The government will amend pension tax rules to make it easier for people in public sector schemes to pay annual allowance charges using their pension.
The government said yesterday (March 23) it is to make some technical updates to pension rules so that scheme pays can be used more easily by individuals in such schemes.
It said it had found issues within its current framework while looking into remedies for individuals affected by the McCloud case.
The case concerned age discrimination in the 2015 public service pension reforms, which had moved most members to a reformed pension scheme, while allowing those within 10 years of retirement to stay within the legacy scheme.
The remedy the government opted for is expected to lead to annual allowance breaches for members.
But it has since realised that current rules do not let individuals ask their pension scheme to settle annual allowance charges from previous tax years by reducing their future pension benefits, known as scheme pays.
Therefore it will make “technical updates to pension tax rules” to remove these anomalies.
Steve Webb, partner at LCP, said: “The knock-on consequences of the McCloud judgement are horribly complex for those who are affected by annual and lifetime limits on pension tax relief.
“This latest consultation reflects the fact that reinstating people into the pre-reform public service schemes will have consequences in terms of annual allowance charges which cannot be easily dealt with under existing ‘scheme pays’ legislation.”
There were two proposed remedies to the McCloud problem.
One solution was an immediate choice, a self-explanatory route that would have seen affected members choose immediately which of the two schemes to be in.
The other option, the one chosen by the government, was the deferred choice underpin, under which members may opt at retirement for whichever scheme would have produced the larger pension.
With the deferred choice underpin it is likely that a member could face an increased annual allowance charge.
This is because the accrual of reformed scheme benefits are placed in a single year.
According to the government this could trigger a higher AA liability than that individual might have faced had the discrimination not occurred.
amy.austin@ft.com
What do you think about the issues raised by this story? Email us on FTAletters@ft.com to let us know
