HMRC have published plans to modify existing legislation to ensure that more individuals are able to benefit from the Scheme Pays initiative, in support of the government’s objective to create a system of pensions tax relief that is “fair, affordable and sustainable”.

The policy paper has proposed extending the reporting and payment deadlines where an individual asks their pension scheme to settle their annual allowance charge of £2,000 or more from a previous tax year by reducing their future pension benefits via “scheme pays”.

Under the revisions, schemes would be required to pay the charge if it arises because of a retrospective change of facts, the charge is £2,000 or more, and an individual asks the scheme to pay it within the new deadlines.

It will also extend the deadline for when the scheme administrator must report and pay the annual allowance charge, so that the deadline for paying the charge relates to when the scheme administrator is notified of the charge, rather than a fixed period after the end of the tax year.

The measure will apply to all individuals within scope of a retrospective annual allowance tax charge of £2,000 or more and who meet the conditions to qualify to use scheme pays, and will not be limited to those affected by the age discrimination found in the 2015 public service pension reforms.

Per the draft legislation, the measures are expected to take effect from 6 April 2022, although they will also apply retrospectively from 6 April 2016.

Commenting on the plans, Quilter NHS pension specialist, Graham Crossley, said: “Mandatory scheme pays allows savers to settle annual allowance tax charges of more than £2,000 through the pension fund without needing to find cash up-front.

“This is particularly helpful for the likes of NHS doctors where there is a legacy of annual allowance issues.

“The measure introduced today to extend the information and notice deadlines for individuals to ask their pension scheme to settle their annual allowance charge from a previous tax year is good news as it extends the deadline for mandatory scheme pays where amendments are made by the scheme administrator.

“Following the recent McCloud remediation measures, there may be a number of cases where an individual’s pension growth will be higher retrospectively.

“Today’s measure will allow mandatory scheme pays to be used to help individuals who have worked tirelessly on the frontline of the pandemic.

“The deadline has been extended to three months after notification or six years after the end of the tax year, so includes all tax years since 2016/17.”

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