Policy paper

Guidance on the Public Services Pension Schemes (Rectification of Unlawful Discrimination) (Tax) Regulations 2023

Published 24 November 2022

1. Introduction

1.1 The purpose of this guidance

1.1.1 The draft Public Service Pension Schemes (Rectification of Unlawful Discrimination) (Tax) Regulations 2023 (‘the regulations’) dealing with the taxation of public service pension remedy have been published for consultation today.

1.1.2 The regulations deal with the tax treatment of the remedy set out in the Public Service Pensions and Judicial Offices Act 2022 (‘PSPJOA’). The ‘PSPJOA’ addresses the discrimination found in the public service pension reforms of 2015 (2014 in the case of certain local government schemes). The remedy makes retrospective changes to the pensionable service of members of public service pension schemes over the ‘remedy period’ from 1 April 2015 to 31 March 2022. These retrospective changes impact the tax treatment of that pensionable service over the ‘remedy period’ and these tax regulations, made under the power in Section 11 of Finance Act 2022, aim to put members in the tax position they would have been in had the discrimination not happened.

1.1.3 This guidance explains what the regulations do and provides scheme administrators of public service schemes with the information they need to deal with the tax changes arising from the remedy. It should be noted that this is draft guidance only and may change following the consultation.

1.1.4 Terms specific to the public service pension reform remedy that are shown in quotation marks are defined in the glossary at the end of this guidance.

1.2 Target audience

1.2.1 This guidance is aimed at public service pension scheme administrators and those with technical knowledge of pension schemes and their tax treatment, such as tax agents, accountants, and financial advisers.

1.2.2 There are parts relevant to pension scheme members but, if you are a member of a public service pension scheme, you do not need to do anything for now. You will receive further information from your pension scheme after the remedy has been implemented. You should not contact HMRC as you will be asked to wait for more information from your pension scheme.

1.3 What’s still to come

What’s not covered

1.3.1 The following topics are not covered in this guidance:

• voluntary contributions – tax consequences will arise for some members once the remedy is implemented as their standard pensionable service in relation to the remedy period will no longer be connected to the voluntary contributions (which do not move under the ‘PSPJOA’) made in relation to that service
• ill-health retirement – if members retiring on ill-health are members of more than one scheme there may be tax issues if schemes are required to pay the related ill-health pension out of one pension pot
• pension sharing on divorce – under the ‘PSPJOA’ a member and member’s former partner who share a public service pension on divorce, may end up in different pension schemes which affects the tax treatment of those pension rights
• opt-out – if members opted out of saving in a public service pension after they were moved to a reformed pension scheme, the remedy may retrospectively opt them back in, which may give rise to tax issues
• partnership pension account – if members opted out of saving in a public service pension after they were moved to a reformed pension scheme, and instead became a member of a partnership pension account, tax issues may arise in relation to the way this is remedied in ‘PSPJOA’
• transfers –transfers accepted into public service pension schemes during the remedy period will not move with the standard pensionable service when the remedy is implemented, which gives rise to tax issues

Reporting and claiming repayments

1.3.2 HMRC will provide more details on how to claim a repayment or report and pay extra tax due because of changes to a member’s annual allowance (AA) or lifetime allowance (LTA) as a result of the public service pension schemes remedy in due course. The level of pension contributions a member must pay as a result of the remedy is being dealt with separately as part of the compensation process, so it is not included within this guidance.

Timescales for additional guidance

1.3.3 Guidance on the tax treatment of the issues listed in the section What’s not covered will be published alongside the draft legislation dealing with them.

2. Overview of the remedy

2.1 About the remedy

2.1.1 The remedy is set out in Chapters 1, 2 and 3 of Part 1 of the ‘PSPJOA’. How the remedy fixes the discrimination caused by the 2014 and 2015 reforms depends on if the scheme is a ‘Chapter 1 scheme’, ‘Chapter 2 scheme’ or ‘Chapter 3 scheme’.

2.2 Remedy for Chapter 1 schemes

2.2.1 ‘Section 2’ starts the process of dealing with the discrimination for ‘Chapter 1 schemes’. It changes the pension scheme that affected members of most reformed public service schemes (‘Chapter 1 new schemes’) built up their pension in. This change is called the ‘rollback’. Scheme administrators must implement the rollback by 1 October 2023. When these members want to retire, their ‘Chapter 1 legacy scheme’ will give them a deferred choice of ‘legacy benefits’ or ‘new scheme benefits’ for the ‘remedy period’. If the members have started to take their pension benefits or died before ‘rollback’, they will have an ‘immediate choice’ of ‘legacy benefits’ or ‘new scheme benefits’ under Section 6 ‘PSPJOA’.

What the new scheme administrator needs to do

2.2.2 Implementing the ‘rollback’ means scheme administrators of ‘Chapter 1 new schemes’ must remove the basic pensionable service in new schemes for the period before 1 April 2022 for affected members. Affected members are treated as always having had their pension up to 31 March 2022 built up in their legacy scheme, although the related pension contributions remain in the ‘Chapter 1 new scheme’.

2.2.3 ‘Chapter 1 new schemes’ also keep:

• rights for service from 1 April 2022
• amounts built up from member voluntary contributions
• pension given as a result of a transfer to their scheme from another pension scheme

2.2.4 Scheme administrators remain responsible for paying benefits, deducting, and paying tax, and making reports in respect of those pension rights while they are held under their scheme.

2.2.5 Sections 20 and 21 ‘PSPJOA’ provide for scheme regulations to make provision in relation to member voluntary contributions and transfers. This guidance does not cover what will happen to these benefits as a result of scheme regulations made under Section 20 or 21 ‘PSPJOA’.

What legacy scheme administrators need to do

2.2.6 Scheme administrators of ‘Chapter 1 legacy schemes’ must put the pensionable service up to 31 March 2022 in their affected members’ existing arrangement in their legacy scheme.

2.2.7 Affected members are treated as always having had their pension up to 31 March 2022 built up in their ‘Chapter 1 legacy scheme’.

2.2.8 Scheme administrators are responsible for deducting and paying tax and making reports in respect of those pension rights while they are held under their scheme.

2.2.9 ‘Chapter 1 scheme’ members will be given a choice as to whether their benefits in respect of ‘remediable service’ are:

• legacy benefits – paid by the legacy pension scheme based on the benefits provided under legacy scheme rules, or
• ‘new scheme’ benefits – paid by the legacy pension scheme but based on the rules of the ‘Chapter 1 new scheme’

2.2.10 This will be an immediate choice where, before ‘Section 2’ comes into force, the member already has benefits in payment, or they have died. ‘The immediate choice of benefits’ provides more information on how this immediate choice will work.

2.2.11 For other members it will be a ‘deferred choice’, that they will generally make just before benefits are due to be paid.

Members who have received an immediate detriment remedy

2.2.12 Section 31(1) ‘PSPJOA’ provides that most of Chapter 1, Part 1 ‘PSPJOA’ does not apply to a member who has received an immediate detriment remedy. This is where members are provided with an early remedy (sometimes called an interim payment) broadly based on provisions in Chapter 1 before they take effect.

2.2.13 Sections 31(2) and (3) ‘PSPJOA’ provide that the regulations for a ‘Chapter 1 scheme’ may make provision for members who have received an immediate detriment remedy, including applying specific sections of Chapter 1, Part 1 ‘PSPJOA’ to those members.

2.2.14 This means that these regulations do not apply to members who have received an immediate detriment remedy unless scheme regulations apply parts of Chapter 1, Part 1 ‘PSPJOA’ to those members. How these regulations could apply depends on what parts of Chapter 1, Part 1 of ‘PSPJOA’ have been applied by scheme regulations.

2.3 Remedy for Chapter 2 schemes: judges

2.3.1 The Chapter 2 new scheme (‘2015 scheme’) is a registered pension scheme whereas the ‘Chapter 2 legacy schemes’ are not registered.

2.3.2 Judges will be offered an ‘options exercise’ of having their ‘remediable service’ pensioned under either the ‘2015 scheme’ or the ‘Chapter 2 legacy scheme’.

2.3.3 ‘Protected judges’ will not be offered the option of having benefits under the ‘2015 scheme’.

Judge makes a legacy scheme election

2.3.4 Where a judge makes a legacy scheme election, the judge’s basic pensionable service in respect of the ‘remedy period’ is treated as always having been pensioned under their ‘Chapter 2 legacy scheme’ and not the ‘2015 scheme’. The ‘2015 scheme’ will keep the following pension rights:

• rights relating to member voluntary contributions paid to the scheme
• rights given as a result of a transfer into the scheme

Judge makes a 2015 scheme election

2.3.5 Where the judge makes a ‘2015 scheme election’, the judge’s basic pensionable service in respect of the ‘remedy period’ is treated as always having been pensioned under the ‘2015 scheme’ and not the ‘Chapter 2 legacy scheme’.

2.3.6 Scheme administrators of ‘2015 schemes’ must put ‘remedy period’ pension rights in their members’ existing arrangement under the ‘2015 scheme’.

Members who have received an immediate detriment remedy

2.3.7 Section 67(1) ‘PSPJOA’ provides that most of Chapter 2, Part 1 ‘PSPJOA’ does not apply to a member who has received an ‘immediate detriment remedy’.

2.3.8 Sections 67(2) and 67(3) ‘PSPJOA’ provide that the regulations for a ‘Chapter 2 scheme’ may make provision for members who have received an ‘immediate detriment remedy’, including applying specific sections of Chapter 2, Part 1 ‘PSPJOA’ to those members.

2.3.9 This means that these regulations do not apply to members who have received an immediate detriment remedy unless scheme regulations apply parts of Chapter 2, Part 1 ‘PSPJOA’ to those members. How the tax regulations could apply depends on which parts of Chapter 2, Part 1 of ‘PSPJOA’ have been applied by scheme regulations.

2.4 Remedy for Chapter 3 schemes: local government employees

2.4.1 Changes were made to the local government pension scheme for England and Wales on 1 April 2014. Changes to the other local government schemes were made from 1 April 2015. The changes made to the local government pension schemes were different to those made to other public service schemes.

2.4.2 Members with ‘remediable service’ are members of just one registered pension scheme for their local government employment. Benefits for all members accrue on a ‘CARE’ basis for pensionable service on or after 1 April 2014 (for England and Wales) or 2015. ‘Protected’ members were given an underpin, so that the benefits they received would be based on the higher of ‘CARE’ accrual or final salary accrual during the ‘remedy period’.

2.4.3 The remedy for the local government schemes is to extend this final salary underpin to all members with ‘remediable service’. This extension of the underpin will not be applied with full retrospection for tax purposes.

3. Contributions

3.1 When Section 2 comes into force

3.1.1 Members with ‘remediable service’ under a ‘Chapter 1 new scheme’ will have their basic pensionable service rolled back to their ‘Chapter 1 legacy scheme’. This does not affect the position of any contributions that needed to be paid by the member, or their employer in respect of the member’s ‘remediable service’. This means that, in relation to contributions, public service employers do not need to amend their PAYE returns and members do not need to amend their tax position for the years where this would otherwise be required under current legislation. Contributions are corrected under the ‘PSPJOA’ instead.

3.1.2 Member voluntary contributions arrangements are not affected by the ‘rollback’ of pensionable service from the ‘Chapter 1 new scheme’ to the ‘Chapter 1 legacy scheme’ under ‘Section 2’.

3.2 The effect of regulation 3

3.2.1 Regulation 3 provides that the rollback of a member’s pensionable service under ‘Section 2’ is to be ignored in determining whether the member is an active member of a ‘Chapter 1 new scheme’, for the purposes of Section 188 of Finance Act 2004 (relief for contributions). This is to ensure that the member’s entitlement to tax relief on any contributions they paid to the ‘Chapter 1 new scheme’ is unaffected by the ‘rollback’ of their pensionable service.

3.3 Action for schemes

3.3.1 Schemes will not need to take any direct action in respect of contributions because of regulation 3. It is purely concerned with preserving a member’s eligibility for tax relief on their contributions during ‘the remedy period’.

3.4 Corrections of contributions going forward

3.4.1 Schemes may need to make corrections for contributions in three scenarios set out under Sections 15, 16 and 17 of ‘PSPJOA’. These are:

• in respect of a pensioner or deceased member whose benefits are paid before the remedy comes into effect
• when the pensionable service of an active or deferred member is rolled back to the ‘Chapter 1 legacy scheme’
• when an election for ‘new scheme benefits’ is made under section 10 ‘PSPJOA’ by an active or deferred member at retirement

3.4.2 Broadly, each of the sections provides for a comparison to be made between the contributions actually paid by the member under any ‘Chapter 1 scheme’ in respect of their ‘remediable service’ and:

• where an election for ‘new scheme benefits’ is made under Section 6 or Section 10 ‘PSPJOA’, the amount that they would have paid had this pensionable service occurred under the relevant ‘Chapter 1 new scheme’
• where an active or deferred member’s pensionable service is rolled back to the ‘Chapter 1 legacy scheme’, or there is no election made for new scheme benefits in respect of a pensioner or deceased member, the amount they would have paid under the relevant ‘Chapter 1 legacy scheme’

3.4.3 If a member has paid more in contributions than they would have had they always been a member of the relevant scheme, the scheme manager will pay compensation equal to the difference. As the member will have received too much tax relief in respect of those contributions, Section 18 ‘PSPJOA’ states that the compensation will be reduced to reflect the excess tax relief received.

3.4.4 Where the member has paid less in contributions than they would have paid had they always been a member of the relevant scheme, they will need to pay the difference in contributions. It is for schemes to decide whether members pay the difference in contributions as a single lump sum or instalments, but tax relief may not always be available on the payments members are required to make. Those who are still active members of the relevant scheme should generally receive tax relief on their contributions in the usual way. Contributions paid by, or on behalf of, deferred or pensioner members will not be eligible for tax relief. Where tax relief is not available on payments required in respect of a shortfall in contributions, scheme managers can use Section 18 ‘PSPJOA’ to reduce or waive the amount owed by the member to reflect the tax relief that they would have otherwise received.

3.4.5 Changes in the rates of pension contributions between ‘Chapter 2 legacy schemes’ and ‘2015 schemes’ are dealt with in the ‘PSPJOA’ so no changes are needed in these regulations.

4. Annual allowance (AA)

4.1 Rules for annual allowance

4.1.1 This section of the guidance explains to scheme administrators how the rules relating to AA have been modified. The ‘normal’ rules set out in PTM050000 in the HMRC Pensions Tax Manual apply unless modified as set out below:

4.2 Effect of Section 2 and Section 45 PSPJOA

4.2.1 After the ‘Section 2’ ‘rollback’ any pension built up in a ‘Chapter 1 new scheme’ is returned to the affected member’s ‘Chapter 1 legacy scheme’. This means that, the pension input amount will arise in the member’s ‘Chapter 1 legacy scheme’ for tax years in the ‘remedy period’.

4.2.2 The ‘rollback’ doesn’t apply to judicial pension schemes. Section 45 ‘PSPJOA’ allows members who belonged to both a ‘Chapter 2 legacy scheme’ and a ‘2015 scheme’ to choose which scheme they want to be in for the tax years in the ‘remedy period’.

4.3 Actions for Chapter 1 new scheme administrators

4.3.1 To implement ‘rollback’, scheme administrators for ‘Chapter 1 new schemes’ must remove pensionable service in ‘Chapter 1 new schemes’ for the period up to and including 31 March 2022 for affected members.

4.3.2 After ‘rollback’, affected members are treated as if they had their pension built up in their legacy scheme for the period up to and including 31 March 2022. Scheme administrators of ‘Chapter 1 new schemes’ must keep:

• rights for service from 1 April 2022
• amounts built up from voluntary contributions
• amounts transferred to the scheme from other pension schemes

4.3.3 This will affect members’ pension input amounts under the scheme.

4.4 Actions for Chapter 1 legacy scheme administrators

Regulation 6(c)

4.4.1 Scheme administrators for ‘Chapter 1 legacy schemes’ will need to put pensionable service up to and including 31 March 2022 in their affected members’ existing arrangement under the legacy scheme.

4.4.2 After ‘rollback’, affected members are treated as if they had built up their pension in their ‘Chapter 1 legacy scheme’ up to and including 31 March 2022. This will affect pension input amounts under the ‘Chapter 1 legacy scheme’, so scheme administrators may need to revise or issue a pension savings statement and change any AA charge they paid.

4.4.3 Where a scheme administrator needs to send a pension savings statement to a member, they will have until the later of either:

• 6 October 2024
• 6 months after either an election is made or the end of the election period if the member has an ‘immediate choice’ because they were a pensioner or died before ‘rollback’.

4.5 Actions for Chapter 2 scheme administrators or managers

Where the member makes a 2015 scheme election

4.5.1 ‘2015 scheme’ administrators must put ‘remedy period’ pension rights in their members’ existing arrangement under the ‘2015 scheme’.

4.5.2 The result of making a ‘2015 scheme election’ is that members are treated as if they had built up their pension in their ‘2015 scheme’ up to and including 31 March 2022. This will affect pension input amounts for ‘taper protected’ members, so scheme administrators may need to revise or issue a pension savings statement. This will not affect the pension input amount for unprotected members, as a ‘2015 scheme election’ will not change the amount of their benefits under the scheme. ‘Protected members’ will not be affected as they cannot make a ‘2015 scheme election’.

Where the member makes a legacy scheme election

4.5.3 If a ‘taper protected’ or ‘unprotected Chapter 2 scheme’ member makes a ‘legacy scheme’ election, the ‘2015 scheme’ administrator will have to remove that member’s pension rights from the scheme in respect of the ‘remedy period’.

4.5.4 The ‘2015 scheme’ administrator must tell the member that they have sent a pension savings statement to that is no longer valid.

4.5.5 As ‘Chapter 2 legacy schemes’ are not registered pension schemes their scheme managers will not need to calculate pension input amounts or provide pension savings statements.

4.6 Impact on pension input amount calculations

4.6.1 After the ‘rollback’, ‘Chapter 1 legacy scheme’ administrators will need to recalculate the pension input amount of affected members for each pension input period up to and including the tax year 2021 to 2022. The point at which scheme administrators will need to do this will depend on whether the member has started to take their benefits or has died before ‘Section 2’ comes into force. Whether scheme administrators will need to recalculate pension input amounts for their members depends on how the member was impacted by the reforms.

4.6.2 For ‘protected members’ who:

• have started to take their benefits or died before ‘Section 2’ comes into force their ‘immediate choice’ (read ‘The immediate choice of benefits’) may change the amount of their benefits during one of the remedy period years. If the member does not make a ‘new scheme benefits election’ there will be no change in their pension input amounts. If the member makes a ‘new scheme benefits election’, the pension input amount for the year in which they start to take benefits may change. The section Effect of a new scheme benefits election on pension input amounts explains how the pension input amount under the arrangement is calculated when there is a ‘new scheme benefits election’. Scheme administrators will be aware of the change to the member’s benefit entitlement from the date that the ‘new scheme benefits election’ is given to them
• have not started to take their benefits or died before ‘Section 2’ comes into force, scheme administrators do not need to work out those members’ pension input amounts. This is because the amount of their benefits has not changed during the remedy period

4.6.3 For ‘taper protected members’ who:

• have started to take their benefits or died before ‘Section 2’ comes into force and make a ‘new scheme’ benefit election pension input amount for the year in which they start to take benefits may change. The section Effect of a new scheme benefits election on pension input amounts explains how the pension input amount under the arrangement is calculated when there is a ‘new scheme benefits election’. Scheme administrators will be aware of the change to the member’s benefit entitlement from the date that the ‘new scheme benefits election’ is given to them
• have started to take their benefits or died before ‘Section 2’ comes into force and choose legacy benefits, there will be change in their pension input amounts for the remedy period years that they accrued benefits under the ‘Chapter 1 new scheme’. Scheme administrators will not be aware of this change until the end of the ‘Section 6 election period’
• have not started to take their benefits or died before ‘Section 2’ comes into force, there will be a change in their pension input amounts for the remedy period years that they accrued benefits under the ‘Chapter 1 new scheme’. The pension input amounts for these years need to be worked out on the basis of legacy accrual. The amount of the member’s benefits will change from the date ‘Section 2’ comes into force

4.6.4 For ‘unprotected members’ who:

• have started to take their benefits or died before ‘Section 2’ comes into force and make a new scheme benefit election, scheme administrators do not need to recalculate those members’ pension input amounts. This is because the amount of their benefits has not changed during the remedy period years
• have started to take their benefits or died before ‘Section 2’ comes into force and choose legacy benefits, the scheme administrator will need to recalculate those members’ pension input amounts on the basis of legacy accrual for the remedy period years. The amount of the member’s benefits will change from immediately before they started to take their pension
• have not started to take their benefits or died before ‘Section 2’ comes into force, there will be a change in their pension input amounts for all remedy period years. The pension input amounts for these years need to be worked out on the basis of legacy accrual. The amount of the member’s benefits will change from the date ‘Section 2’ comes into force

4.6.5 The pension input amounts members have remaining in ‘Chapter 1 new schemes’ for the remedy period will cover voluntary contributions only. The pension input amounts members have in legacy schemes will reflect members’ service during the ‘remedy period’.

Where the member has used Scheme Pays during the remedy period

Regulation 10(46)

4.6.6 The recalculation of the pension input amounts under the ‘Chapter 1 legacy scheme’ for the remedy period years should be made ignoring any adjustment to benefits made as a result of actioning a Scheme Pays election.

Pension input amount calculation for 2015 to 2016 split years

4.6.7 The 2015 to 2016 tax year contained two mini tax years for pension input amount purposes. The first mini tax year ran from 6 April 2015 to 8 July 2015 inclusive. The second mini tax year ran from 9 July 2015 to 5 April 2016 inclusive. As the 2015 to 2016 tax year is in the remedy period, scheme administrators will need to consider these two mini tax years, when recalculating pension input amounts for members for that year. This is explained in PTM058010 in the HMRC Pensions Tax Manual.

4.6.8 When ‘Chapter 1 legacy scheme’ administrators are told that members who had opted out for the first mini tax year now have their membership reinstated for that period, they must calculate their pension input amount for each of the mini years. When making this calculation, scheme administrators should ignore any Scheme Pays adjustment. Scheme administrators will need to work out whether to send the member a pension savings statement in the usual way if their pension input amount is more than £40,000 under the relevant scheme for the period covering both mini tax years.

Effect of a new scheme benefits election on pension input amounts

Regulation 12

4.6.9 After ‘Section 2’ comes into force, members of ‘Chapter 1 legacy schemes’ will be given the choice of having their benefits in respect of remediable service as new scheme benefits (read paragraph 2.2.9). Where a ‘new scheme benefits election’ is made it takes effect immediately before the member starts to take benefits.

4.6.10 When calculating the pension input amount, the effect of the ‘new scheme benefits election’ will be ignored if it would give a higher pension input amount.

4.6.11 In the year the member starts to take benefits the opening value will be calculated using legacy accrual.

4.6.12 Where the difference between the opening value and the closing value (based on new scheme benefit accrual) is the same or less than the difference between the opening value and the closing value (based on legacy benefit accrual) the closing value used to calculate the pension input amount will be based on new scheme benefit accrual.

4.6.13 Where the difference between the opening value and the closing value (based on new scheme benefit accrual) is more than the difference between the opening value and the closing value (based on ‘legacy benefit accrual’) the closing value used to calculate the pension input amount will be based on ‘legacy benefit accrual’.

Deferred member carve-out and new scheme benefits election

Regulations 12 and 13

4.6.14 PTM53910 in the HMRC Pensions Tax Manual explains the instance where the pension input is nil because a member is a deferred member under the arrangement (known as the deferred member carve-out).

4.6.15 Where a member puts benefits into payment having been a deferred member, the effect of regulation 12 is that any increase in benefits due to making a ‘new scheme benefits election’ will not cause the deferred member carve-out to fail. The pension input amount for the arrangement under the ‘Chapter 1 legacy scheme’ will be nil.

4.6.16 In another scenario, a member may put only part of their benefits into payment having been an active member. The member might make a ‘new scheme benefits election’, put their pre-remedy period benefits into payment and defer taking their ‘new scheme benefits’. Under the scheme definitions, the member will be both a pensioner member and a deferred member. Under tax definitions, the member is a pensioner member of the arrangement, not a deferred member. The effect of regulation 13 is that in the tax years following the year in which the member first starts taking benefits, the deferred member carve out should apply to the arrangement under the ‘Chapter 1 legacy scheme’. The pension input amount for that arrangement will be nil.

Pension input amount under Chapter 3 schemes

Regulation 14

4.6.17 Paragraph 2.4.2 explains that local government pension schemes have a final salary underpin. Regulation 14 provides that for the purposes of calculating the pension input amount any increase due to the final salary underpin is ignored. The pension input amount should be calculated on ‘CARE’ accrual only.

4.7 Adjustment to the amount of the tapered AA

Regulation 4

Chapter 1 schemes

4.7.1 This section of the guidance applies to members for any year during the ‘remedy period’ where the contributions payable under the ‘Chapter 1 legacy scheme’ and ‘Chapter 1 new scheme’ will be different. It affects ‘taper protected’ members and ‘unprotected’ members who, for one or more years within the ‘remedy period’, either had:

• a tapered AA, or
• had income just below the level of either the threshold income or adjusted income

4.7.2 PTM057100 in the HMRC Pensions Tax Manual explains when the tapered AA applies, what level of threshold income and adjusted income are needed to be subject to the tapered AA and how to calculate threshold income and adjusted income. For any year that has been rolled back from the ‘Chapter 1 new scheme’ to the ‘Chapter 1 legacy scheme’ to calculate the threshold income and adjusted income, members will use the amount of basic contributions payable under the member’s ‘Chapter 1 legacy scheme’ in place of the amount of basic contributions paid to the ‘Chapter 1 new scheme’. The amount of any member voluntary contributions paid will remain unchanged.

Chapter 2 schemes

4.7.3 This section of the guidance applies to ‘taper protected’ judges who make a 2015 scheme election. It effects judges who for one or more of the years that were originally pensioned under a Chapter 2 legacy scheme, either had:

• a tapered AA, or
• had income just below the level of either the ‘threshold income’ or ‘adjusted income’

4.7.4 For any year that was originally pensioned under a ‘Chapter 2 legacy scheme’, to calculate the ‘threshold income’ and ‘adjusted income’ members will use the amount of basic contributions payable under the ‘2015 scheme’ in place of the amount of basic contributions paid to the ‘Chapter 2 legacy scheme’. The amount of any member voluntary contributions paid remains unchanged.

4.8 Sharing information

Regulation 11

4.8.1 When rolling back a member’s pensionable service, ‘Chapter 1 new scheme’ administrators must send the member’s ‘legacy scheme’ information about any Scheme Pays elections that have agreed with the member and any tax charges paid for the member over the ‘remedy period’.

4.8.2 The following details must be sent to the legacy scheme:

• the member’s name and National Insurance number
• the scheme’s name and pension scheme tax registration number
• the date and amount of scheme pays election
• the tax year the charge relates to
• the amount of tax charge paid
• the date of payment of the tax charge
• the quarter and year the tax charge was reported

4.9 Amending or issuing a pension saving statement for remedy period tax years

Regulations 6 and 7

4.9.1 PTM167000 in the HMRC Pensions Tax Manual sets out when a pensions savings statement must be provided and the information they should contain.

4.9.2 After ‘rollback’, scheme administrators of ‘Chapter 1 schemes’ will need to work out whether they need to:

• issue members with a pension savings statement,
• update an existing statement, or
• tell the member that the statement is no longer necessary

4.9.3 Whether a scheme administrator is required to update an existing pension savings statement, or issue a statement if one has not been issued previously, will depend on the status of a member when ‘Section 2’ comes into force. This includes telling a member that a statement is no longer required if one has previously been issued.

4.9.4 The deadline for providing pension savings statements in these circumstances will be 6 October 2024 for:

• ‘Chapter 1 new scheme’ administrators, and
• ‘Chapter 1 legacy scheme’ administrators in respect of members who have not started taking benefits or died before ‘Section 2’ comes into force

4.9.5 For ‘Chapter 1 legacy scheme’ members who have started to take benefits (from either the ‘Chapter 1 new scheme’ or ‘legacy scheme’) the deadline for the ‘Chapter 1 legacy scheme’ administrator will depend on:

• when the remediable service statement is issued, and
• the decision made by the member when they make their immediate choice (read ‘The immediate choice of benefits’)

4.9.6 For these members the deadline is the later of 6 October 2024 and:

• where a ‘new scheme benefit election’ is made, six months from the date on which that election is made
• where legacy benefits are chosen, six months from the end of the ‘Section 6 election period’

4.9.7 Where a scheme has previously reported the issue of a pension savings statement on the Event Report, scheme administrators must not amend that Event Report to reflect the revised circumstances. Instead, where the updated pension savings statement, or a newly issued statement meets the conditions for automatic issue (read PTM167100 in the HMRC Pensions Tax Manual), it will need to be reported on the Event Report for the tax year in which that statement was issued. PTM161600 in the HMRC Pensions Tax Manual gives more information on what needs to be reported.

4.10 Pension Saving Statements for the 2022 to 2023 tax year

Regulation 6

4.10.1 PTM167000 in the HMRC Pensions Tax Manual sets out when a pension savings statement must be provided and the information it should contain.

4.10.2 The usual deadline for issue of the 2022 to 2023 pension saving statement of 6 October 2023 will be extended by a year to 6 October 2024. This applies to statements issued by both ‘Chapter 1 legacy’ and ‘Chapter 1 new schemes’.

4.10.3 The ‘rollback’ will change the opening value for the pension input amount of the affected arrangement for the members and it might take place shortly before the 2022 to 2023 pension savings statements would have been due.

4.10.4 As a result, scheme administrators of both ‘Chapter 1 legacy schemes’ and ‘Chapter 1 new schemes’ will have until 6 October 2024 to provide the 2022 to 2023 pension savings statements for members who have part of their pensionable service rolled back into their legacy scheme.

4.11 Those who are liable for tax

Regulation 10

4.11.1 Members remain liable for the tax that relates to pensionable service during the ‘remedy period’.

4.11.2 As a result of the rollback, scheme administrators of ‘Chapter 1 legacy schemes’ will be jointly liable for AA charges if a member’s ‘Chapter 1 new scheme’ accepted a mandatory scheme pays election. They will be jointly and severally liable for the tax on the same basis as the ‘Chapter 1 new scheme’ administrator was liable before ‘rollback’.

4.11.3 If the member’s ‘Chapter 1 new scheme’ agreed to pay a member’s AA charge under a voluntary Scheme Pays arrangement, the ‘Chapter 1 legacy scheme’ administrator must accept this arrangement with the member.

4.11.4 Scheme administrators of ‘Chapter 1 new schemes’ will remain liable for any tax paid as a result of a mandatory Scheme Pays election in respect of member voluntary contributions to their scheme.

4.11.5 If a scheme administrator has agreed to pay a member’s AA charge under a voluntary Scheme Pays arrangement in respect of voluntary contributions, then the scheme administrator should leave that in place. This will be covered in the directions that the Treasury will give to the schemes on changes to their scheme regulations.

4.12 Changes if scheme pays is used in the remedy period

Regulation 10

4.12.1 A Scheme Pays notice made to a ‘Chapter 1 new scheme’ administrator is treated as made to the ‘Chapter 1 legacy scheme’ administrator. Where the amount originally specified in the notice is more than the amount of AA charge which will be due in respect of the ‘Chapter 1 legacy scheme’, the amount specified in the notice will be treated as the lower amount. Once members have been rolled back into their legacy scheme, ‘Chapter 1 new scheme administrators’ will no longer be jointly and severally liable for the AA charge.

4.12.2 An AA charge paid by a ‘Chapter 1 new scheme administrator’ will be treated as paid by the ‘Chapter 1 legacy scheme’ administrator. However, ‘Chapter 1 new scheme’ administrators will still need to pay any tax that they agreed to pay under a Scheme Pays election for any tax year in the period up to 31 March 2022. HMRC will continue to pursue ‘Chapter 1 new scheme administrators’ for any outstanding tax. ‘Chapter 1 new schemes’ contain a mix of members; only some members have ‘remediable service’. This is because it is not possible to separate the tax reported as due and paid down to each member level.

4.12.3 After a member has been rolled back into their ‘Chapter 1 legacy scheme’, ‘Chapter 1 new scheme’ administrators must not make a claim for the repayment of any of the member’s AA charge they have paid.

4.12.4 The ‘Chapter 1 legacy scheme’ administrator will be responsible for making a claim if tax has been overpaid or for paying any additional tax.

Operation of scheme pays for extra tax

Regulation 6(c) and 8

4.12.5 Where, as a result of the ‘rollback’, or the ‘options exercise’ made by a judge, the member has a new or additional AA tax charge to pay the member may be able to use mandatory Scheme Pays.

4.12.6 If a member makes a Scheme Pays election for this extra charge, it will be treated as a mandatory election, even if the pension input amount for your scheme is not more than £40,000 or the member’s AA charge is less than £2,000.

4.12.7 For mandatory Scheme Pays to apply the member just needs to make their Scheme Pays election to the ‘Chapter 1 scheme’ administrator by the following deadlines:

• 6 July 2025, if the member is an active or deferred member when ‘Section 2’ comes into force
• 6 July 2027, if the member is a pensioner member or is deceased when ‘Section 2’ comes into force

Operation of Scheme Pays for 2022 to 2023

Regulation 6(c) and 9

4.12.8 For ‘Chapter 1 schemes’ the mandatory Scheme Pays requirements relating to pension input amount and the tax due will be disapplied. As the deadline for scheme administrators to send pension savings statements to members is moved to 6 October 2024, for mandatory Scheme Pays to apply, the member will need to make their Scheme Pays election to the ‘Chapter 1 scheme’ administrator by the following deadlines:

• 6 July 2025, if the member is an active or deferred member when ‘Section 2’ comes into force
• 6 July 2027, if the member is a pensioner member or is deceased when ‘Section 2’ comes into force

4.12.9 The Scheme Pays election cannot be for more than the amount of AA charge arising in respect of the ‘Chapter 1 scheme’.

4.13 Reporting extra tax on the Accounting for Tax return

4.13.1 Where a member asks a scheme administrator to pay a new or additional AA tax charge, this charge must be reported on the Accounting for Tax (AFT) return for the quarter after the new Scheme Pays election is received. For example, an election received on 30 September would require any additional AA tax charge to be reported on the AFT for the quarter ending 31 December.

4.13.2 The AFT will be updated so that scheme administrators can report the charge that arises as a result of the public service pension remedy and provide additional information about the original charge paid (if applicable).

Paying extra tax

4.13.3 The normal deadlines apply for paying additional AA charges each year:

Period when tax arises	Filing and payment date deadline (45 days after the period in which the tax arises)
1 January to 31 March	15 May
1 April to 30 June	14 August
1 July to 30 September	14 November
1 October to 31 December	14 February

4.13.4 If the AFT return or tax charge payments are not received by the due date, interest and penalties will be charged.

How to reclaim overpaid tax

Regulation 11

4.13.5 Where the ‘rollback’ or the member’s immediate choice results in a previous AA tax charge being reduced, or no longer due, there will be a different process. Scheme administrators should not report this by amending the AFT on which the tax charge was originally reported to HMRC. The ‘Chapter 1 legacy scheme’ administrator will only be able to reclaim the overpaid tax by making an application to HMRC.

4.13.6 Scheme administrators will need to provide:

• the member’s name and National Insurance number
• the amount of the original charge
• when the original charge was paid, and who it was paid by

4.13.7 HMRC will provide full details on the data required and how to return this to HMRC to reclaim the overpaid tax in due course.

4.13.8 Once HMRC has verified that the original AA charge was reported and paid, a credit will be posted on the scheme administrator’s Managing Pension Schemes service account. HMRC will confirm the credit raised for each member.

5. Benefits

5.1 Rules for paying benefits

5.1.1 This section of the draft guidance tells pension scheme administrators what will happen if a member with remediable service has taken benefits, or they have died, before the remedy comes into force. PTM060000 in the HMRC Pensions Tax Manual sets out rules relating to benefits and PTM070000 in the HMRC Pensions Tax Manual sets out rules for death benefits. These rules apply unless modified as set out below:

5.2 Chapter 1 schemes when ‘Section 2’ comes into force

5.2.1 When ‘Section 2’ comes into force, members with ‘remediable service’ pensioned under a Chapter 1 new pension scheme, will have their basic pensionable service ‘rolled back’ to their legacy pension scheme.

5.2.2 ‘Chapter 1 new schemes’ keep:

• amounts built up from member voluntary contributions
• rights for service from 1 April 2022
• pension given as a result of a transfer to your scheme from another pension scheme

5.3 The immediate choice of benefits

5.3.1 Members who started to receive benefits, or had died, before ‘Section 2’ comes into force must make an immediate choice under ‘Section 6’ to have their benefits in respect of ‘remediable service’ paid as:

• legacy benefits, or
• ‘new scheme’ benefits (payable from the legacy scheme but on the basis of the benefits promised under the ‘Chapter 1 new scheme’)

5.3.2 The rules relating to exercising an immediate choice of benefits are set by the provisions of ‘PSPJOA’, not the tax legislation, therefore HMRC cannot answer questions on how members and beneficiaries make the immediate choice.

5.3.3 The ‘Chapter 1 legacy scheme’ will provide a remediable service statement (RSS) which will give details of the benefits payable under each option (legacy or ‘new scheme benefits’). Section 29 ‘PSPJOA’ requires that statement should normally be provided within 18 months of ‘Section 2’ coming into force. The member (or their beneficiary if the member has died) has a period of one year from when the RSS is provided to make their choice (known as the ‘Section 6 election period’).

5.3.4 If the member, or their beneficiary, wants to get ‘new scheme’ benefits then they need to make a ‘new scheme benefits election’ by the end of the ‘Section 6 election period’. Where a ‘new scheme benefits election’ is made it takes effect retrospectively, changing the amount of the member’s benefits from immediately before they became entitled to their pension. The point when a member becomes entitled to their benefits is set by the tax legislation – find out more about when a member becomes entitled to their benefits in PTM088200 in the HMRC Pensions Tax Manual. If a member has died without becoming entitled to benefits, the election is effective immediately before the member’s death. For ‘protected’ and ‘taper protected’ members, the amount of benefits due under the ‘Chapter 1 legacy scheme’ will change from the point from which the ‘new scheme’ benefits election takes effect. For ‘unprotected’ members, their benefit entitlement in respect of the ‘remedy period’ remains unchanged by making a ‘new scheme benefit election’, but benefits will all be provided by the ‘Chapter 1 legacy scheme’.

5.3.5 If the member, or their beneficiary, would like to receive legacy benefits then they will not need to make a ‘new scheme benefits election’. At the end of the ‘Section 6 election period’ the Chapter 1 legacy scheme administrator will know that the choice is legacy benefits. The member may tell the ‘Chapter 1 legacy scheme’ that they want legacy benefits, but this is not a requirement set by ‘PSPJOA’.

5.3.6 For ‘protected members’, choosing legacy benefits will not change the amount of their benefits due in respect of ‘remediable service’

5.3.7 ‘Unprotected’ members and ‘taper protected’ members, choosing legacy benefits will have the amount of their benefits due in respect of remediable service change at the end of the ‘Section 6 election period’. However, when made the change is retrospective; that is the member is treated as always accruing benefits under the Chapter 1 legacy scheme for the ‘remedy period’.

5.4 Impact on benefits that have already been paid

5.4.1 ‘Section 3’ PSPJOA provides that any benefits paid by the ‘Chapter 1 new scheme’ that relate to remediable service are treated as always having been paid by the ‘Chapter 1 legacy scheme’. This will have the effect of making the ‘Chapter 1 legacy scheme’ administrator responsible, and always having been responsible, for the tax and reporting requirements for these payments.

5.4.2 If the ‘Chapter 1 new scheme’ administrator has failed to carry out any of the reporting requirements, or to pay the required tax, the ‘Chapter 1 legacy scheme’ administrator becomes responsible for that failure and fixing it. However, where it is not possible to identify that the ‘Chapter 1 legacy scheme’ administrator is liable for the tax, HMRC will continue to pursue the ‘Chapter 1 new scheme’ administrator.

5.4.3 The ‘Chapter 1 new scheme’ administrator will remain responsible for paying tax and reporting requirements in relation to pension rights retained under their scheme.

5.4.4 As a result of the member’s immediate choice, based on the current tax legislation, some or all of the benefits the member has received may be unauthorised payments.

5.4.5 Regulations 15, 18, 20 and 27 to 29 modify how the tax legislation currently works so that in most situations benefits relating to ‘remediable service’ that the member has received will continue to be authorised payments. They also set out how that payment should be taxed, and how the scheme administrator may need to report and pay tax on those benefits. Paragraphs 5.8.5, 5.13.2, and 5.15.3 to 5.16.6 provide more detail on these regulations.

Impact on the payment of benefits after Section 2 comes into force

5.4.6 Where benefits are in payment from the ‘Chapter 1 new scheme’, the scheme administrator needs to identify which benefits remain in the ‘Chapter 1 new scheme’ and which will be rolled back to the ‘Chapter 1 legacy scheme’. They should stop paying any benefit in respect of pensionable service rolled back to the ‘Chapter 1 legacy scheme’. The ‘new scheme’ continues to be responsible for paying benefits in respect of pension rights retained by the scheme after ‘Section 2’ comes into force.

5.4.7 The ‘Chapter 1 legacy scheme’ administrator becomes responsible for paying the benefits that were in payment from the ‘Chapter 1 new scheme’ that relate to ‘remediable service’ rolled back into their scheme. This is in addition to continuing to pay benefits already crystallised under their scheme.

5.4.8 The ‘Chapter 1 legacy scheme’ administrator should not change the amount of benefits (legacy plus those from rolled back service) until either:

• they receive a ‘new scheme benefits election’, or
• the member’s ‘Section 6’ election period ends

5.4.9 As a result of the immediate choice the Chapter 1 legacy scheme may need to reduce or increase the member’s benefits. This may also impact the level of death benefits payable in respect of a member with ‘remediable service’ who dies before ‘Section 2’ comes into force.

5.4.10 Regulations 17, 19, 21 to 25 and 30 modify how the tax legislation currently works so that in most situations these extra benefits should be authorised payments. They also set out how that payment should be taxed, and how the scheme administrator may need to report and pay tax on those benefits. Paragraphs 5.10.5, 5.11.3, 5.11.5, 5.12.3, 5.12.5, 5.13.5, 5.12.5 to 5.14.1 provide more detail on these regulations.

Impact on BCEs

5.4.11 As a result of the ‘rollback’ all, or part, of any BCE that occurred under the Chapter 1 ‘new scheme’ will not have occurred under that scheme. Instead, the BCE will have occurred under the ‘Chapter 1 legacy scheme’. The Chapter 1 ‘new scheme’ will keep the part of the BCE in respect of crystallised benefits that relate to:

• any pensionable service on or after 1 April 2022
• member voluntary contributions
• transfers received by the ‘Chapter 1 new scheme’

5.4.12 The amount of any BCE that occurs under the ‘Chapter 1 legacy scheme’, and whether it needs to be ‘rewritten’ will depend on the member’s ‘immediate choice’ of benefits, and the options available under the terms of the ‘Chapter 1 legacy scheme’ regulations. However, it will not be possible to remove a pension BCE that has occurred under the ‘Chapter 1 legacy scheme’ or change the date of that BCE; it is just the amount crystallised by the BCE that changes.

5.4.13 Paragraphs 5.5.1 to 5.5.42 give some examples setting out the principles governing the impact of the member’s choice on the amount of benefits payable and the BCEs. Given the complexity of the options under scheme regulations and individual circumstances it is not possible to provide examples for all situations.

5.5 Examples of chapter 1 rollback

Benefits paid from a legacy scheme only – legacy choice

5.5.1 In this example, Asif is a ‘taper protected’ member and has benefits in respect of ‘remediable service’ under both his ‘Chapter 1 legacy scheme’ and ‘Chapter 1 new scheme’. He is 60 in March 2023, the normal pension age under his ‘Chapter 1 legacy scheme’. Asif retires and take benefits from his Chapter 1 legacy scheme but leaves the benefits under his ‘Chapter 1 new scheme’ uncrystallised. His benefits paid from March 2023 are:

• a scheme pension of £40,000 (BCE 2 is 20 x £40,000 = £800,000), and
• a lump sum (PCLS) of £120,000 (BCE 6 of £120,000)

5.5.2 Asif has no other pension benefits in payment, so these are his first BCEs. He has used up £920,000 of his £1,073,100 LTA. No LTA charge is due.

5.5.3 The ‘Chapter 1 legacy scheme’ administrator gives Asif a BCE statement showing that he has used up 85.73% of the standard LTA.

5.5.4 When ‘Section 2’ comes into force, Asif’s benefits that were held under the ‘Chapter 1 new scheme’ are rolled back into the ‘Chapter 1 legacy scheme’. The ‘Chapter 1 legacy scheme’ continues to pay Asif’s scheme pension at the same level.

5.5.5 On 1 February 2024 Asif gets his ‘remediable service’ statement. This means his ‘Section 6 election period’ ends on 31 January 2025.

5.5.6 Asif decides he wants legacy benefits and so does not make a ‘new scheme benefits election’. As a result of Asif’s immediate choice of legacy benefits, his benefits are now both:

• a scheme pension of £48,000 per year
• a lump sum of £144,000

5.5.7 In February 2025 the ‘Chapter 1 legacy scheme’ increases Asif’s monthly pension payment and makes lump sum payments totalling £36,000. These represent the extra £24,000 PCLS payment (£144,000 due minus £120,000 already paid) and arrears of scheme pension plus interest minus tax deducted under PAYE.

5.5.8 Although the ‘Chapter 1 legacy scheme’ is unaware of the benefit amounts it needs to pay until the end of the ‘section 6 election period’, the change in benefit entitlement is retrospective. As a result of Asif’s immediate choice for legacy benefits, the BCEs that occurred under the ‘Chapter 1 legacy scheme’ in March 2023 are ‘rewritten’ as:

• BCE 2 (scheme pension) is 20 x £48,000 = £960,000
• BCE 6 (PCLS) is £144,000

5.5.9 The extra PCLS payment is paid outside the normal payment window for that lump sum (find out more in PTM063210 in the HMRC Pensions Tax Manual). Regulation 17 modifies the tax legislation so that the £24,000 top up lump sum payment can be a PCLS. Paragraph 5.11.3 sets out more detail on how regulation 17 works.

5.5.10 The arrears of scheme pension are taxable in the year in which the member became entitled to the pension. Asif was entitled to scheme pension of £28,000 per year from March 2023.

5.5.11 As Asif’s pension arrears are paid as a lump sum, he may have more tax deducted under PAYE than if the pension had been paid when due. EIM75020 in the Employment Income Manual explains what Asif needs to do if this is the case to reclaim any overpaid tax, Asif’s benefits have used up his available LTA. He has crystallised benefits of £30,900 more than the LTA. Asif has taken this excess in pension form. The ‘Chapter 1 legacy scheme’ administrator and Asif are jointly and severally for an LTA charge of £7,725 (£30,900 at 25%).

5.5.12 Regulation 26 provides for the scheme administrator to be able to reduce the amount of Asif’s scheme pension to take account of the payment of this LTA charge. Paragraph 5.17.2 sets out more detail on how regulation 26 works.

5.5.13 The section Reporting extra tax on the Accounting for Tax return provides guidance on what the ‘Chapter 1 legacy scheme’ administrator needs to do to report and pay the LTA charge.

5.5.14 The ‘Chapter 1 legacy scheme’ administrator must tell Asif how much LTA charge is due (find out more in PTM164300 in the HMRC Pensions Tax Manual ). They will also need to give Asif an amended BCE statement based on the revised amount of the BCEs and continue to provide an annual BCE statement showing the revised amount of benefits crystallised under the scheme.

5.5.15 Asif still has benefits remaining under the ‘Chapter 1 new scheme’ relating to pensionable service from April 2022 to March 2023. If the rules of the ‘Chapter 1 new scheme’ allows for this, Asif can leave his ‘Chapter 1 new scheme’ benefits uncrystallised and start to receive them from the normal pension age for the ‘Chapter 1 new scheme’. The BCEs for these benefits will occur when Asif decides to crystallise those benefits.

Benefits paid from a legacy scheme only – new scheme benefits election

5.5.16 In this example, Tom is a ‘protected’ member so has benefits under a ‘Chapter 1 legacy scheme’ only. In August 2018 Tom was 60, so can start drawing his pension, but he wants to continue working. Tom decides to partially retire. He reduces his working hours and decides to put his benefits built up to August 2018 into payment. His ‘Chapter 1 legacy scheme’ starts paying these benefits in December 2018. These are:

• scheme pension of £50,000 per year (BCE 2 is 20 x £50,000 = £1,000,000)
• lump sum (PCLS) of £150,000 (BCE 6 of £150,000)

5.5.17 Tom’s LTA is £1,030,000. As his total BCEs are £120,000 in excess of this amount. The ‘Chapter 1 legacy scheme’ administrator:

• tells Tom how much LTA charge is due
• gives Tom annual BCE statements telling him what percentage of the LTA he has used up, and
• reports the tax charge on their AFT return for the quarter ending 31 December 2018. They file the AFT return and pay the £30,000 (£120,000 at 25%) tax due on 5 February 2019

5.5.18 On 1 February 2024 Tom receives his ‘remediable service’ statement. This means his ‘section 6 election period’ ends on 31 January 2025.

5.5.19 Tom decides that he want his benefits in respect of the ‘remedy period’ paid as ‘new scheme benefits’. In March 2024 Tom makes a ‘new scheme benefits election’. However, Tom is still working and has not yet reached his normal pension age (66) under the ‘Chapter 1 new scheme’. Tom tells the ‘Chapter 1 legacy scheme’ that although he has made a ‘new scheme benefits election’, he does not want to draw those benefits until he is 66.

5.5.20 The ‘new scheme benefits election’ is effective immediately before Tom became a pensioner member – that is in December 2018 when the ‘Chapter 1 legacy scheme’ started to pay benefits. As a result of Tom’s immediate choice for ‘new scheme benefits’, his benefits are recalculated so that they are based on service up to 31 March 2015 only (service in the pre-remedy period). His benefits are recalculated as:

• scheme pension £44,000 per year
• lump sum (PCLS) £132,000

5.5.21 This means that Tom’s pension has been overpaid by £6,000 per year and he has been overpaid lump sum of £18,000. From May 2024 Tom’s Chapter 1 legacy scheme reduces his monthly pension payment and opens discussion as to how his overpaid benefits will be repaid.

5.5.22 As a result of Tom’s immediate choice, the BCEs that occurred in December 2018 are rewritten to the following amounts:

• BCE 2 (scheme pension) is 20 x £44,000 = £880,000
• BCE 6 (PCLS) is £144,000

5.5.23 Note that although that Tom is not entitled to a lump sum of £144,000 under the scheme regulations as a result of his immediate choice, he has become entitled to a lump sum and the whole lump sum payment still meets the definition of a PCLS. As such, the amount of the BCE 6 remains unchanged at £144,000.

5.5.24 The amount of the BCE 2 is based on the amount of scheme pension that is payable to Tom in the first 12 months after the BCE. As a result of Tom’s immediate choice, the amount of scheme pension payable in that period has reduced to £44,000 and so the amount of the BCE 2 reduces to £880,000.

5.5.25 As a result of the rewriting of the December 2018 BCEs Tom has used up only £1,024,000 of his LTA. No LTA charge is due. The ‘Chapter 1 legacy scheme’ administrator should reclaim the overpaid LTA charge from HMRC. The section How to reclaim overpaid tax explains how to do this.

5.5.26 The ‘Chapter 1 legacy scheme’ administrator needs to amend the notice they gave Tom telling him how much LTA charge was due. That means telling him that no LTA charge is due. They will also need to give Tom an amended BCE statement based on the revised amount of the BCEs and continue to provide an annual BCE statement showing the revised benefit amounts crystallised under the scheme.

5.5.27 Regulation 27 modifies the tax legislation so that the overpaid pension is treated as an authorised payment. This addresses the issue with the current legislation that the overpaid pension is not a scheme pension, nor another form of authorised payment. Paragraph 5.15.3 sets out more detail on how regulation 27 works and how the overpaid pension should be taxed.

5.5.28 Paragraphs 5.16.5 to 5.16.6 explain how repayments of overpaid benefits are treated. It depends on how the overpaid benefits are recovered.

5.5.29 Tom still has uncrystallised benefits under both the ‘Chapter 1 legacy scheme’ and the ‘Chapter 1 new scheme’.

5.5.30 Tom takes full retirement in September 2024 and put all his remaining benefits into payment. He gets another scheme pension of £15,000 per year from the ‘Chapter 1 legacy scheme’ and a scheme pension of £6,000 per year from the ‘Chapter 1 new scheme’.

5.5.31 The LTA charge will be due on part or all of the benefits payable from each scheme. The amount that each scheme administrator is responsible for reporting and paying depends on the order of the BCEs. Normal rules for when a BCE occurs apply – find out more in PTM088200 in the HMRC Pensions Tax Manual.

Benefits paid from new scheme – legacy choice

5.5.32 In this example, Trudy is an ‘unprotected’ member who joined the ‘Chapter 1 new scheme’ in April 2015. On 1 December 2020, aged 45, Trudy retired due to ill-health with tier 1 benefits. Due to the single pot rule the ‘Chapter 1 new scheme’ pays all Trudy’s benefits until she reaches the normal pension age of her ‘Chapter 1 legacy scheme’.

5.5.33 Trudy takes the following benefits:

• scheme pension £24,000 (BCE 2 is 20 x £24,000 = £480,000)
• lump sum (PCLS) of £100,000 (BCE 6 is £100,000)

5.5.34 These benefits include £2,000 per year added pension that Trudy purchased under the ‘Chapter 1 new scheme’ by making voluntary contributions.

5.5.35 Trudy has total BCEs of £580,000 and has used up 54.04% of the standard LTA for 2020-21. The ‘Chapter 1 new scheme’ administrator gives Trudy annual BCE statements showing what percentage of the LTA she has used up.

5.5.36 When ‘Section 2’ comes into force Trudy’s ‘remediable service’ is rolled back to the ‘Chapter 1 legacy scheme’. As she has no basic pensionable service under the ‘Chapter 1 new scheme’ it does not remain responsible for paying the ill-health pension. However, the £2,000 per year added pension remains within the ‘Chapter 1 new scheme’.

5.5.37 The ‘Chapter 1 new scheme’ administrator should continue paying the £2,000 per year added pension, as these pension rights remain in the ‘Chapter 1 new scheme’. The BCEs that occurred under the ‘Chapter 1 new scheme’ on 1 December 2020 are rewritten to become a BCE 2 of £40,000 (20 x £2,000). This is 3.72% of the LTA for 2020-21. The ‘Chapter 1 new scheme’ administrator should give Trudy a revised annual BCE statement showing the percentage of the LTA used up by the revised BCE.

5.5.38 The ‘Chapter 1 legacy scheme’ administrator should pay Trudy a pension of £22,000 per year (being the amount of the pension rolled back into the legacy pension scheme) and give Trudy a ‘remediable service’ statement.

5.5.39 On 15 November 2023 Trudy is given a ‘remediable service’ statement. This means her ‘Section 6 election period’ closes on 14 November 2024.

5.5.40 Trudy decides that she wants legacy scheme benefits, as this will give her a bigger pension. She also decides she want to keep the same amount of lump sum payment. The benefits she is now entitled to are:

• a scheme pension of £25,000 per year, and
• a lump sum of £100,000

5.5.41 In December 2024 the ‘Chapter 1 legacy scheme’ increases Trudy’s monthly pension payment. They also pay a lump sum of £2,400 which represents arrears of pension minus tax deducted under PAYE.

5.5.42 As a result of the ‘rollback’ and Trudy’s immediate choice two BCEs occurred under the ‘Chapter 1 legacy scheme’ on 1 December 2020 (the date of the original BCE under the ‘Chapter 1 new scheme’ which paid ill-health benefits in respect of all Trudy’s service)., as follows:

• BCE 2 (scheme pension) is 20 x £25,000 = £500,000
• BCE 6 (PCLS) is £100,000

5.5.43 Trudy has crystallised £600,000 under the ‘Chapter 1 legacy scheme’. This is total 55.91% of the LTA for 2020 to 2021. The ‘Chapter 1 legacy scheme’ administrator should give Trudy an annual BCE statement showing that she has used up 55.91% of the LTA due to BCEs under their scheme.

5.6 Chapter 2 schemes: options exercise for judges

5.6.1 ‘Unprotected’ and ‘taper protected’ judges will be offered an ‘options exercise’ to have their remediable service pensioned under the ‘2015 scheme’ or the ‘Chapter 2 legacy scheme’.

5.6.2 ‘Protected’ judges will not be offered a choice to have benefits under the ‘2015 scheme’.

Judges who make a legacy scheme election

5.6.3 The result of the election is that the judge’s basic pensionable service in respect of the ‘remedy period’ is treated as always having been pensioned under their ‘Chapter 2 legacy scheme’ and not the ‘2015 scheme’.

5.6.4 The ‘2015 scheme’ keeps the following pension rights:

• rights relating to member voluntary contributions paid to the scheme
• rights given as a result of a transfer into the scheme

5.6.5 Any benefits paid by the ‘2015 scheme’ in respect of pensionable service rolled back to the ‘Chapter 2 legacy scheme’ will be treated as being paid from the ‘Chapter 2 legacy scheme’ and not the ‘2015 scheme’.

5.6.6 The ‘Chapter 2 legacy scheme’ is not a registered pension scheme. Any BCEs that occurred under the ‘2015 scheme’ in respect of the service rolled back into the ‘Chapter 2 legacy scheme’ will have no longer occurred.

5.6.7 The scheme administrator of the ‘2015 scheme’ will need to send the member a revised BCE statement telling them what percentage of the LTA has been used up by the BCEs (even if that is now 0%).

5.6.8 Where the scheme administrator of the ‘2015 scheme’ has paid the LTA charge, they can reclaim the overpaid tax from HMRC. The section How to reclaim overpaid tax tells scheme administrators when and how they will be able to do this.

Judges who make a 2015 scheme election

5.6.9 The result of the election is that a judge’s basic pensionable service in respect of the ‘remedy period’ is treated as always having been pensioned under their ‘Chapter 2 legacy scheme’ and not the ‘2015 scheme’.

5.6.10 For ‘unprotected’ members there should be no change to their benefits, and so no change in the amount crystallised by any BCEs that occurred under the ‘2015 scheme’.

5.6.11 Taper protected members will see a change to their benefit entitlement held under the registered ‘2015 scheme’.

5.6.12 Any benefits paid by the ‘Chapter 2 legacy scheme’ in respect of pensionable service rolled back to the 2015 scheme are treated as being paid from the ‘2015 scheme’ and not the ‘Chapter 2 legacy scheme’. These benefits will move from an unregistered to a registered pension scheme environment.

5.6.13 The amount of any BCE that occurred under the ‘2015 scheme’ will change to reflect the extra pensionable service the member now has under the ‘2015 scheme’.

5.6.14 The ‘2015 scheme’ administrator needs to send an amended annual BCE statement to the member giving detail of the percentage of LTA used up by the revised BCE.

5.6.15 If, due to the increase in the amount of the BCE, an LTA charge becomes due, or the amount of the LTA charge has increased, the ‘2015 scheme’ administrator will need to:

• give the member a notice telling them how much LTA charge is now due (find out more in PTM164300 in the HMRC Pensions Tax Manual)
• report the revised LTA charge to HMRC and pay the tax due. The section Reporting extra tax on the Accounting for Tax return explains when and how you need to do this

5.6.16 Regulations 17, 19, 21 to 25 and 30 will modify how the tax legislation currently works so that in most situations these extra benefits should be authorised payments. They also set out how that payment should be taxed, and how the scheme administrator may need to report and pay tax on those benefits. Paragraphs 5.10.5, 5.11.3, 5.11.5, 5.12.3, 5.12.5, 5.13.3, 5.13.5 and 5.14.1 provide more detail on these regulations.

5.6.17 Regulations 15, 18, 20 and 27 to 29 will modify how the tax legislation currently works so that a previous payment should remain authorised following the ‘rollback’ of pensionable service to the ‘2015 scheme’. For example, a trivia commutation lump sum previously paid will remain authorised even where a member’s pension rights are increased in value to more than £30,000 as a result of the rollback. They also set out how that payment should be taxed, and how the scheme administrator may need to report and pay tax on those benefits. Paragraphs 5.13.3, 5.15.3, and 5.16-3 to 5.16.6 provide more detail on these regulations.

5.7 Chapter 3 schemes: Local government employees

5.7.1 The changes made to the local government pension schemes were different to those made to other public service schemes. The remedy for the local government schemes is to extend the final salary underpin to all members with ‘remediable service’. This extension of the underpin will not be applied with full retrospection for tax purposes. That means the tax treatment of benefits already paid should not change.

5.7.2 The extension of the final salary underpin may mean in some cases that members are due to get extra benefits. As the underpin is not being extended with full retrospection for tax purposes, previous BCEs are not revisited. When the extra benefits are put into payment they may be paid as a new set of benefit crystallisations (BCE 2 for the extra scheme pension and BCE 6 where the member chooses to take part of these extra benefits as a lump sum). The maximum extra PCLS that may be paid will be based on the amount of the BCE 2 of the extra pension.

5.8 Protected pension age of less than 55

Regulation 15

5.8.1 PTM062210 in the HMRC Pensions Tax Manual sets out the eligibility conditions for using a protected pension age so that pension and PCLS paid before the member reaches normal minimum pension age (NMPA) (currently 55) are authorised payments.

5.8.2 One of the requirements is that the member must become entitled to all their benefits under the scheme on the same day.

5.8.3 Where during the ‘remedy period’ a member stated to receive benefits before NMPA using a protected pension age under the ‘Chapter 1 legacy scheme’, and they choose legacy benefits the retrospective nature of ‘PSPJOA’ allows the rolled back benefits to crystallise on the same date as the other legacy scheme benefits. If this is done the ‘retirement condition’ for using a protected pension age can be met. Benefits paid before the member reaches NMPA may be authorised. If all the ‘Chapter 1 legacy scheme’ benefits do not crystallise on the same date then the ‘retirement condition’ will not have been met. Any payments made before the member reaches NMPA would be unauthorised payments. This includes benefit payments made before ‘Section 2’ comes into force.

5.8.4 If the member who has received benefits using a protected pension age makes a ‘new scheme benefits election’ it may not be possible for the ‘new scheme benefits’ to crystallise on the same date as the benefits already in payment. One of the effects of section 34(3) ‘PSPJOA’ is that ‘new scheme benefits’ cannot be put into payment from an earlier date than allowed under ‘Chapter 1 new scheme’. This generally means that benefits cannot be paid before the member is 55.

5.8.5 Regulation 15 provides that for the purposes of determining if the member has become entitled to all their benefit on the same date, the ‘new scheme benefits election’ is ignored. This applies to a ‘new scheme benefits election’ made under either ‘Section 6’ PSPJOA (‘immediate choice’) or ‘Section 10’ PSPJOA (‘deferred choice’).

5.8.6 What this means is that:

• members who started to get benefits using a protected pension age before ‘Section 2’ came into force should be to continue to receive benefit payment before they reach NMPA as authorise payments
• members can put their Chapter 1 legacy scheme benefits in respect of service before the ‘remedy period’ into payment before they reach NMPA using a protected pension age, and still make a ‘new scheme benefits election’ leaving ‘remediable service’ benefits uncrystallised

5.9 Protected pension age of less than 57

Regulation 16

5.9.1 The NMPA will increase to 57 in 2028. PTM062215 in the HMRC Pensions Tax Manual sets out the conditions for being eligible for a protected pension age of less than 57.

5.9.2 Current members of a ‘Chapter 1 new scheme’ may, on 3 November 2021, have had an unqualified right to take benefits before age 57 and so may have been able to use this protected pension age. However, as a result of the ‘rollback’ of pensionable service to the ‘Chapter 1 legacy scheme’ when ‘Section 2’ comes into force, a member with remediable service may no longer be a member on 3 November 2021.

5.9.3 Regulation 16 provides that the rollback of benefits will be ignored when establishing if the member had an unqualified right to take benefits on 3 November 2021. This means that a member who would have been eligible to use this type of protected pension age should not lose the protection due to the ‘rollback’ of benefits.

5.10 Top-up to scheme pension

5.10.1 An’ immediate choice’ or ‘options exercise’ made by or in respect of the member may increase the amount of benefits that have become payable. The sections ‘Impact on BCEs ’ and ‘Chapter 2 schemes: options exercise for judges’ explains how the amount crystallised by the BCE that occurred previously will be rewritten for ‘Chapter 1 schemes’ and ‘Chapter 2’ schemes.

5.10.2 Where a ‘Chapter 3 scheme’ member would have higher benefits under the final salary underpin, the scheme will need to pay extra pension. For ‘Chapter 3 schemes’, given that their remedy is not retrospective for tax purposes, any extra pension due to a member, due to the final salary underpin, will be a new BCE 2.

Top-up paid to member

5.10.3 Legislation already provides for arrears of scheme pension to be paid to the member as an authorised payment. Schemes are required to deduct tax from the pension under the PAYE system. The arrears of a scheme pension are taxable in the year in which the member became entitled to the pension. If, because of the arrears being paid as lump sum more tax has been deducted under PAYE than if was taxed when the pension was due, the member can reclaim the overpaid tax – find out more in EIM75020 in the Employment Income Manual.

5.10.4 For extra scheme pension paid to an unprotected member from a ‘Chapter 3 scheme’, arrears of pension are authorised under regulation 2 Registered Pension Schemes (Authorised Payments - Arrears of Pension) Regulations. Find out more in PTM142000 in the HMRC Pensions Tax Manual.

Top-up paid after the member’s death

Regulation 22

5.10.5 Regulation 22 acts to authorise the payment of top up scheme pension paid after the member’s death, even though it is not paid to the member. The payment will not be a BCE and it will be taxed as pension income in the year in which the payment is made.

5.10.6 This regulation covers top-up payments of scheme pensions made after the member’s death from ‘Chapter 1 legacy schemes’, ‘2015 schemes’ and ‘Chapter 3 schemes’.

5.10.7 Although the top-up scheme pension is paid after the member has died, it is not covered by the pension death benefit rules because it is payable as a result of the ‘immediate choice’, judge’s ‘options exercise’ made by, or in respect of, the member or final salary underpin for ‘Chapter 3 scheme’ unprotected members. Also, payment of a top-up scheme pension after the member’s death does not fall within the scope of regulation 16 of the Registered Pension Schemes (Authorised Payments) Regulations 2009. The payment will not be a BCE and it will be taxed as pension income in the year in which the payment is made.

5.11 Top-up to Pension Commencement Lump Sum (PCLS)

5.11.1 The ‘immediate choice’ or judge’s ‘options exercise’ made by or in respect of the member may increase the amount of benefits payable. The member may have the opportunity to be paid a bigger lump sum. The sections ‘Impact on BCEs’ and ‘Chapter 2 schemes: Options exercise for judges’ explain how the amount crystallised by the BCE that occurred previously will be rewritten.

5.11.2 Where extra pension is due to an unprotected member of a ‘Chapter 3 scheme’ they may be given the opportunity to commute part of that pension to a PCLS. Paragraph 5.7.2 explains that this will be a new BCE 6. It will be payable under the conditions set by the current tax legislation and is unaffected by these regulations.

Top-up paid to member

Regulation 17

5.11.3 Regulation 17 provides that where an extra amount of lump sum that is payable due to the immediate choice, or judge’s ‘options exercise’ made by, or in respect of the member, is not paid within the standard PCLS payment period of one year. PTM063210 in the HMRC Pensions Tax Manual sets out the payment conditions for a PCL, the lump sum will be a PCLS if:

• it could not reasonably have been paid within the standard PCLS payment period, and
• the lump sum would have been a PCLS if it had been paid within standard PCLS payment period

5.11.4 If the scheme rules allow for the payment of a lump sum that is not a PCLS, this regulation does not act to make that payment an authorised payment. For example, if the scheme allows for a lump sum of more than the maximum permitted PCLS it will still be an unauthorised payment if the member has not used up all their LTA.

Top-up paid after the member’s death

Regulation 23

5.11.5 Regulation 23 acts to authorise the payment of top-up lump sums, payable as a result of the ‘immediate choice’ made by, or in respect of the member. It will treat these payments as a PCLS, if the lump sum would have been a PCLS if it had been paid to the member within the standard PCLS payment period. The payment does not fall within the scope of the lump sum death benefit rule or regulation 19 of the Registered Pension Schemes (Authorised Payments) Regulations 2009 as it probably would not have been a PCLS if it had been paid immediately before the member’s death.

5.11.6 The BCE in respect of this lump sum occurs when the top up lump sum is paid. The amount crystallised is the amount of the lump sum payment.

5.11.7 These regulations will cover top-up lump sum payments made after the member’s death from ‘Chapter 1 legacy schemes’, ‘2015 schemes’ and ‘Chapter 3 schemes’.

5.12 Trivial commutation lump sums

5.12.1 PTM063500 in the HMRC Pensions Tax Manual sets out the conditions for paying a trivial commutation lump sum.

Already paid

Regulation 18

5.12.2 Where the member was paid a trivial commutation lump sum regulation 18 will act to disregard the increase in the member’s rights resulting from their ‘immediate choice’ (or judge’s ‘options exercise’) where the increase would mean that on the nominated date the value for the pension rights was more than £30,000 and that the member’s rights had not been extinguished when paying the original lump sum. Regulation 18 prevents the member’s ‘immediate choice’ creating unauthorised payments.

Top-up paid to member

Regulation 19

5.12.3 Regulation 19 will act to authorise the top up payment in certain circumstances. The top up payment will be treated as a trivial commutation lump sum provided that:

• the payment is not more than £10,000, or
• if the top up payment is more than £10,000, the total of the amount of the top up payment and the value of the member’s rights on the ‘nominated date’ (find out more in PTM063500 in the HMRC Pensions Tax Manual) is not more than £30,000

5.12.4 Where these conditions are not met if the scheme pays the lump sum payment it will be an unauthorised payment (as it would have been absent the discrimination). Schemes may instead provide pension benefits they are authorised to pay.

Top-up paid after the member’s death

Regulation 24

5.12.5 Regulation 24 will act to authorise the top up to the trivial commutation lump sum payment paid after the member’s death in certain circumstances. The top up payment will be treated as a trivial commutation lump sum provided that it would have been a trivial commutation lump sum if it had been paid to the member, and:

• the payment is not more than £10,000, or
• if the top up payment is more than £10,000 the total of the amount of the top up payment and the value of the member’s rights on the ‘nominated date’ (find out more in PTM063500 in the HMRC Pensions Tax Manual) is not more than £30,000

5.12.6 In judging if the payment would have been a trivial commutation lump sum if paid to the member the conditions relating to the timing of the payment and the maximum amount are ignored.

5.12.7 Where these conditions set by regulation 24 are not met, if the scheme pays the lump sum payment it will be an unauthorised payment (as it would have been absent the discrimination). The top-up does not fall within the lump sum death benefit rule because it is payable as a result of the ‘immediate choice’, judge’s ‘options exercise’ or the application of the final salary underpin to ‘Chapter 3 scheme’ ‘unprotected member’, not because of the death of the member.

5.13 Serious ill-health lump sums

5.13.1 PTM063400 in the HMRC Pensions Tax Manual provides guidance on the conditions for paying a serious ill-health lump sum.

Already paid

Regulation 20

5.13.2 Regulation 20 will put beyond doubt that following a member’s ‘immediate choice’ (or judge’s ‘options exercise’) retrospectively giving the member more pension rights, a previous serious ill-health lump sum payment remains a serious ill-health lump sum even though this means that their rights were not extinguished by the original payment.

Top-up paid to member

Regulation 21

5.13.3 Where a serious ill-health lump sum has previously been paid, extra benefits may be payable as a result of the ‘immediate choice’, ‘options exercise’ by a judge, or the application of the final salary underpin to a ‘Chapter 3 scheme’ ‘unprotected member’. Regulation 21 will treat these extra benefits paid to the member as a serious ill-health lump sum if:

• the top up payment extinguishes the extra benefit entitlement, and
• it meets the conditions (other than paragraph 4(1)(ca) Schedule 29 FA 2004) to be a serious ill-health lump sum

Top-up paid after the member’s death

Regulation 25

5.13.4 Payment of a serious ill-health lump sum is an authorised payment only if it is paid to the member. The top-up to the serious ill-health lump sum is payable as a result to the ‘immediate choice’, ‘options exercise’ by a judge, or application of the final salary underpin, not because of the death of the member so does not fall within the lump sum death benefit rule.

5.13.5 Where a serious ill-health lump sum has previously been paid the extra benefit due because of the ‘immediate choice’ or application of the final salary underpin may be paid as a lump sum after the member’s death, if:

• at the time the lump sum is paid the member had available LTA, and
• the payment extinguishes the extra benefit entitlement

5.13.6 The making of the payment will be a BCE; the amount crystallised is the amount of the payment. Apart from any LTA charge, the payment will not be subject to income tax.

5.14 Top-up to lump sum death benefits

Regulation 30

5.14.1 Where a defined benefits lump sum death benefit (DBLSDB) has been paid in respect of the death of a member with remediable service, the effect of the ‘immediate choice’, judge’s ‘options exercise’, or final salary underpin may be that death benefit was underpaid. A further DBLSDB may be payable.

5.14.2 If the previous DBLSDB was paid within ‘the relevant two-year period’ (two years from the date the scheme administrator first knew of the member’s death, or reasonably could have known about their death) but the top up payment is not, for the purposes of:

• Section 636AA(3) ITEPA 2003, and
• paragraph 16(a) of Schedule 32 to Finance Act 2004

the top up, DBLSDB is treated as paid within the relevant two-year period. This means that the top-up DBLSDB should get the same tax treatment as the original DBLSDB (find out more in PTM073100 in the HMRC Pensions Tax Manual).

5.15 Overpaid pensions

5.15.1 Paragraph 5.5.16 gives an example of where a member’s ‘immediate choice’ means that the amount of pension they are entitled to is reduced. In this case, the member makes a ‘new scheme benefits election’ and defers taking their ‘new scheme benefits’.

5.15.2 The scheme pension will be the amount after taking into account the effect of the member’s choice, and the original BCE 2 is rewritten.

Authorisation and tax treatment

Regulation 27

5.15.3 Regulation 27 will ensure that:

• the payments of overpaid pension are authorised payments, and
• taxable as pension income in the year that the payment was made

5.15.4 This prevents any overpayments of scheme pension being treated as an unauthorised payment.

Repayment of overpaid pension

5.15.5 Schemes will be able to choose if they will pursue repayment of the overpaid pension from the member and how they will be repaid. If schemes choose to recover the overpaid pension by a deduction from later pension payments, this deduction will be made after tax has been calculated and deducted from the pension payment.

5.16 Overpaid lump sums

5.16.1 As a result of the ‘immediate choice’ by, or in respect of, the member, the amount of lump sum paid alongside their pension may go down.

5.16.2 The tax treatment of that lump sum will depend on the circumstances. If the member chooses not to take the maximum possible PCLS, it is possible that the amount of the lump sum paid will still be within the maximum PCLS limit based on the reduced scheme pension. The example ‘Benefits paid from a legacy scheme only – new scheme benefits election’ illustrates this.

Authorisation and tax treatment

Regulation 28

5.16.3 Where a lump sum payment that was a PCLS now exceeds the maximum PCLS because the member’s ‘immediate choice’ reduces the scheme pension, regulation 28 provides that the overpaid amount will be treated as always having been a PCLS. This prevents the overpaid amount from being an unauthorised payment.

5.16.4 Any part of a lump sum payment that was not a PCLS, for example because it was always above the PCLS permitted maximum, cannot be treated as a PCSL by this regulation.

Repayment of overpaid lump sums

Regulation 29

5.16.5 Schemes can choose if they want to pursue repayment of overpaid pension lump sums and how they will be repaid but they cannot undo the tax treatment of those payments simply by having members repay the amounts to the scheme.

5.16.6 Regulation 29 provides that where the overpaid lump sum is repaid in full, it is treated as never having been crystallised. In effect, part of the BCE is undone by the repayment. This prevents the overpaid lump sum, which was repaid to the scheme from being a BCE and using up part of the member’s LTA.

5.17 Reduction of scheme pension to pay LTA charge

Regulation 26

5.17.1 Where, as a result of the ‘immediate choice’ (or judge’s ‘options exercise’) the amount of the BCEs increases such that the LTA charge is due or the amount of the charge increases, the scheme administrator of the ‘Chapter 1 legacy scheme’ or ‘2015 scheme’ (as appropriate) will be responsible for paying the charge.

5.17.2 The annual rate of a scheme pension may be reduced only in limited circumstances. If the rate of scheme pension is reduced outside of these permitted circumstances every ongoing payment of the scheme pension will be unauthorised. Regulation 26 provides for the reduction to the rate of the scheme pension to pay the LTA charge arising as a result of the immediate choice to be a permitted reduction.

6. Lifetime allowance (LTA)

6.1 Lifetime allowance rules

Regulations 31 to 35

6.1.1 This section of the guidance tells pension scheme administrators what happens and what they will need to do where a BCE has occurred in respect of a member with ‘remediable service’ before the remedy comes into force. The rules set out in PTM 080000 in the HMRC Pensions Tax Manual will apply unless modified as set out below.

6.2 What ‘Section 2’ does

6.2.1 After the ‘rollback’ of basic pensionable service from the ‘Chapter 1 new scheme’, to the ‘Chapter 1 legacy scheme’ the ‘new scheme’ administrator will no longer be jointly liable for the LTA charge arising in respect of those rolled back benefits. The ‘Chapter 1 legacy scheme’ administrator will be responsible for paying any LTA charge in respect of those rolled back benefits.

6.3 Treatment of LTA charges paid by ‘Chapter 1 new schemes’

Regulation 31 (2) and (3)

6.3.1 Throughout the ‘remedy period’, where a member crystallised benefits within the ‘Chapter 1 new scheme’ and exceeded their LTA, the member will have been subject to an LTA charge. Liability for this charge will have been joint and several with the ‘Chapter 1 new scheme’ administrator. The ‘Chapter 1 new scheme’ administrator should have reported and paid this charge on the relevant Accounting for Tax (AFT) return and adjusted the member’s benefits accordingly. The member should also have reported the LTA charge and the Pension Scheme Tax Reference (PSTR) of the scheme which paid the charge on their Self Assessment tax return.

6.3.2 As a result of ‘Section 2’, the ‘Chapter 1 new scheme’ administrator that previously reported the LTA charge will no longer be liable, and the ‘Chapter 1 legacy scheme’ administrator and the member will be jointly liable for the LTA charge. Regulation 31 will provide that the amount of LTA charge for a BCE in respect of rolled back service that was reported and paid by the ‘Chapter 1 new scheme’ administrator has been reported and paid by the ‘Chapter 1 legacy scheme’ administrator. Ordinarily, the ‘Chapter 1 new scheme’ administrator and the ‘Chapter 1 legacy scheme’ administrator would be required to amend each AFT return where this scenario arises.

6.4 Recalculating a members’ LTA charge after their immediate choice of benefits is made

6.4.1 Members’ benefits may require amending as a result of the remedy. How this is achieved will depend on which scheme the individual was a member of during the remedy period. Where member’s benefits are recalculated, it may impact any previous BCEs. This will impact the member’s available LTA and LTA charges that were due, or are now due, as a result of the remedy.

Chapter 1 schemes

6.4.2 Paragraph 5.3.1 explains how members with benefits in payment when ‘Section 2’ comes into force will need to make an ‘immediate choice’ about their benefits. The section Impact on BCEs explains what this means for the BCEs that have occurred.

6.4.3 As a result of revised benefits, the member’s BCEs will require adjusting, which will impact existing and potential new LTA charges.

Chapter 2 schemes

6.4.4 The section Chapter 2 schemes: options exercise for judges explains the ‘options exercise’ a judge will have to make between the choice of benefits under the ‘2015 scheme’ and the ‘Chapter 2 legacy scheme’. Where, due to the judge’s ‘options exercise’ benefits need to be adjusted, this will impact any BCE under the ‘2015 scheme’ and existing and potential new LTA charges.

Chapter 3 schemes

6.4.5 The section Remedy for Chapter 3 schemes: Local government employees explains how these schemes have a final salary underpin. As the extension of this underpin is not retrospective, any previous BCEs under a ‘Chapter 3 scheme’ will not be adjusted.

Revised amount of LTA charge

6.4.6 Where the revised LTA charge exceeds the original LTA charge for relevant tax years, the scheme administrator of the ‘Chapter 1 legacy’ (or ‘2015 scheme’) must follow the processes set out in ‘New or additional LTA charge following the public service pension remedy’.

6.4.7 Where the revised LTA charge is less than the original LTA charge for relevant tax years, the scheme administrator of the ‘Chapter 1 legacy’ (or ‘2015 scheme’) must follow the processes set out in ‘Decrease or removal of an LTA charge’.

6.5 Information sharing between pension schemes

Regulation 31(4)

6.5.1 When a member’s pensionable service is rolled back to the ‘Chapter 1 legacy scheme’, the ‘Chapter 1 new scheme administrator’ must give the ‘Chapter 1 member’s legacy scheme’ administrator information about any tax charges the ‘Chapter 1 new scheme’ administrator has paid for the member as per regulation 31(4). The ‘Chapter 1 legacy scheme’ administrator requires this information to calculate the member’s revised BCE and report any additional tax due to HMRC or seek a refund of overpaid tax.

6.5.2 The ‘Chapter 1 new scheme’ administrator must give details included in the AFT return made in respect of the member. These are:

• the member’s name
• the member’s National Insurance number
• the scheme’s name and Pension Scheme Tax Reference (PSTR)
• the date of the BCE to which the LTA charge applies
• the amount of tax due at 25%
• the amount of tax due at 55%
• the quarter and year the tax charge was reported

6.5.3 The ‘Chapter 1 new scheme’ administrator must also provide the ‘Chapter 1 legacy scheme’ administrator with such information that the ‘Chapter 1 legacy scheme’ administrator may reasonably request, for example the date that any tax charge was paid.

6.6 New or additional LTA charge following the public service pension remedy

6.6.1 Some members may be subject to an increased LTA charge as a result of the public service pension remedy and may now need to report and pay extra tax. This section of the guidance tells you how to report and pay a new or increased LTA charge.

Reporting extra tax on your Accounting for Tax return

Regulation 32

6.6.2 Where the member’s ‘immediate choice’ results in a new or additional LTA charge, this charge will need to be reported on the Accounting for Tax (AFT) return for the ‘Chapter 1 legacy scheme’ or ‘2015 scheme’ as appropriate.

6.6.3 Scheme administrators should not amend the AFT for the quarter in which the rewritten BCE occurred.

6.6.4 The scheme administrator will need to report the extra, or new, LTA charge on the AFT for the quarter after they became aware of the change in the BCE. The scheme administrator will become aware of the change:

• where a ‘new scheme benefits election’ is made under a ‘Chapter 1 scheme’ – the date that election is received
• where legacy benefits are chosen under a ‘Chapter 1 scheme’ – the end of the ‘Section 6 election period’
• under a ‘Chapter 2 scheme’ – when the legacy scheme election or ‘2015 scheme’ election is received

6.6.5 For example, an election received on 30 September would see an additional LTA tax charge reported on the AFT return for the quarter up to and including 31 December. This is provided for by covered in regulation 32(4).

6.6.6 Regulation 32(5) provides that this AFT return should contain such information and declarations as HMRC may reasonably require. Scheme administrators will be required to tell HMRC that the extra LTA charge is as a result of the public service pension remedy and provide additional information about the original charge paid (if applicable). The AFT return will be updated to include the required information.

Paying extra tax

6.6.7 The normal deadlines apply for paying additional LTA charges each year:

Period when tax arises	Filing and payment date deadline (45 days after the period in which tax arises)
1 January to 31 March	15 May
1 April to 30 June	14 August
1 July to 30 September	14 November
1 October to 31 December	14 February

6.6.8 If the AFT return or tax charge payments are not received by the due date, the ‘Chapter 1 legacy scheme’ or ‘2015 scheme’ administrator will be charged interest and penalties.

6.7 Public service pension schemes not permitted to apply for discharge of liability for extra LTA charge

Regulation 34

6.7.1 This will apply to the scheme administrator of ‘Chapter 1’ or ‘Chapter 2’ schemes where, due to the member’s ‘immediate choice’, the amount of the BCE charge will increase and either an LTA charge will be due, or additional tax will be due.

6.7.2 The member and scheme administrator will become jointly liable to a new or extra LTA charge.

6.7.3 Regulation 34 removes the ability for the public service scheme administrator to apply for a discharge in specific circumstances so that the member is not solely liable to pay the new or extra LTA charge. Further information on the LTA discharge can be found in PTM158000 in the HMRC Pensions Tax Manual. This means the scheme administrator should report and pay the tax in the normal way. Regulation 26 provides for a scheme pension to be reduced to pay a new or additional LTA charge – read paragraph 5.17.2.

6.8 Public service pension scheme to become liable for increased charge where private sector scheme discharged

Regulation 35

6.8.1 This section of the guidance applies to members and scheme administrators of a ‘Chapter 1’ or ‘Chapter 2’ scheme where, as a result of the remedy, the amount crystallised by BCEs under the scheme increases, and after the date of those BCEs, the member has one or more BCEs under another registered pension scheme.

6.8.2 Where the amount of a member’s BCE under the scheme increases as a result of the remedy the member should tell the scheme administrator of other registered pension schemes under which they have had a BCE. This will include private sector schemes as well as any public service schemes.

6.8.3 The scheme administrator of the other registered pension scheme will need to identify if the LTA charge is due as a result of the revised BCE, or the amount has increased. Where the LTA charge is due or has increased, the pension scheme will need to give the member details of the LTA charge now due. The scheme administrator will become jointly liable to the new or extra LTA charge.

6.8.4 The scheme administrator of a private sector scheme can apply to be discharged from being jointly and severally liable to the LTA charge. PTM158000 in the HMRC Pensions Tax Manual tells scheme administrators more about how to apply for a discharge from the LTA charge. Where the private sector scheme administrator is successful with their discharge application, regulation 35 makes the public service scheme administrator jointly liable with the member for the new or extra LTA charge. HMRC will issue the member with an assessment. This will give the member the option of paying the tax charge or providing HMRC with specific details for the public service scheme administrator that is jointly liable with the member for the additional LTA charge. The member will be required to confirm that they want the scheme administrator to pay the tax.

6.8.5 Where the member provides HMRC with details of the public service scheme administrator they want to settle their LTA charge, HMRC will raise an assessment on the relevant public service pension scheme administrator to collect the additional tax. The public service pension scheme administrator will then be able to make the necessary payment to settle the joint and several liability and adjust the member’s benefits accordingly. Regulation 26 provides for a reduction to the scheme pension in these circumstances to be a permitted reduction (see paragraph 5.17.2).

6.9 Decrease or removal of an LTA charge

Regulation 33

6.9.1 Some members may be subject to a reduced LTA charge as a result of the remedy. This section of the guidance tells you how to report and claim a refund of an overpaid LTA charge.

6.9.2 Where the scheme administrator has paid the LTA charge HMRC will repay the overpaid tax to the scheme administrator only.

6.9.3 Where the tax paid by ‘Chapter 1 legacy scheme’ administrator(s) or a ‘2015 scheme administrator’ is more than the amount of LTA charge due as a result of the member’s ‘immediate choice’ or ‘options exercise’, regulation 33 provides that the scheme administrator can reclaim the overpaid amount, only by making an application to HMRC. Scheme administrators should not amend the AFT on which the LTA charge was originally reported to HMRC.

How to reclaim overpaid tax

6.9.4 Scheme administrators should not amend the AFT on which the tax charge was originally reported.

6.9.5 HMRC will provide scheme administrators with a form that they will need to complete.

6.9.6 Scheme administrators will need to provide:

• the member’s name and National Insurance number
• the amount of the original charge
• when the original charge was paid and who it was paid by

6.9.7 Full details will be provided on the data required and how to return this to HMRC in due course.

6.9.8 Once HMRC has verified that the original LTA charge was reported and paid, a credit will be raised on the scheme’s Managing Pension Schemes service account. HMRC will confirm the credit raised for each member.

7. Lifetime allowance (LTA) protections

7.1 Individual Protection 2016: election for new scheme benefits under a Chapter 1 scheme taken into account to value rights for protection

Regulation 36

7.1.1 This section of the guidance applies to members of a ‘Chapter 1 legacy scheme’, where they make an election to receive ‘new scheme benefits’.

7.1.2 To apply for Individual Protection 2016 (IP 2016), the member must have benefits as of 5 April 2016 that exceed £1m. As a result of the member’s election, the member’s benefits may increase. The increase in benefits will occur when the ‘new scheme benefits election’ is effective – which is just before the member starts to take benefits.

7.1.3 Regulation 36 provides that where a member’s ‘new scheme benefits election’ is effective after 5 April 2016 the election will be deemed to have effect on 5 April 2016 for the purposes of IP 2016 valuations. A member will be able to recalculate their IP 2016 based on the benefits that would have accrued at that point, which will ultimately increase the valuation for their IP 2016. This valuation would not have been possible under the current legislation as the increase in benefits is effective from the point of the election and not from 5 April 2016.

7.1.4 Further details on the process for the member increasing their IP 2016, will be provided in due course.

7.2 Individual Protection 2016: final salary benefits under a local government scheme taken into account to value rights for protection

Regulation 37

7.2.1 This applies to members of a ‘Chapter 3 scheme’, who as part of the remedy will be given the higher of benefits built up on a ‘CARE’ basis or final salary basis in respect of their ‘remediable service’ (known as the underpin).

7.2.2 To apply for IP 2016, the member must have benefits as of 5 April 2016 that exceed £1m. Regulation 37 provides that ‘unprotected members’ will be able to deem their underpinned benefits to have arisen as at 5 April 2016 for the purposes of IP 2016 valuations. This will enable the member to recalculate their IP 2016 based on the benefits that would have accrued as of 5 April 2016, which may increase the valuation for their IP 2016.

7.2.3 This valuation would not be possible under current legislation as the valuation for IP 2016 purposes would be based on their ‘CARE’ benefits as at on 5 April 2016.

7.2.4 Further details on the process for the member increasing their IP 2016 will be provided in due course.

7.3 Individual Protection 2016: deadline for provision of information by schemes disapplied

Regulation 38

7.3.1 This section applies to all members and scheme administrators impacted by the public service pension remedy where they are considering an application for IP 2016.

7.3.2 Members can request a value of their benefits under the scheme on 5 April 2016 to support the member’s IP 2016 application. Regulation 38 will remove the deadline, so that for members with ‘remediable service’, public service scheme administrators are required to provide information about the value of their benefits under the scheme on 5 April 2016 whenever the member asks for this information.

7.3.3 This would not have been possible under current legislation as schemes are only required to provide a member with this information if the member has requested this before 6 April 2020.

7.4 Fixed Protection 2016: election for new scheme benefits under Chapter 1 scheme ignored in determining whether protection lost

Regulation 39

7.4.1 This section applies to members of ‘Chapter 1 schemes’, who have fixed protection 2016 (FP 2016).

7.4.2 Where a member makes a ‘new scheme benefits election’ and their benefits increase, the member will be treated as receiving the increase in benefits at the point the election is effective - this is just before the member starts to take benefits.

7.4.3 Regulation 39 provides that a ‘new scheme benefits election’ will be ignored for the purposes of establishing if benefit accrual has occurred (read PTM093510 in the HMRC Pensions Tax Manual for more information about benefit accrual). Where benefit accrual has occurred only due to the ‘new scheme benefits election’, the member will retain their FP 2016. This prevents the member from losing their FP 2016, where their benefits exceed benefit accrual as a result of the election.

7.5 Fixed Protection 2016: final salary benefits under local government scheme ignored in determining whether protection has been lost

Regulation 40

7.5.1 This section applies to members of ‘Chapter 3 schemes’, who have FP 2016, but subsequently lost their protection, or will lose their protection, upon receiving their underpin.

7.5.2 Regulation 40 provides that an underpin will be ignored for the purposes of establishing if benefit accrual has occurred. In this situation, where the benefit accrual has occurred (read PTM093510 in the HMRC Pensions Tax Manual for more information about benefit accrual). Where benefit accrual has occurred only as a result of the underpin, the member will retain their protection. This prevents the member from losing their FP 2016, as a result of the underpin.

7.6 Fixed Protection 2016: transfers from partnership pension account to be ignored in determining whether protection has been lost

Regulation 41

7.6.1 This section applies to members of ‘Chapter 1’ and ‘Chapter 2’ schemes who held rights under the partnership pension account (PPA) and had FP 2016.

7.6.2 Where a PPA member makes an election under:

• ‘section 5’ PSPJOA (opted out service to be pensioned under ‘Chapter 1 legacy scheme’). or
• ‘section 40’ PSPJOA (legacy scheme election)

their sums and assets representing rights under the PPA must be transferred to the relevant legacy scheme. This transfer is from another money purchase arrangement to a defined benefit arrangement. Regulation 41 provides that a PPA transfer will be ignored for the purposes of establishing if a transfer has taken place that is not a permitted transfer (read PTM093400 of the HMRC Pensions Tax Manual for more information about permitted transfers). This prevents the member from losing their FP 2016.

8. Transfers

8.1 Regulation 42

8.1.1 This section applies to members who had opted out of pensionable service and became a member of the partnership pension account (PPA), and as a result of making:

• an election under ‘Section 5’ PSPJOA have transferred PPA rights to their ‘Chapter 1 legacy scheme’, or
• a legacy scheme election has transferred PPA rights to their ‘Chapter 2 legacy scheme’

The transfer is treated as a recognised transfer.

9. Compensation

9.1 Regulation 43

9.1.1 This section applies to members of ‘Chapter 1’, ‘Chapter 2’ and ‘Chapter 3’ schemes’ who have suffered a loss for which compensation may be due as a result of the discrimination that arose through the public service pension reforms or the application of the public service pension reforms remedy.

9.1.2 Regulation 43 provides that the compensation payment received by the member as a result of the remedy will not be subject to Income Tax, or Capital Gains Tax.

9.1.3 In the case of deceased members, any compensation will be due to their personal representatives. Further details on the process for claims for compensation will be provided in due course. The member will be required to contact the scheme manager if they have any further questions concerning the level of compensation entitlement.

10. Glossary of terms

2015 scheme — judicial scheme created by the public service pension reforms 2015

2015 scheme election — election made by ‘taper-protected’ and ‘unprotected members’ of the judicial pension schemes to treat any ‘remediable service’ as pensionable service under their ‘2015 scheme’

Chapter 1 scheme — public service scheme (either legacy or new scheme) that is not a judicial or local government scheme

Chapter 1 legacy scheme — public service scheme in existence before the public service pension reforms of 2015, that was not a judicial or local government scheme

Chapter 1 new scheme — public service scheme created by the public service pension reforms of 2015, and is not a judicial or local government scheme

Chapter 2 scheme — judicial scheme, either legacy or ‘new’ (2015) scheme

Chapter 2 legacy scheme — judicial scheme in existence before the public service pension reforms of 2015

Chapter 2 new scheme — judicial scheme created by the public service pension reforms of 2015

Chapter 3 scheme — local government scheme

CARE —Career Average Revalued Earnings — a way of calculating a member’s benefits under a defined benefits pension Scheme using their earnings on a career average basis, rather than final salary

Deferred choice — a choice of benefits in relation to the ‘remedy period’ to be made by members of ‘Chapter 1 legacy schemes’ who have not started to take their pension benefits (and have not died) when the remedy is implemented

Immediate choice — a choice in relation to the ‘remedy period’ of benefits available to members of ‘Chapter 1 schemes’ who are pensioners or the representatives of those who have died when the remedy is implemented

Immediate detriment remedy — an early remedy for affected members to receive benefits broadly based on the provisions of the PSPJOA before they take effect

Legacy scheme — schemes in existence before the public service pension reforms of 2015

Legacy scheme election — election made by ‘taper-protected’ and ‘unprotected members’ of the judicial pension schemes to treat any ‘remediable service’ as pensionable service under their ‘Chapter 2 legacy scheme’

New scheme — schemes created by the public service pension reforms of 2015

New scheme benefits — benefits for the period of ‘remediable service’ paid by the ‘Chapter 1 legacy scheme’ based on the rules of the ‘Chapter 1 new scheme’

New scheme benefits election — election made by members of the ‘Chapter 1 scheme’ to receive ‘new scheme benefits’ in relation to their ‘remediable service’

Options exercise — a choice in relation to the ‘remedy period’ for scheme membership available to ‘taper-protected’ and ‘unprotected members’ of judicial pension schemes

Protected judge — judicial scheme members who were within 10 years of their normal pension age as at the 1 April 2012, and as a result remained within their legacy scheme during the ‘remedy period’

Protected member — members who were within 10 years of their normal pension age as at the 1 April 2012, and as a result remained within their ‘legacy scheme’ during the ‘remedy period’

PSPJOA –— Public Service Pensions and Judicial Offices Act 2022 which sets out the remedy

Remediable service — pensionable service being fixed by the remedy as a result of discrimination found by the court

Remedy period — period covered by the discrimination, starting on 1 April 2015 in most cases (2014 for LGPS in England and Wales) and ending on 31 March 2022

Rollback — changing of benefits period covered by the discrimination, starting on 1 April 2015, and ending on 31 March 2022

Section 2 — Section 2 of the PSPJOA which enables ‘remediable service’ to be retrospectively treated as pensionable service under the relevant ‘Chapter 1 legacy scheme’, providing separate treatment for voluntary contributions and transfers into new schemes

Section 6 election period — one year from the date that a ‘remediable service’ statement is first provided, or such later time as the scheme manager considers reasonable, provided under Section 6 PSPJOA

Taper-protected judges — judges who were within 10 years and 13 ½ years of their normal pension age as at the 1 April 2012, and as a result remained within their legacy scheme for part of the ‘remedy period’ but moved to a ‘2015 scheme’ before 1 April 2022

Taper-protected member — members who were within 10 years and 13 ½ years of their normal pension age as at the 1 April 2012, and as a result remained within their legacy scheme for part of the ‘remedy period’ but moved to a ‘new scheme’ before 1 April 2022

Unprotected member — a member who, from the 1 April 2015,

• for ‘Chapter 1 schemes’ — started to build up pension rights under a new scheme, or
• for ‘Chapter 2 schemes’ — started to build up pension rights under a ‘2015 scheme’, or
• for ‘Chapter 3 schemes’ —(from 1 April 2014 for schemes in England and Wales) were not entitled to the final salary underpin on starting to take their benefits