The “scheme pays” proposals were put forward to assist those who exceed the annual allowance (AA) and face an immediate charge to tax. A detailed consultation was issued in November 2010 and HMRC has now published its response proposing a simplified regime. The provisions are due to be included in the Finance Bill 2011.

Scheme pays – summary of proposals

  • The AA charge will be payable at the point at which it arises (not rolled over until the member draws his benefits).  
  • Individuals with AA charges above £2,000 will be able to elect for the full liability to be met from their future pension benefit. The scheme administrator and the individual are jointly and severally liable to pay the charge.  
  • Schemes will be required to offer “scheme pays” where a member’s savings in that scheme exceed the AA for the relevant year. Individuals with an aggregate AA tax charge of more than £2,000 who have not exceeded the AA in any one scheme, will be able to request that one of their schemes operates this facility. No scheme will be compelled to do so.  
  • Schemes cannot charge for offering the facility.  
  • There will be no prescription as to how schemes should manage the facility. Offsetting tax charges against benefits must be done on a just and reasonable basis having regard to normal actuarial practice.  
  • A scheme may be able to obtain an exemption if it can demonstrate to HMRC that “scheme pays” would be to the substantial detriment of the interests of members or that it would not be just and reasonable.