What is ‘scheme pays’? (for tax charges on personal pensions)
We’ve received a few questions from clients on how “scheme pays” works for those that have exceeded contributions above their designated allowances. Scheme pays is a method whereby as the name suggests, the tax charge can be paid by the pension scheme.
If an individual exceeds the annual allowance (AA) and an AA tax charge is due, they can ask their pension scheme to pay the charge on their behalf with a corresponding reduction in benefits. The pension scheme is only obliged to facilitate the payment of the charge if certain conditions apply.