McCloud and Annual Allowance

Background:

What is McCloud?

In 2015 the Government made changes to the majority of public sector pension schemes. These reforms didn’t apply to those members closest to retirement, who stayed in their legacy schemes with ‘full protection’. The Court of Appeal later found that this discriminated against younger members – a consultation was published and in order to remedy this discrimination any member affected will be given the choice at retirement if they want to receive legacy scheme or reformed scheme pension benefits for their service between 1st April 2015 and 31st March 2022 (known as the Remedy Period).

Who is affected?

Not all members are affected by the McCloud Remedy. If you were a member of a public service pension scheme on or before 31st March 2012 and still a member on or after 1st April 2015 with continuous pensionable service you will be affected by the McCloud Remedy.

You can explore further information regarding how McCloud affects Annual Allowance below.

• What is Rollback?

  From 1st April 2024 any member impacted by the McCloud Remedy will have any of their pensionable service between 1st April 2015 and 31st March 2022 rolled back into their legacy scheme – this will be either the 1995 or 2008 section of the HSC Pension Scheme.

  Following rollback, HSC Pension Service will recalculate the pension input amounts for members affected by rollback and Annual Allowance for each remedy period tax year plus 2022/23. Once this is complete, HSC Pension Service will send a ‘Remediable Service Pension Savings Statement’.

• How will this affect my Annual Allowance?

  If you’re affected by the Public Service Pension Remedy, sometimes known as the ‘McCloud remedy’, you’ll be asked if you would like to receive legacy scheme or reform scheme pension benefits for your membership between 1 April 2015 and 31 March 2022. This is called the remedy period.

  Depending on when you retire, you’ll be asked to make this decision either when you claim your HSC Pension Service benefits, or later. Read more on when you’ll make your decision.

  From 1 October 2023, any pensionable service you have during the remedy period will be placed in your legacy scheme. In the HSC Pension Service, this is the 1995/2008 Scheme. This is called rollback.

  What this means if you’re affected by annual allowance

  If you have pensionable service in the remedy period that is rolled back, it may affect your pension tax position for one or more of the tax years in the remedy period.

  Many members affected by rollback will not see any change to their pension tax position, but some may, particularly if they had an annual allowance charge for one or more of remedy period tax years.

  The annual allowance is the maximum amount of tax-free growth your pension can grow by in a tax year. The standard annual allowance was £80,000 for 2015/16, £40,000 from 6 April 2016 until 5 April 2023 and £60,000 from 6 April 2023. You can find the annual allowance for earlier years on our annual allowance webpage.

  HMRC consulted on the regulatory changes they’re making to the pension tax framework because of the McCloud remedy. You can read more about the changes in the ‘finding more information’ section of this webpage and we’ll continue to update this webpage as more information is known.

  The HMRC Digital Service

  HMRC is introducing a new digital service that will enable members who have new annual allowance charges, or changes to annual allowance charges as a result of rollback, to:

  • reassess any previous annual allowance charges during the remedy period tax years
  • make an application for a refund of any previously overpaid annual allowance charges for tax years 2019/20, 2020/21 and 2021/22
  • make an application to claim compensation for any previously overpaid annual allowance charges for tax years 2015/16 to 2018/19
  • pay any underpaid annual allowance charges for tax years 2019/20, 2020/21 and 2021/22
  • pay an annual allowance charge for 2022/23

  The digital service will also apply to other tax charges such as lifetime allowance charges and unauthorised payments charges.

  HMRC has confirmed that members affected by rollback and annual allowance will not need to resubmit a self-assessment tax return for any remedy period tax year or need to include an annual allowance charge on a tax return for tax year 2022/23.

  We’re recalculating the pension input amounts for members affected by rollback and annual allowance charges for each remedy period tax year, and 2022/23. Once this is complete, we’ll send members who are affected by rollback and annual allowance a ‘remediable pension savings statement’. You will need your remediable pension savings statement to be able to use the HMRC Digital Service.

  When you’ll receive your updated pension savings statements for the remedy period

  If you’re a member who is affected by rollback and annual allowance, we’ll send you a remediable pension savings statement for the tax years in the remedy period.

  You’ll receive one updated statement that will include your recalculated pension input amount for the remedy period tax years, plus any carry forward tax years that apply.

  This will allow you to use HMRC’s Digital Service. Read the HMRC Digital Service section of this webpage.

  We’ll update this information once we know more on the timings for issuing these statements.

  What to do if you’ve received a 2021/22 pension savings statement

  If you’re a member who is affected by rollback and you have received a 2021/22 pension savings statement, you should report and pay any annual allowance charge within HMRC’s existing regulatory deadlines, as you may have done for previous tax years.

  Once we have provided you with a remediable pension savings statement for the remedy period tax years, you will be able to use HMRC’s digital service to reassess any annual allowance you may have for this tax year.

  Read the sections titled ‘The HMRC Digital Service’ and ‘When you’ll receive your updated pension savings statements for the remedy period’ on this webpage.

  If you’ve not received a 2021/22 pension savings statement

  Statements for 2021/22 were issued on or before 6 October 2023.

  If you’re a member who is affected by rollback and you have not received a 2021/22 pension savings statement automatically, you can request a 2021/22 pension savings statement as normal and this will be sent to you within 3 months if we have the information needed to complete this, or within three months of the date that your employer provides this information to us. Your statement will be based on your service before rollback.

  We will send you a remediable pension savings statement by October 2024 for the remedy period tax years, plus any carry forward tax years that apply that you will be able to use HMRC’s digital service to reassess any annual allowance you may have for this tax year.

  Read the sections titled ‘The HMRC Digital Service’ and ‘When you’ll receive your updated pension savings statements for the remedy period’ on this webpage.

  2022/23 pension savings statements for members not affected by rollback

  If you’re a member who is not affected by rollback, we’re aiming to send 2022/23 pension savings statements on or before 6 October 2023.

  An annual allowance charge for 2022/23 must be included on your self-assessment tax return.

  2022/23 pension savings statements for members affected by rollback

  We’ll provide 2022/23 pension savings statements to members affected by rollback after we’ve provided the remediable service pension savings statements for the remedy period. This is to make sure your pension input amount for the 2022/23 tax year is correctly calculated based on your pension benefits following rollback.

  It means if you’re affected by rollback, you should receive your pension savings statement for 2022/23 by HMRC’s extended deadline of 6 October 2024. This is after the deadline for self-assessment tax returns for that tax year, which is 31 January 2024.

  HMRC has confirmed that if your affected service for the remedy period has been rolled back you will not need to report any annual allowance charge for 2022/23 on your self-assessment tax return by the standard 31 January 2024 deadline, even if you receive a 2022/23 pension savings statement before this date. You’ll still need to submit a self-assessment form to report and pay any other tax charge you are liable for by 31 January 2024.

  HMRC is considering whether affected members should include some wording on their 2022/23 self-assessment tax return. Once we have more information about this, we’ll update this webpage.

  What this will mean for scheme pays deadlines for rolled back members

  HMRC has extended the mandatory scheme pays deadline for 2022/23 for members who will not receive 2022/23 pension savings statements till after remediable service statements have been issued.

  The amended mandatory scheme pays deadlines are:

  • active and deferred members (at 30 September 2023) the deadline will be extended from 31 July 2024 to 6 July 2025
  • pensioner members (at 30 September 2023) the deadline will be extended to 6 July 2027.

  These deadlines also apply to any annual allowance charge you may have in tax years 2019/20, 2020/21 and 2021/22 because of rollback and receiving a remediable service pension savings statement.

  For members not affected by roll back, the normal tax deadlines apply. Read our annual allowance webpage for more information.

  You can make an application to use scheme pays, known as a scheme pays election after these deadlines, and your election will be processed as voluntary scheme pays. There will be no deadlines on voluntary scheme pays requests for tax years 2019/20, 2020/21, 2021/22 and 2022/23.

  You can find more information on the difference between mandatory and voluntary scheme pays on our annual allowance webpage.

  If you’re already retired

  We’ll write to you when it’s time for you to make your decision about whether you’d like to receive 1995/2008 or 2015 Scheme benefits for your membership during the remedy period. Read more on when you’ll make your decision.

  We expect to have contacted the vast majority of retired members about making their decision by April 2025.

  We’ll provide you with information when we write to you to help you to make your choice decision. Everyone affected will be offered their choice and if you decide to change the benefits you’re receiving for the remedy period, we’ll backdate all payments to your date of retirement.

  If when you make your choice and you decide to change your benefits and it may mean you might owe tax or be owed a refund for tax charges, we’ll write to let you know. Not all members will need a remediable pension savings statement (RPSS) and we’ll only know if you need a statement once you have notified us of your choice decision.

  If you’ve not received a pension savings statement for 2021/22 but think you may have an annual allowance charge, you can request a statement and should receive this within 3 months of the date of your request.

  If you retired before 1 October 2023 and have received a pension savings statement for 2022/23, you should include any annual allowance charge for 2022/23 on your self-assessment tax return.

   

• Remedial Service Pension Savings Statement for the Remedy period:

  If you are a member who is affected by the McCloud Remedy, HSC Pension Service will send you a Remediable Service Pension Savings Statement for the tax years during the remedy period. This Statement will include your recalculated pension input amount for the remedy period tax years and confirmation of the pension input amounts for the previous 3 tax years, 2014/15, 2013/14 and 2012/13.

  This information will allow a member to then use HMRC’s new digital service which will be available from 1st October 2023. This enables affected members who have new, increased, or decreased Annual Allowance charges, as well as other tax charges such as lifetime Allowance charges and unauthorised payments charges to:

  * Correct these for tax years 2019/20, 2020/21, 2021/22 and 2022/23

  * Apply for compensation for any tax charge overpayments for tax years 2015/16, 2016/17, 2017/18 and 2018/19.

• 2022/2023 Pension Savings Statements:

  HSC will provide 2022/23 Pension Savings Statements to members affected by rollback after we have provided the remedial service Pension Savings Statements for the remedy period. This is to make sure your pension input amount for the 2022/23 tax year is correctly calculated based on your pension benefits following rollback.

  This means if you are affected by rollback you should receive your 2022/23 Pension Savings Statement by HMRC’s extended deadline of 6th October 2024.

  If you are a member who is affected by McCloud, but your service in the remedy period does not need to be rolled back because you had full protection and kept your 1995/2008 benefits until 31st March 2022, HSC Pension Service aim to issue your 2022/23 Pension Savings Statement ahead of this deadline.

  HMRC have confirmed that members will not need to report any Annual Allowance charge for 2022/23 on your Self-Assessment Tax Return by the Standard 31st January 2024 deadline, however you will still need to submit a Self-Assessment Return to report and pay any other tax charge you are liable for by 31st January 2024.

  Members who are not affected by the McCloud remedy should receive their 2022/23 Pension Savings Statements as normal by 6th October 2023 and any Annual Allowance charge for 2022/23 must be included on their Self-Assessment tax return and submitted by the deadline of 31stJanuary 2024.

• How HMRC’s 'Calculate your public service pension adjustment' tool can help you

  The HMRC’s tool has been developed to help you:

  • submit information for HMRC to review and check if your pension tax position has changed because of the remedy
  • work out any reduced annual allowance charge you have previously overpaid
  • work out any new or extra annual allowance charges that you may have to pay
  • apply to claim compensation from the scheme for any previously overpaid annual allowance charges that you have paid directly to HMRC for tax years 2015/16 to 2018/19
  • apply to claim a refund from HMRC of any previously overpaid annual allowance charges that you have paid directly to HMRC for tax years 2019/20 to 2021/22
  • apply to update a Scheme Pays arrangement for any previously overpaid annual allowance charges that you asked the scheme to pay to HMRC for tax years 2015/16 to 2021/22
  • automatically update your Self-Assessment tax return information with any pension tax changes during the remedy tax years of 2015/16 to 2021/22
  • pay an annual allowance charge for tax year 2022/23

  Members who use HMRC’s tool will not have to include an annual allowance charge on their Self-Assessment tax return for the tax year 2022/23.

  The lifetime allowance part of the tool

  The tool also has a lifetime allowance section for members who retired before 1 October 2023. If this is you, you will not know whether you need to use the tool until you have been contacted to choose the benefits you want for the remedy period. We will update our website with the timings for when you can expect to receive your choice and when you will need to use this part of the tool.

  What to do once you have your RPSS

  1. Visit the HMRC ‘Calculate your public service pension adjustment’ tool.
  2. Complete the first section of the tool to understand whether your tax position is affected. This is a maximum of 10 questions asking for ‘yes’, ‘no’, or ‘don’t know’ answers. Most members will be able to answer these questions themselves, without needing professional support from an accountant or Independent Financial Adviser (IFA). If your tax position is not affected, the tool will tell you, and there is nothing more you need to do.

  Your sign-in options

  You can use your government gateway user ID and password to sign in before you use the tool. If your pension tax position has been affected and you need to use the tool in full, you will be asked for a lot of information and it will take time to complete. Signing in means you can save your information and return to it later, and you will only have to submit your information once.

  If you do not have one, you can create a government gateway user ID by visiting HMRC’s website.

  If you do not sign in, you can still use the tool, but you will not be able to save your information. If you need to use the full tool beyond the first section, and if you need to make a claim to HMRC, you will have to sign into the tool later and resubmit all your information again.

  3. Once you have reached the ‘Check your answers’ page, press ‘Continue’ – the next screen will confirm whether you must go on to use the tool in full to submit your updated information. You can either do this yourself or ask an accountant or IFA to help you.

  Make sure you have all the documents you need to hand. As well as your RPSS, you’ll need:

  • a copy of your SA302 tax calculation for each tax year – to request these, visit HMRC’s SA302 support page or email publicservicepensionsremedy@hmrc.gov.uk and put ‘SA302 request’ in the subject line.
  • a pensions savings statement for each tax year affected from any other pensions you have outside of your HSC Pension – you need to contact your other pension providers if you do not have these.

  4. If you complete the HMRC tool on your own, the calculation results page will tell you at the end if you have:

  • an annual charge to pay (tax years 2019/20 to 2022/23)
  • overpaid an annual allowance charge and are entitled to:
    • compensation equal to a refund of annual allowance charge (tax years 2015/16 to 2018/19)
    • a refund of annual allowance charge (tax years 2019/20 to 2021/22)
    • an adjustment to your Scheme Pays arrangement (tax years 2015/16 to 2021/22)

  5. If you are signed in and the calculation results page says you have overpaid an annual allowance charge, you’ll be asked for your bank details if you paid the original charge yourself to HMRC from 2019/20 to 2021/22, and HMRC will refund you the amount of charge overpaid.

  If you did not pay the charge direct to HMRC, there is nothing else you need to do – HMRC will automatically update HSC Pensions and we’ll write to      you to confirm that your Scheme Pays arrangement has been amended.

  If the overpaid charge was for a tax year from 2015/16 to 2018/19 HMRC will automatically update HSC Pensions, and we’ll contact you.

  6. If you are signed in and the calculation results page says you have an annual allowance charge to pay, this could only be for a tax year from 2019/20 to 2022/23. HMRC will ask you how you want to pay the charge. If you want to pay the charge yourself, HMRC will explain how to do this.

  If you want to use Scheme Pays you do not need to do anything else – HMRC will automatically update HSC Pensions of your decision, we’ll pay the charge to HMRC and then write to you to confirm your Scheme Pays arrangement has been updated.

  7. If you are not signed in and need to pay an annual allowance charge, you can sign in and follow the above steps from Step 3.

  If you need any help using the HMRC tool

  HSC Pensions cannot answer any questions about your tax position or give any updates after you have submitted your information using the tool. HMRC has set up a dedicated support team to help with queries about updating your pension tax for the Public Service Pensions Remedy.

  You can reach them at publicservicepensionsremedy@hmrc.gov.uk or by phoning 0300 123 1079 and choosing option 1.

  Your 2023/24 tax year Pensions Savings Statement (PSS)

  We’ll send your PSS for the tax year 2023/24 separately, after we send out your RPSS. You can check if you have an annual allowance charge on your pension savings using HMRC’s Annual Allowance Calculator.

  You’ll need your RPSS to use the annual allowance calculator for the tax years between 2015/16 and 2022/23.

  Steps if your accountant or IFA is supporting your use of the HMRC tool

  To use the HMRC ‘Calculate your public service pension adjustment’ tool on your behalf, your accountant or IFA will need access to information in your RPSS, your SA302 for each affected tax year and any pension input amounts you have for those tax years in a pension scheme outside the HSC Pension Scheme.

  If you’ve used an accountant or IFA to use the HMRC tool and have an annual allowance charge that you want the scheme to pay, you should complete a Scheme Pays Election Form and send this to HSC Pension Service. HSC Pension Service will then contact you about this.

  The mandatory Scheme Pays deadline for an annual allowance charge in tax years 2019/20 – 2022/23 is extended from 31 July 2024 to 6 July 2025. It is extended to 6 July 2027 for members who retired before 1 October 2023.

  We will accept a Scheme Pays Election SPE2 after these deadlines either via HMRC’s tool if you are signed in or a Scheme Pays Election form if you are using an accountant or IFA, and your election will be processed as voluntary Scheme Pays.

  If you are affected and you need professional support to use HMRC’s tool, you can apply to the HSC Pension Service Cost Claim Back Scheme to have your costs reimbursed up to the eligible limit. This Scheme is currently being finalised and information will be published when available.

  Most members who use the first section of the tool, and are told that their tax position is not affected, are unlikely to need professional support. This means applications for costs for support with the first section of the tool may not be accepted, but all claims will be individually considered.

Scheme Pays deadlines for rolled back members:

Scheme Pays Election deadlines for members impacted by the McCloud remedy will be issued once HSC Pension Service have received further guidance from HMRC.

Any member not affected by McCloud will need to submit a Scheme Pays Election for the 2022/23 tax year by the normal deadline of 31st July 2024.