How the tax regime impacts FDA members’ pension savings

A major area of concern for FDA members with long service and/or high salaries is the impact of the tax regime on pension savings. HMRC use particular formulae for assessing the annual and lifetime allowance limits that mean it is not as simple as looking at the headline amounts of pension saved from year to year to determine whether or not the limit is breached.

Our guide to pension tax relief for civil servants explains the process, so you can ascertain whether you are likely to be affected and if so, what can be done.

Pension relief update October 2024: Remedy Pension Saving Statements

Thousands of scheme members are receiving a Remedy Pension Savings Statement as a consequence of the 2023 regulations whereby service accrued in the alpha scheme has been rolled back into their legacy scheme (classic, premium, classic plus and nuvos) as an equality measure as part of the first stage of the 2015 (McCloud) Remedy.

This only applies to those scheme members who were a member of a public service pension scheme from 31 March 2012 through to 1 April 2015 and beyond. The pension they accrued from 1 April 2015 through to 31 March 2022 – the seven-year remedy period – could have given rise to age discrimination and therefore the Court of Appeal ruled that this was unlawful in what is referred to as the McCloud judgement.

As everyone regardless of age was moved into the alpha scheme on 1 April 2022, the pension accrued on and after this date remains unaffected. When you come to retire, you will be given the binary choice of having the pension you built up during the 7-year remedy period count towards your alpha pension or your legacy pension. Your pension administrator will be in touch when you are eligible to make a choice. If you are interested in modelling how this choice will affect your pension at retirement, an online remedy benefits guide on the Civil Service Pension Scheme website.

What this means in practice is that you should check out your latest Annual Benefit Statement (ABS) available to download on the Civil Service Pension Scheme Portal.

You should then compare your ABS for 2023/24 with your ABS for 2022/23 where you will note a marked difference in the value of both your legacy pension and your alpha pension e.g. your alpha pension will be much smaller, but your legacy pension (and any automatic lump sum) will be bigger due to the rollback. It is important to check that your ABS is correct in relation to start dates, transferred in services, reckonable service, accrual of pension and any additional pension you have or are purchasing. If not, you must ask your current employer to correct this with CS Pensions.

If you have received a Remedy Pension Savings Statement, this is because you are affected by the 2015 Remedy and met one or more of the following criteria in any year during the 2015 to 2022 remedy period or the 2022/2023 tax year:

Due to the rollback of pension service into your legacy pension, the Pension Input Amount (PIA) may have changed in one or more of the tax years which may in turn mean that this may have impacted your income tax liabilities for that year in relation to breaches of the Annual Allowance. The figures in the Remedy Pension Savings Statement will help you assess if you are due a refund or have to pay more income tax.

MyCSP have provided a very helpful video for those who have received Remedy Pension Savings Statements as well as a written guide available here.

Should FDA members have further questions after accessing these sources of information, please email pensions@fda.org.uk bearing in mind that the FDA is prevented from providing regulated advice on tax and finance by the Financial Conduct Authority. You can access independent financial advice through a free, initial consultation with Quilter as a benefit of your FDA membership. Please login to the members area of the FDA website and go to FDA Portfolio to find out more about these financial services.

FDA Guide To Pension Tax Relief 2021