Posted: September 2, 2020
In December 2018 the courts ruled that the transitional measures introduced during the 2015 public service pension scheme reforms directly discriminated against some younger pension scheme members.
A consultation was recently announced by HM Treasury to address this issue:
The government is proposing:
- To give choice to members as to which scheme they wish to accrue benefits under for the affected period.
- That this choice could be made now, or deferred until retirement.
- If the choice is deferred, benefits would accrue under the old schemes by default until a final decision is made at retirement.
- Finally, all members would transition to the 2015 schemes in April 2022.
As tax advisors, the main area to be aware of is the potential impact that making one of these decisions could have on your tax bill. In April 2016, the annual allowance legislation (permitting you to contribute £40,000 per year to a pension scheme tax free) was amended to include a tapering of this limit for higher earners. It has been well publicised that this inadvertently impacted the medical profession causing unexpected tax bills leading to doctors taking early retirement and ultimately reducing capacity across the NHS.
This consultation is a proposal to give options to members to potentially increase their fund value which would then be backdated. It is important to bear in mind that this could create an additional tax charge for members if it were exercised, and given that this could go back some years, any tax charge would most likely have late payment interest applied too.
It is of course early days in the consultation process, but should these options arise, we would recommend seeking financial and tax advice to ensure you make a decision that is right for you.