Guidance

Pensions schemes newsletter 148 — March 2023

Published 16 March 2023

1. Spring Budget 2023

The following is a summary of all the announcements in the Budget on 15 March 2023 in connection with tax relieved pension savings.

1.1 Lifetime allowance (LTA)

The government announced that from 6 April 2023 the lifetime allowance charge would be removed. The lifetime allowance will be fully abolished from the 2024 to 2025 tax year, through a future Finance Bill.

The lifetime allowance framework therefore remains in place from 6 April 2023, and it is just the lifetime allowance charge that has been removed at this stage. As a pension scheme administrator, you will need to continue to operate lifetime allowance checks when paying benefits (for example assessing whether an individual has available lifetime allowance) and to issue benefit crystallisation event statements.

Further information and guidance will be issued when the lifetime allowance is completely removed from pension tax legislation.

Pension commencement lump sum

As a result of the changes to the lifetime allowance, the maximum amount which a member can take as a pension commencement lump sum (PCLS) will be frozen at £268,275 — 25% of the current standard lifetime allowance of £1,073,100. Members with a protected right to a higher PCLS will continue to be able to access this right.

Members who hold a valid enhanced protection or any valid fixed protections, where this protection was applied for before 15 March 2023, and a certificate or reference number subsequently issued, from 6 April 2023 will be able to accrue new pension benefits, join new arrangements or transfer without losing this protection. They will also keep their entitlement to a higher PCLS.

Other lump sums

Where the following payments would currently be subject to an lifetime allowance charge at 55%, from 6 April 2023 they will be taxed at the recipient’s marginal rate:

• Serious Ill-Health Lump Sum
• Uncrystallised Funds Lump Sum Death Benefit
• Defined Benefits Lump Sum Death Benefit
• Lifetime Allowance Excess Lump Sum

We’ll provide further information on how to report these lump sums in a future newsletter.

If you have any queries about the lifetime allowance changes, email [email protected] with ‘Budget – LTA’ in the subject line.

1.2 Annual allowance (AA)

From 6 April 2023 the annual allowance for tax relief on pension savings in a registered pension scheme will increase from £40,000 to £60,000.

The adjusted income limit will increase from £240,000 to £260,000. This means if a member’s adjusted income is over £260,000, their annual allowance in the tax year may be reduced. For every £2 their adjusted income goes over £260,000, their annual allowance for the current tax year will reduce by £1. The minimum reduced annual allowance a member can have from 2023 to 2024 onwards is £10,000. This has been increased from £4,000.

For the tax year 2023 to 2024 onwards, the money purchase annual allowance limit will also increase from £4,000 to £10,000.

Public Service Pension Schemes

The government announced that legislation will be introduced later this year that ensures different Public Service Pension Schemes (PSPS) for each public service workforce are treated as one arrangement for the purposes of calculating Annual Allowance tax charges for the tax year 2023 to 2024 onwards.

This will ensure that where public service pay growth is below the previous September’s Consumer Price Index, any negative growth of final salary pension rights can be offset against positive new accrual in PSPS.

Further guidance will be provided in future newsletters.

If you have any queries about the annual allowances changes, email [email protected] with ‘Budget – AA’ in the subject line.

Public Service Pensions Remedy (McCloud)

The Public Service Pensions Remedy is intended, as far as possible, to put members into the same position that they would have been in had the discrimination not occurred.

The changes to the lifetime allowance or annual allowances announced at Spring Budget 2023 do not to alter this approach. Schemes should continue to implement the remedy as planned.

Any specific questions or issues that these Budget changes pose for the remedy should be directed to your usual contacts in HM Treasury or HMRC.

1.3 Pensions relief relating to Net Pay arrangements

There are 2 main methods of giving pensions tax relief. While they provide the same outcomes for most, low earners in schemes using net pay arrangements have less take-home pay than they would if they were saving into a scheme that uses relief at source.

The government announced that legislation will be introduced in Finance Bill 2023 that will enable HMRC to make a top-up payment to low earners for the tax year 2024 to 2025 onwards.

The top-up payments will be made directly to eligible individuals. HMRC will determine eligibility based on whether individuals have contributed to a net pay pension scheme and if their total taxable income is below the personal allowance in the same tax year. HMRC will contact those individuals and provide details of how much they are entitled to, which will be calculated using HMRC systems. Payments will be made as soon as possible after the tax year in which the contribution is paid.

1.4 Pensions Tax Administration — Digitalising relief at source

In Pension Schemes Newsletter 134 we confirmed the government announced it would legislate in a future Finance Bill to improve the administration of pension tax relief.  This will enable the digitalisation of the current paper processes for relief at source, improving the experience for pension scheme administrators and reducing errors.

The government announced at Spring Budget 2023 that the draft legislation and a tax information and impact note will be published for consultation later this year.

1.5 Write downs for annuities products and insurers liabilities

The government will introduce legislation in the Finance Bill to address the pensions tax and corporation tax consequences of court directed write-downs under the proposed new section 377A of the Financial Services and Markets Act 2000 and any subsequent court-ordered variation or termination of write-down orders.

The legislation extends the circumstances in which a pre-6 April 2015 lifetime annuity, or dependents annuity, under a registered pension scheme can be reduced without incurring unauthorised payments charges. This will ensure those who receive Financial Services Compensation Scheme top up payments as a result of the write down, under proposed new section 217ZA of the Financial Services and Markets Act 2000, will not face a tax disadvantage.

This should have a minimal impact on pension schemes and will mainly apply to individuals who hold annuities provided by insurers who are in financial distress.

You can find more information about these changes in the write-downs for annuities products and insurers liabilities.

1.6 Collective money purchase pension schemes — winding up

Following consultation at Legislation Day 2022, the government will introduce legislation in the Finance Bill to clarify the tax treatment of payments made from a collective money purchase pension scheme that is in the process of being wound up.

As a collective money purchase is a new type of pension scheme which has yet to be launched there is no direct impact on existing pension schemes.

You can find more information about these changes in the collective money purchase - winding up.

2. Relief at Source

2.1 Scottish Income Tax rates

On 15 December 2022, the Scottish Government published its budget setting out the Scottish Income Tax rates for the 2023 to 2024 tax year. The Scottish Government announced they would be adding 1p to the higher and top rates

For 2023 to 2024 the Scottish rates are as follows:

• the starter rate will be 19%
• the basic rate will be 20%
• the intermediate rate will be 21%
• the higher rate will be 42%
• the top rate will be 47%

You can find more information about Scottish Income Tax in our guide Income Tax in Scotland.

2.2 Welsh Income Tax rates

The Welsh Government has made a commitment not to raise Welsh rates of Income Tax, as outlined in the draft budget announcement in December 2020. This will mean that the rates of Income Tax paid by Welsh taxpayers will continue to be the same as those for 2022 to 2023.

For 2023 to 2024 the Welsh rates are as follows:

• the basic rate will be 20%
• the higher rate will be 40%
• the additional rate will be 45%

You can find more information about Welsh Income Tax in our guide Income Tax in Wales.

2.3 Annual return of information for the tax year 2022 to 2023

To make sure that we can process your annual return of information, you should always use the versions of the spreadsheet and electronic flat text file specifications that are currently on GOV.UK and not a version that you’ve saved from a previous year.

If you’re submitting an annual return of information for the tax year 2022 to 2023 you should use the:

• 2019 version of the relief at source spreadsheet

• 2019 version of the electronic flat text file specifications

It’s important that you also make sure that you use the correct naming convention when you submit your annual return through the Secure Data Exchange Service and that the file name reference matches the sub reference included in the return.

You can find details of how you should name your files in both the relief at source spreadsheet and electronic flat text file specifications.

2.4 APSS590 annual return of information declaration

You must also submit the APSS590 — Annual return of information declaration as part of your return. Without the APSS590, we will consider your return to be outstanding and this could lead to future relief at source interim repayments being stopped.

You can send the APSS590 annual return of information declaration either by post or email [email protected] and put ‘APSS590 — Annual return of information declaration’ in the subject line of your email.

3. Accounting for Tax (AFT) Returns

3.1 AFT — system downtime

In Pension Schemes Newsletter 147 we told you that due to the updates being made to the AFT return, the functionality to compile or submit an AFT return on the Managing Pension Schemes service would be unavailable from from Friday 10 March 2023 to Thursday 16 March 2023.

Due to the level of development and testing that is required, we decided to delay the system downtime. As a result, the functionality to compile or submit an AFT return on the Managing Pension Schemes service will now be unavailable from 4pm on Friday 24 March 2023 until 10am on Thursday 30 March2023. We apologise for any inconvenience this may cause.

If you need to make a payment during this time, you can use the PSTR as the reference.

4 Event Reporting

In pension schemes newsletter 146 — January 2023 we told you we’d be releasing the event report for 2023 to 2024 on the Managing Pension Schemes service.

From April 2023, you will no longer be able to compile and submit any new event reports for the tax year 2023 to 2024 onwards on the Pension Schemes Online service. Instead, you’ll need to migrate your pension scheme and submit the report on the Managing Pension Schemes service.

You can only submit your event report once the tax year has ended, unless you’re reporting that the pension scheme has wound up, or that it has become or ceased to be a Master Trust.

4.1 Scheme Wind Up or Scheme becomes or stops being a Master Trust

Between April 2023 and summer 2023 where pension scheme administrators and practitioners will be unable to create and compile an event report for 2023 to 2024 on either service:

• If the pension scheme has wound up, you must report this to HMRC within 3 months of the scheme wind up completing. You will need to email [email protected] with ‘Scheme wind up’ in the subject line and include the:
  • PSTR
  • name of the pension scheme
  • administrator ID
  • date of wind up
• If the pension scheme has become or ceased to be a Master Trust, you must report this to HMRC within 30 days of the event — you must complete form APSS578 to tell HMRC of this change

4.2 Submitting historic Event Reports

If you need to submit a new event report or amend an existing event report for the tax year 2022 to 2023 or earlier for a scheme registered on the Pension Schemes Online service, you can continue to do so on this service.

However, from April 2023, you’ll no longer be able to submit any event reports for any period using third party software on the Pension Schemes Online service. You’ll need to compile and submit the report directly on the service.

4.3 Create, compile and view Event Report

In summer 2023, pension scheme administrators and practitioners will be able to create, compile and view the event report in-year on the Managing Pension Scheme service, for the tax year 2023 to 2024 onwards.

There’ll be no limit on the number of members or events that can be reported in a single event report. You’ll also be able to enter details of all types of lifetime allowance protection reference numbers.

You can only submit your event report once the tax year has ended.

4.4 Bulk reporting for Event Report

When compiling an Event Report on the Managing Pension Schemes service, you’ll be able to bulk import data from a spreadsheet, directly on to the service to populate the report.

When released, this feature will be available for importing the details for:

• Event 1
• Event 6
• Event 22
• Event 23

You’ll need to upload a different spreadsheet for each event. If you upload more than one spreadsheet for the same event, the original upload will be overwritten.

All spreadsheets will need to be uploaded as CSV files. The CSV templates and instructions will be available on the service. If you would like us to send you the spreadsheets when they’re available email [email protected] and put ‘Event Report CSV file’ in the subject line. Provide the details of which event spreadsheet you would like in the body of the email.