Annual allowance scheme pays and compensation scheme 2019/20

How to apply for scheme pays, documents and deadlines. Plus, guidance on the annual allowance compensation scheme scheme 2019/20 which allows tax charges to be compensated at retirement.

Location: England Wales
Audience: All doctors
Updated: Monday 17 January 2022
Piggybank illustration

What is scheme pays?

When you have a tax charge, you can either pay the charge directly to HMRC yourself or elect for the scheme to pay the charge on your behalf in return for an appropriate reduction to your NHS benefits. This is known as a scheme pays election.

If you have a tax charge in 2019/20, you can use scheme pays to access the annual allowance compensation scheme 2019/20 - see below for more information.

Voluntary scheme pays

You can use voluntary scheme pays where your excess growth is above your individual tapered limit but not necessarily above the standard £40,000 limit and the below other qualifying conditions are met.

Mandatory scheme pays

You can use mandatory scheme pays where your excess growth is above the standard £40,000 limit.

The effect of scheme pays on your pension

  • The scheme actuary will apply interest at consumer prices index plus 2.4%. This interest is calculated from the January after the receipt of the scheme pays election until retirement. The actual reduction then applied to your benefits will depend on when and why you retire.
  • The benefits payable to your dependants will be unaffected and will be based on your accrued benefits before making any reduction for scheme pays.
  • The capital value of your NHS benefits will be calculated using the reduced amount payable to you after allowing for the scheme pays selection.
  • You can use scheme pays again in future years, but you should make sure you have enough money for retirement.

 

Annual allowance compensation scheme 2019/20

Last year, the Government recognised the damage the pensions’ tax system was having on the health service. This resulted in the Chancellor in March 2020, announcing changes to the tapered annual allowance rules.

However, these changes did not come quick enough for those already affected by pension tax charges for the tax year 2019/20. To resolve this, NHS England and NHS Wales introduced the annual allowance repayment scheme 2019/20.

The scheme guarantees that any annual allowance tax charge for eligible clinicians will be compensated at the time of retirement.

The scheme guarantees that any annual allowance tax charge for eligible clinicians will be compensated at the time of retirement.

Eligibility

To be eligible, you must be:

  • a clinician who is a member of the NHS England or Wales pension scheme
  • have incurred an annual allowance tax charge for 2019/20
  • elect to pay this charge via scheme pays – you must not pay this tax bill using cash.

Deadlines

The formal scheme pays deadline has been extended to 31 March 2022. We advise you however, to submit it as soon as possible to minimise the potential for any additional interest charges.

If you retired before 31 July 2021, you should have applied for the compensation before your pension is approved.

NHSBSA accepted scheme pays election forms from members who already retired but did not make a scheme pays election prior to retirement. This is so long as the application was made prior to 31 July 2021 and was supported by the employer supplementary form.

All such applications were accepted on a voluntary scheme pays basis only. This means that any interest charges which may apply for late payment will need to be met by the scheme member alone.

 

How to apply

SPE2 scheme pays application form

Download the form

Deadline: 31 July in the year following the tax year the annual allowance charge applies.

Compensation scheme 2019/20 applicants

We have produced a template covering letter that you can also submit alongside the SPE2 form to help you with your claim.

We recommend setting aside a couple of hours to complete the process. You will need your pension savings statements including 19/20 (if issued, and possibly as far back as 2012/13), March payslips and tax returns from 2016/17 to 2019/20 to hand.

Deadline: 31 March 2022.

If you're unsure if you have a tax charge

If you are not able to know whether you have an annual allowance tax charge by the time of the scheme pays deadline, we strongly recommend you put a best estimate of your annual allowance tax bill on the scheme pays election.

Or, you can complete a form with a nominal amount eg £25 (per scheme if you are in more than one scheme).

This will ensure that once the information you need to calculate any tax liability is available, you discover that you have a tax charge to pay, then you will still be able to access the scheme.

You can amend the amount entered on the scheme pays election form up to four years later. However, if you do not submit a scheme pays election you will potentially be ineligible for the scheme if you later find that you have an annual allowance tax bill.

 

Timeline of deadlines

Date Action
31 July 2022 19/20 formal hard scheme pays and annual allowance charge compensation scheme form deadline
October 2023 Deadline for pension schemes to administer changes to legacy AA charges arising during 'legacy' period (2015-2022)
31 July 2024 Deadline to amend speculative SPE form

* The usual scheme pays election deadline is 31 July after the end of the tax year. It has been extended this year to 31 March because of COVID-19.