Lifetime allowance charges following the public service pensions remedy
Find out about lifetime allowance charges following the public service pensions remedy (known as McCloud), including how to request a refund and report new charges.
As a result of the public service pensions remedy, pension scheme administrators may need to:
- update a member’s protection
- process new or revised benefit crystallisation events
- report increases in lifetime allowance charges
- claim a refund for overpaid lifetime allowance charges
- share member information with other scheme administrators
How lifetime allowance protection has been affected
Members who have been rolled back or made a legacy scheme election may be able to have their previously held lifetime allowance protection reinstated.
Members may be affected if they have either:
- fixed protection 2016
- individual protection 2016
Fixed protection 2016
Members of Chapter 1 schemes that hold fixed protection 2016 and choose to take the new scheme benefits will not have their new choice included when considering if benefit accrual has occurred. This means that where benefit accrual has only occurred due to them selecting new scheme benefits, the member will be able to keep their fixed protection 2016.
When members of Chapter 3 schemes that hold fixed protection 2016 receive their underpin it will be ignored when considering if benefit accrual has occurred. This means that where benefit accrual has only occurred due to the underpin, the member will be able to keep their fixed protection 2016.
Impact on transfers of partnership pension account assets into a Chapter 1 or Chapter 2 scheme
You must transfer sums and assets representing rights under the partnership pension account to the relevant legacy scheme for members of Chapter 1 schemes and Chapter 2 schemes that:
- hold fixed protection 2016
- held rights under the partnership pension account
- opted back into the legacy scheme
This transfer will be ignored when considering whether it is a permitted transfer and so prevents the member from losing their fixed protection 2016.
Individual protection 2016
If a member of a Chapter 1 scheme chooses new scheme benefits, their benefits may increase. This increase will start immediately before the member starts to take benefits.
Where their benefit choice starts after 5 April 2016, for the purposes of valuing their pension pots for individual protection 2016 their choice will be treated as being effective from 5 April 2016. This will be the value of the new rights built up as at 5 April 2016.
For members of Chapter 3 schemes, for the purposes of valuing their pension pots for individual protection 2016, they will be able to treat their underpinned benefits as having started on 5 April 2016. This will be the value of the rights built up as at 5 April 2016.
Members will need to tell HMRC of any changes to the values they previously provided for their individual protection 2016. If they did not previously meet the minimum value of £1 million on 5 April 2016 to be eligible for individual protection 2016, but now do, they will now be able to apply for individual protection 2016.
If a member asks, you’ll need to give them a valuation of their benefits under the scheme on 5 April 2016 to support their application for individual Protection 2016.
Recalculating lifetime allowance charges
Member’s benefit entitlement may be affected as a result of the rollback or by their choice of benefit. If a member’s benefit entitlement has changed, it may also affect the amount of any benefit crystallisation events they had under the scheme and whether they need to pay any new lifetime allowance charges, or the amount of any previous lifetime allowance charges.
Chapter 1 members — recalculating charges
For members of Chapter 1 schemes who have already taken their benefits and have been rolled back into the legacy scheme any benefit crystallisation event that happened under the new scheme will be treated as having always occurred under the legacy scheme. If the member made an immediate choice for legacy scheme benefits, this will retrospectively adjust the amount of the member’s benefit crystallisation event.
Where a protected member of a Chapter 1 scheme makes an immediate choice for new scheme benefits this will also retrospectively change the amount of any benefit crystallisation events that occurred under the legacy scheme.
You will need to recalculate the original benefit crystallisation event and send the member the revised statement. This must include the revised amount of lifetime allowance percentage used under your scheme, and if there is a new lifetime allowance charge or if a previous charge could be reduced. Where the benefit crystallisation event previously occurred under the new scheme only and, following the roll back, now occurs under the legacy scheme, you will need to issue a new benefit crystallisation event statement.
Unless scheme regulations provide otherwise, benefits will remain in the new scheme that relate to:
- pensionable service on or after 1 April 2022
- member voluntary contributions
- transfers received by the Chapter 1 new scheme
Where the benefit crystallisation event under the new scheme includes any of these benefits, the amount of that benefit crystallisation event will need to be recalculated.
Chapter 2 members — recalculating charges
For members of Chapter 2 schemes who choose the legacy scheme, any benefits previously paid by the 2015 scheme will be treated as being paid from the legacy scheme. Benefits relating to either voluntary contributions paid to the 2015 scheme, or a transfer made to that scheme will remain in the 2015 scheme.
For a member who did not pay voluntary contributions or had a transfer to the 2015 scheme, this means that the benefit crystallisation event under that scheme is treated as not having happened. Where the member either paid voluntary contributions or had a transfer to the 2015 scheme the amount of their benefit crystallisation event under that scheme will need to be recalculated to reflect benefits now payable under the scheme The 2015 scheme administrator will need to send the member a revised benefit crystallisation event statement telling them the percentage of lifetime allowance used up by the benefit crystallisation event. Or, where this is now 0% used, the 2015 scheme administrator must provide confirmation to the member that the previous benefit crystallisation event did not occur.
For taper-protected members who choose the 2015 scheme, any benefits previously built up under the legacy scheme during the remedy period should be treated as always having been under the 2015 scheme. As these benefits are moving from an unregistered scheme to a registered pension scheme, the 2015 scheme administrator will need to issue a revised benefit crystallisation event statement confirming the updated amount of lifetime allowance used and if there is a new lifetime allowance charge.
Chapter 3 members
For members of Chapter 3 schemes, the extension of the final salary underpin may mean that in some cases they are due extra benefits. In these cases, as the actions are not retrospective, previous benefit crystallisation events should not be revisited.
Where extra benefits are put into payment, it will create a new benefit crystallisation event. This will be from the date the benefits are put into payment. You should issue a benefit crystallisation event statement confirming the amount of lifetime allowance used up by the event. The relevant lifetime allowance that it is tested against should be at the date the extra benefits are put into payment.
Who is liable for changes in lifetime allowance charges
There are no changes in liability for Chapter 3 schemes, as these charges will not change. The liability of charges for members of Chapter 1 and Chapter 2 scheme are different.
Charges in a Chapter 1 scheme
Following the rollback for Chapter 1 schemes, the new scheme administrator will no longer be jointly liable for any lifetime allowances charges arising in respect of benefits rolled back to the legacy scheme.
The Chapter 1 legacy scheme administrator and the member will be jointly liable for paying any lifetime allowance charges for those rolled back benefits.
Any previous lifetime allowances charges reported and paid by the Chapter 1 new scheme administrator will be treated as being reported and paid by the Chapter 1 legacy scheme administrator following the rollback. You do not need to update the previously submitted Accounting for Tax (AFT) return. However you, as the new scheme administrator, need to send the following information to the member’s legacy scheme:
- the member’s name
- the member’s National Insurance number
- the new scheme’s name and Pension Scheme Tax Reference (PSTR)
- the date of the benefit crystallisation event which the lifetime allowance 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
Where a member makes an immediate choice, the legacy scheme administrator will be jointly liable for paying any lifetime allowance charge as a result of the choice.
Charges in a Chapter 2 scheme
Scheme administrators of a 2015 scheme are jointly liable with the member for paying any additional or new charges as a result of a member’s benefit choice.
Report increases in lifetime allowance charges
If the benefit crystallisation event happened between 6 April 2019 and 5 April 2023, you need to report and pay any additional or new lifetime allowances charges.
You will need to:
- report these for the quarter following the quarter you’ve become aware of the change in the benefit crystallisation event
- mark the charge as a result of the public service pensions remedy
- give details of the charge previously reported (if this is an increase in the charge)
You do not need to amend any previously submitted AFT return in relation to these charges.
Discharging new lifetime allowance charges
If a Chapter 1 or Chapter 2 scheme member’s immediate choice results in a new or additional lifetime allowance charge, the member and scheme administrator will become jointly liable for this charge. You will not be able to apply for a discharge from the lifetime allowance charge, as this would make the member solely liable.
Claiming a refund
Where you previously reported and paid a member’s lifetime allowance charge which has reduced as a result of the remedy, you’ll be able to claim a refund for the value of the overpaid charge by completing a spreadsheet you can get from your contact at HMRC for the Public Service Pensions Remedy. You’ll have until 1 April 2027 to do this. You do not need to amend the AFT return that it was originally reported on.
Reporting new lifetime allowance protections or enhancements
Where a member, following the remedy, now has lifetime allowance protections or enhancements to reduce or remove a lifetime allowance charge for a tax year within the remedy period, you’ll need to report this on the Event Report as Event 6. You should report this on the Event Report for the tax year in which the benefit crystallisation event originally occurred.
You’ll also need to consider if there are any other events you now need to report on the Event Report for a member about their lifetime allowance, following the remedy. Events should be reported on the Event Report for the tax year in which the event originally occurred.
Where a member no longer has lifetime allowance protections or enhancements following the remedy, you do not need to amend the Event Report for Event 6.
New charges in a private sector scheme
Where a new or additional lifetime allowance charge arises in a private sector scheme as a result of the remedy, the scheme may be able to apply to discharge their liability.
Where the private sector scheme administrator is successful with their discharge application, the member will be solely liable to the lifetime allowance charge. However, in specific circumstances, the member will be able to ask for their public service scheme administrator to pay the charge on their behalf.