or scheme pays usage could cause the amount that should have been tested against the lifetime allowance to change.
In some cases, the excess may have been taken as a lifetime allowance excess lump sum, and therefore resulted in an individual paying too much tax. As well as the scheme being able to recalculate the charges and reclaim the amount, a special rate of 40% will be applied to make it possible for the scheme administrator to recalculate retrospectively.
This also applies to non-public sector pension schemes where lifetime allowance charges need to be recalculated due to the remedy.
Although HMRC’s latest newsletter has provided clarity, members of these schemes will still require help to navigate the implications of the McCloud judgement, ensuring they complete the forms correctly and get what they are entitled to.
Claire Trott is divisional director, retirement and holistic planning, at St James’s Place
