How to treat unauthorised payments following the public service pensions remedy
As a result of the public service pensions remedy (known as McCloud), members may have changes to the amount of, or a new unauthorised payment.
As a result of the remedy, the benefits payable to the member may be different to the amount originally paid.
This could mean that the:
- member may no longer have an unauthorised payment
- member’s unauthorised payments charges have reduced
- member’s unauthorised payments charges have increased
What an unauthorised payment is
The tax rules specify the conditions that need to be met for payments to be authorised. Any payment that does not meet these conditions is an unauthorised payment.
Common examples of when payments are classed as unauthorised include:
- taking a pension commencement lump sum of more than 25% of the member’s pension pot, known as an excess lump sum
- most lump sum payments to cash-in or access pension funds before the member is 55, except:
- when the member retires due to ill health
- if before 6 April 2006, the member had the right under the pension scheme to take their pension before they were 55
- where the maximum lump sum payable under the scheme rules is more than the maximum permitted pension commencement lump sum
If there is a reduction in the unauthorised payments charges
Where there is a reduction in the amount of any unauthorised payments, you will need to determine if there was an excess lump sum. If there is, you can choose to ask the member for repayment of the excess lump sum.
Where the excess lump sum (which was originally an unauthorised payment) is repaid in full, it is treated as having never been an unauthorised payment. This means that the unauthorised payments charges will no longer apply, and the member can claim a refund of the overpaid tax charges.
If a member originally paid the charge
Where a member paid the unauthorised payments charges through their Self Assessment tax return, they will need to contact HMRC to request a refund. Members may contact you to get the information they need to make a claim.
If there is an increase in the unauthorised payments charges
If a member’s unauthorised payment increases, and the member pays the charge, they will need to send information to HMRC. This will only apply to the tax years including and between 2019 to 2020 and 2022 to 2023.
You can pay the increased unauthorised payment charge on the member’s behalf using the mandating procedure at the point the unauthorised payment is made. However, the liability for this payment will always remain with the member.
You should report the new or additional charge of unauthorised payments on your next event report. Do not amend the event report on which an unauthorised payment was originally reported.
Changes in scheme sanction charges
You can reclaim an overpayment of scheme sanction charges if (all of the following apply):
- an unauthorised payment was made before 1 October 2023
- a change following the remedy means that the unauthorised payment has reduced
- the scheme sanction charge has been overpaid
Any scheme sanction charge paid by a Chapter 1 new scheme administrator for a payment that is no longer an unauthorised payment is treated as paid by the Chapter 1 legacy scheme administrator. The Chapter 1 legacy scheme administrator can reclaim the scheme sanction charge if it was originally paid by the Chapter 1 new scheme administrator.
You can complete the credit spreadsheet, including any relevant information, as shown in the ‘What information to include on the credit spreadsheet’ section of this page. You will need to send the information to HMRC through the Secure Data Exchange Service.
HMRC will review the information and raise a scheme sanction charge credit through the managing pension schemes service. This credit will appear on the scheme financial information.
Where a member’s unauthorised payments charges have increased, you will need to submit the increases on the next available event report.
Updates to this page
Last updated 29 May 2024 + show all updates
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The 'If the scheme paid the original charge' section has been removed.
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First published.