Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Scheme Pays definition

What does Scheme Pays mean? Scheme Pays is a mechanism by which a member asks their registered pension scheme to pay some or all of their Annual Allowance tax charge directly to HMRC, in return for a permanent reduction to the member’s pension benefits or defined contribution pot. It is set out in the Finance Act 2004 and associated HMRC regulations and guidance, and operates consistently across England & Wales, Scotland and Northern Ireland. Key features include: - Mandatory Scheme Pays, where statute gives a right to require the scheme to pay the charge if specified conditions are met (including a monetary threshold and that the

Scheme Pays for annual allowance charge: eligibility, notices, deadlines, exceptions, joint liability, benefit adjustments and accounting (England and Wales)

Published by a LexisNexis Pensions expert

Practice notes

THIS PRACTICE NOTE APPLIES ONLY TO PENSION SCHEMES IN ENGLAND AND WALES

scheme pays, brought in under Schedule 17 to the Finance Act 2011 (FA 2011), permits a member, in defined circumstances, to direct their pension scheme to settle their annual allowance charge. The scheme may subsequently recover the outlay by adjusting the member’s pension benefits accordingly. As the standard annual allowance available to a member has been curtailed over time (it peaked at £255,000 and, from 6 April 2023, stands at £60,000), a greater number of members are expected to face an annual allowance charge and, in turn, more pension schemes are likely to need to deploy Scheme Pays. Crucially, for a member to compel their scheme to operate Scheme Pays, one condition is that the aggregate pension savings in that scheme for the same tax year (ie the pension input amount) must exceed the standard annual allowance (ie £60,000 from 6 April 2023 and £40,000 between 6 April 2014 and 5 April 2023). Consequently, the money purchase annual allowance and any taper applied to the standard annual allowance entitlement are disregarded when considering Scheme Pays in practice for these purposes...

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Web page updated on 21/05/2026

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