On the go: The government will amend pension tax rules to make it easier for those who incur annual allowance charges as part of McCloud remedies to pay these through the pension schemes.
It will make some technical updates to pensions rules so 'scheme pays' can be used more easily by individuals who have breached their annual allowance as a result of the McCloud ruling.
When devising a remedy for individuals affected by the age discrimination found in the 2015 public service pension reforms, otherwise known as the McCloud case, the government found some issues within its framework.
For example, it currently does not straightforwardly 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 the government will make “technical updates to pension tax rules” to remove these anomalies, the Treasury announced in tax policies and consultations documents released on Tuesday.
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, the age discrimination case arising from a 2015 review of public sector pensions that moved most members to a new, reformed pension scheme, while allowing those within 10 years of retirement to stay within the legacy scheme.
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, in 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 annual allowance liability than that individual might have faced had the discrimination not occurred.
This article originally appeared on ftadviser.com
