Taxation of the pension remedies for Members of Parliament, Members of the Senedd and Members of the Legislative Assembly
Published 22 November 2023
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Who is likely to be affected
Members of Parliament (MPs) who were members of the Parliamentary Contributory Pension Fund (PCPF) before 8 May 2015 and at any time between 8 May 2015 and 31 March 2023.
Members of the Welsh Senedd (MSs) who were aged under 55 on 1 April 2012 and who were members of the Members of the Senedd Pension Scheme (the Senedd scheme) from that date until after 5 May 2016 and at any time between 6 May 2016 and 6 May 2021.
Members of the Legislative Assembly of Northern Ireland (MLAs) who were aged under 55 on 1 April 2015 and who were members of the Assembly Members Pension Scheme (NIAMPS) from that date until after 5 May 2016 and at any time between 6 May 2016 and 6 May 2021.
The scheme administrators of the PCPF, the Senedd Scheme and the NIAMPS.
General description of the measure
This measure provides for technical updates to pensions tax legislation. The measure will provide a power to make tax regulations that make detailed changes in secondary legislation to ensure smooth implementation of redress payments for age related unfairness caused by past changes to the pensions of MPs, MSs and MLAs. It will also ensure that members of the legislative assemblies are given equivalent tax treatment as if the remedied rights had accrued or had been paid when originally due.
Policy objective
To address adverse tax consequences arising from the remedy for members of the PCPF, Senedd scheme and NIAMPS, by modifying existing legislation so that tax measures similar to those made in relation to public sector workers covered by the Public Service Pensions and Judicial Offices Act 2022 (PSPJOA) can be made in relation to MPs, MSs and MLAs.
Background to the measure
In 2015, the Coalition Government introduced reforms to public service pensions. In 2018, transitional protections for older workers were found by the Court of Appeal to be discriminatory, and so the Government committed to rectifying this. The court judgment did not apply to the PCPF, Senedd Scheme or NIAMPS but they were similarly reformed between 2015 and 2016. To ensure fairness, these schemes are voluntarily providing remedies in line the broader remedies for public service pensions. This measure addresses adverse tax consequences that arise for members from the changes to PCPF, Senedd Scheme or NIAMPS.
These pension schemes will engage with their affected members as part of the process of delivering the voluntary remedies.
As these remedies are not retrospective for tax purposes, legislative changes are needed. These changes will ensure that pension benefit or redress payments provided for members of the legislative assemblies are given equivalent tax treatment as if they had accrued or been paid when originally due.
Detailed proposal
Operative date
The measure will have effect from 6 April 2024.
Current law
The current pensions tax rules for registered pension schemes came into force on 6 April 2006 and are set out in Part 4 of the Finance Act 2004.
Proposed revisions
This measure will provide a power in Autumn Finance Bill 2023 to make detailed technical changes in secondary legislation. For example, provision will be made regarding:
- providing an exemption to a tax charge on the compensation an individual may receive as part of the remedy
- ensuring that payments of pensions and lump sums that would have been authorised payments had they been made at the relevant time, are treated as meeting the conditions to be authorised
- ensuring that payments of pensions, lump sums and pensions rights are taxed in an equivalent way to how they would have been taxed if they had been made at the relevant time
Summary of impacts
Exchequer impact (£ million)
| 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 |
|---|---|---|---|---|---|
| Empty | Empty | Empty | Empty | Empty | Empty |
The final costing will be subject to scrutiny by the Office for Budget Responsibility and will be set out at a future fiscal event.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure is expected to impact specified MPs, MLAs and MSs, as set out above. Specifically, by exempting them from the tax that may be due on the compensation they receive and giving powers to secondary legislation to as far as possible, put them in an equivalent position they would have been in had they always had the pension provision they finally receive.
Customer experience is expected to remain broadly the same as this does not alter how individuals interact with HMRC.
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
Those impacted by this measure are likely to be older. Beyond this, the broader equalities impact of this measure will reflect the demographic composition of the House of Commons, Welsh Senedd and Northern Ireland Assembly.
No other impacts are anticipated in respect of those in groups sharing other protected characteristics.
Impact on business including civil society organisations
This measure will have a negligible impact on scheme administrators of the PCPF, the Senedd Scheme and the NIAMPS.
One-off costs to those businesses could include familiarisation with implementing the changes. There are not expected to be any continuing costs.
Customer experience is expected to stay broadly the same as it does not significantly alter how the scheme administrators of the PCPF, the Senedd scheme and NIAMPS interact with HMRC.
This measure is not expected to impact civil society organisations.
Operational impact (£ million) (HMRC or other)
There will be no operational impact from this measure.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be kept under review through communication with affected scheme administrators.
Further advice
If you have any questions about this change, please email pensions.policy@hmrc.gov.uk.