Pension remedy rules explained

By Edie Bourne

Specialist medical accountants have welcomed the Government’s pensions announcement of a deferred choice option as ‘good news’ for those doctors affected.

The thumbs-up came from Stanbridge Associates whose partner Vanessa Sanders recommends doctors avoid any knee-jerk reactions and wait for further information on this complex area ‘to which no-one yet has all the answers’.

Rulings mean:

1. Eligible members who were moved to the reformed pension scheme in 2015 – or later if they had tapered protection – will be moved back into their legacy pension scheme for the period when discrimination occurred, between 1 April 2015 and 31 March 2022.

2. When benefits are paid at retirement, they will get information to enable them to choose to receive legacy pension scheme benefits or benefits equivalent to those available under the reformed pension scheme for service between 2015 and 2022, when all members will be transferred. 

3. Deferring the choice until the point benefits are paid allows individuals to decide which pension scheme is more beneficial, based on facts rather than assumptions. The level of both pension scheme benefits will be known at retirement.

4. From 1 April 2022, all who continue in service as active members of the pension scheme will become members of the reformed scheme, regardless of age, so there will be no discrimination on those grounds.

Vanessa Sanders

Mrs Sanders said meaningful interaction with the tax system had to wait until the law was changed and it was clearer how the deferred choice underpin would affect aspects like pension savings’ growth and excess tax charges. 

Many would be concerned about possible changes to their annual allowance tapering, tax charges arising due to having excess growth in excess of the allowance, and of being a member of more than one pension scheme. 

But at this point there was little to be gained from performing iterative calculations about estimated pension growth in the legacy scheme compared to what had happened. Doctors were not yet in a position to make any changes to their choices, as the legislation had not yet come into effect. 

She said there were tax consequences resulting from the proposed changes, such as different levels of pension contributions being deducted by a change in scheme. 

Complexities meant tax paid might be more or less than had been notified to HM Revenue and Customs and could need rebalancing. 

Some who had voluntarily elected for private pension schemes to pay their excess tax charges might need compensation to be placed in a similar position to before the discrimination caused a reduction to their pension pot.