Scheme Pays Tools & Guides
Mandatory vs Voluntary Scheme Pays
Key differences between the two options
Mandatory Scheme Pays
- ✓NHS pension growth exceeds available Annual Allowance
- ✓Scheme must accept election
- ✓Deadline: 31 July
- ✓Can be amended until deadline
- ✓Joint liability with scheme
Voluntary Scheme Pays
- !Non-mandatory scenarios (including tapered allowance cases)
- !Scheme can refuse election
- !Deadline: 31 March
- !Cannot be amended
- !Member solely liable
What is Scheme Pays?
Scheme Pays is a mechanism that allows you to pay Annual Allowance tax charges through your NHS pension scheme. Key points:
•The charge is paid by the NHS Pension Scheme
•Your future pension benefits are permanently reduced
•Available in two forms: Mandatory and Voluntary
•Can be used alongside personal payment
•Election deadlines must be strictly observed
This can help manage tax charges without needing to find funds immediately.
Mandatory Scheme Pays
Mandatory Scheme Pays (MSP) is available when:
Eligibility Criteria:
•Your NHS pension growth exceeds your available Annual Allowance (typically £60,000 before tapering)
•Tax charge is over £2,000
•Election made by 31 July after the tax return deadline
Key Features:
•NHS Pension Scheme must accept your election
•Covers growth in NHS pension only
•Joint and several liability with scheme
•Can be amended until deadline
Important Notes:
•Available even after retirement in certain cases
•Can be used with Voluntary Scheme Pays
•Pension reduction calculated using factors from GAD
Voluntary Scheme Pays
Voluntary Scheme Pays (VSP) can be used when:
Circumstances:
•Pension growth above your available allowance where mandatory criteria are not fully met
•Tax charge due to tapered allowance
•Multiple pension schemes involved
•MSP criteria not met
Key Differences from MSP:
•Earlier election deadline (31 March)
•Scheme can refuse to accept
•Member solely liable for tax charge
•Cannot be amended after submission
Important Considerations:
•Can be used alongside MSP
•May be only option for tapered charges
•Consider personal payment alternatives
Key Deadlines
Critical dates for Scheme Pays elections:
Mandatory Scheme Pays:
•31 July after tax return deadline
•Example: 2025/26 deadline is 31 July 2027
Voluntary Scheme Pays:
•31 March following tax year
•Example: 2025/26 deadline is 31 March 2027
Special Cases:
•Retirement before normal deadline
•Death before election made
•Transferring out of scheme
•Late awareness of liability
Impact on Benefits
Understanding how Scheme Pays affects your pension:
Pension Reduction:
•Permanent reduction to benefits
•Calculated using actuarial factors
•Increases with interest over time
•Affects dependants' benefits
Considerations:
•Compare with personal payment
•Impact of investment returns
•Effect on tax-free lump sum
•Interaction with other reductions
Critical Deadlines
Scheme Pays deadlines are strict and cannot be extended. Missing the deadline means you must pay the tax charge personally. Voluntary Scheme Pays has an earlier deadline (31 March) than Mandatory (31 July). Plan ahead and submit elections early.
Required Actions
1
Assess eligibility
Check if your circumstances qualify for Mandatory or Voluntary Scheme Pays
2
Compare options
Calculate the long-term impact of scheme pays vs personal payment
3
Submit election
Complete forms and submit before the relevant deadline
4
Monitor impact
Track how the scheme pays affects your future pension benefits