Navigating tax complexities in public sector pension reforms
From October 1, 2023, individuals retiring from the public sector will face significant pension decisions under the second phase of the McCloud Remedy, which may have tax implications.
Understanding the McCloud Remedy
In April 2015, the UK government replaced existing public sector pensions with 'reformed schemes' based on career average salaries, replacing the 'legacy schemes.' These changes affected various workforces, including teachers, the NHS, and the civil service.
Tax Considerations
Some scheme members may be impacted by retrospective adjustments to their pensions between 2015/16 and 2022/23, affecting the Annual Allowance (AA) tax charge. Changes in pension input amounts may lead to increased or decreased AA tax charges or new charges for affected members.
HMRC's Solution
HMRC has stated that affected taxpayers will not need to resubmit self-assessment tax returns or adjust the 2022/23 tax return. Instead, a digital service will launch on October 1, allowing affected members to:
Pay excess or new AA tax charges or seek refunds for 2019/20 to 2022/23.
Apply for compensation for AA tax charges overpaid from 2015/16 to 2018/19.
Pension input amounts will be recalculated by schemes, and members can use the HMRC digital tool to make payments or apply for refunds and compensation. Members may also be reimbursed for reasonable fees related to tax advice or agent engagement.
Contact us for more information.
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