The following paragraphs in this section set out the method and instructions for calculating the benefit offsets to be applied when members elect to utilise the Annual Allowance scheme pays mechanism in AFPS. We note that Annual Allowance scheme pays will not be available to all members incurring Annual Allowance charges, and the administrators will need to ensure members' eligibility before applying the approach set out in this paper.

This note does not attempt to describe the method for determining the amount of any Annual Allowance charge. Any references to this note to the calculation of the Annual Allowance charge are included solely to help explain how the charge should be converted to a reduction to the member's benefits. They should not be treated as guidance on how to calculate the Annual Allowance charge.

In some cases, members of AFPS15 also have accrued rights in another AFPS, in relation to service built up prior to April 2022. In this case, members may be deemed to be accruing benefits in both pension schemes. This guidance does not attempt to illustrate the MOD's approach to proportioning the Annual Allowance charges between the two schemes. However, in that situation each tax charge is applied to the benefits provided by the given scheme in accordance with this guidance.

It is our understanding of Government policy that costs incurred by the MOD in relation to the operation of the scheme pays mechanism may not be recovered from the member concerned. For that reason, no allowance has been made for administrative expenses when preparing this advice.

All references to a spouse in this document should be taken to include a civil partner or another adult partner that is eligible to receive a pension from the relevant pension scheme on the member's death.

The section Calculation of the initial benefit offsets - member not in receipt of pension benefits (AFPS75, AFPS05, FTRS and RFPS) outlines how the initial benefit offsets should be calculated for tax charges attributed to AFPS75, AFPS05, FTRS and RFPS for members who are not yet in receipt of their pension benefits at the time the scheme pays offsets are initially determined. This approach assumes a "default split" of the scheme pays offsets between the pension and the lump sum. This is not intended to preclude members subsequently making use of existing flexibilities available within their scheme to reshape the mix of lump sum and pension benefits they receive (for example the inverse commutation option in AFPS05).

The section Calculation of the initial benefit offsets - tax charge attributable to AFPS15 - or member in receipt of pension benefits (all schemes) outlines how the initial benefit offsets should be calculated for members who are in receipt of their pension benefits at the time the scheme pays offsets are initially determined. This approach reflects that once the pension is in payment it will generally not be possible to attribute part of the offset to the pension lump sum (as this will have already been paid). This section also applies to all tax charges applicable to AFPS15, as that scheme does not provide an automatic retirement lump sum.

The calculated initial benefit offsets will need to be adjusted to reflect the member's actual age at the point at which they are implemented, where this is not age 65. The section Adjusting the initial benefit offsets when they are applied other than at age 65 discusses how the pension and lump sum offsets that were calculated in the sections Calculation of the initial benefit offsets - member not in receipt of pension benefits (AFPS75, AFPS05, FTRS and RFPS) and Calculation of the initial benefit offsets - tax charge attributable to AFPS15 - or member in receipt of pension benefits (all schemes) should be recalculated and applied to pension benefits in this situation.

The section entitled Additional guidance for certain specific circumstances provides clarification, and specific guidance, which need to be considered in particular circumstances. It is important that calculations in the sections: Calculation of the initial benefit offsets - member not in receipt of pension benefits (AFPS75, AFPS05, FTRS and RFPS), Calculation of the initial benefit offsets - tax charge attributable to AFPS15 - or member in receipt of pension benefits (all schemes) and Adjusting the initial benefit offsets when they are applied other than at age 65 reflect any amendments required by this section, where appropriate.

The section entitled Relevant Date provides guidance on the relevant dates that should be assumed when undertaking Annual Allowance calculations.