Following the announcement in the Spring Budget 2023, HMRC has now published the draft Finance Act 2004 (Registered Pension Schemes and Annual Allowance Change) Order 2024 (the "Order") for consultation.
The draft order contains provisions to amend the Finance Act 2004 by inserting a new section which provides that where an individual has pensionable service in both a specified legacy (closed) public service pension scheme, and a reformed (open) public service pension scheme, the individual's pensionable service can be combined for the purpose of calculating an individual's pension input amount against their annual allowance. For the purposes of the Order, the service in the reformed scheme and legacy scheme must relate to the same employment.
Three key phrases:
- Pensionable service: the period of service in a defined benefit scheme that is used to calculate pension benefits or other benefits.
- Pension input amount: the monetary amount that an individual's savings have grown by in the pension input period, calculated by determining the difference between the opening and closing values.
- Annual allowance: the maximum an individual can save into their pension pot(s) in a tax year before having to pay tax. The annual allowance is £60,000 in the current tax year.
This consultation will be of particular interest to pension scheme administrators of public service pension schemes, and individuals in both a legacy and reformed public service pension scheme.
Members of the NHS Pension Scheme, particularly senior medical staff, may see benefit from the Order as although the NHS Pension Scheme often being referred to as one scheme, it is in fact two separately registered schemes – the 1995/2008 scheme and the 2015 scheme. The Order would allow pension growth across both schemes to be combined before it is then tested against the annual allowance. This change follows a letter from NHS Employers to the Chancellor of the Exchequer in August 2022, in light of the increased rate of inflation, specifically requesting consideration of such changes to encourage senior medical staff to carry out the additional work the NHS needed to tackle a treatment backlog.
The consultation will close to responses on 26 February 2024, and we will continue to provide updates on its status. In the meantime, if you would like to discuss anything raised in this blog in more detail, please get in touch with a member of the pensions team or your usual Brodies contact.
