Subject to meeting certain conditions, when a member becomes liable to an AA charge, he or she can make an election requiring the HSC to pay the charge on their behalf out of their pension benefits (referred to as 'Scheme Pays').

Mandatory scheme pays is available if the pension input amount in the Scheme is more than the standard annual allowance.

Additionally, voluntary scheme pays is also available. The Scheme can pay up to 100% of any annual allowance charge due in respect of HSCPS benefits, either using mandatory scheme pays facilities, or a mixture of mandatory and our extended voluntary scheme pays facilities.

For cumulative AA charges HSC will keep track, via a 'negative DC balance', of the amount paid by the HSC (effectively a debt owed to HSCPS by the member). When the member takes benefits or transfers benefits out of the Scheme, the negative DC balance is converted into a benefit reduction.

This guidance describes the steps required to calculate the benefit reduction applicable in the circumstances described above.

In the calculations included in this guidance, the 'Total DC Pot' represents the negative DC balance in respect of AA charges paid by the Scheme at the effective date of the calculation. The negative DC balance should be calculated by following the guidance provided for that purpose. Note that in the remainder of this guidance, the 'Total DC Pot' for transitional members relates solely to that relevant to the HSCPS.

Calculations related to Scheme Pays AA benefit reductions in different circumstances are set out in the different sections of this guidance. The calculations allow for the following features:

• Individual pensions and lump sums are reduced proportionately
• Dependants' benefits are unaffected by AA scheme pays, i.e. reductions do not apply to dependants' benefits payable on death in service, death in deferment or death in retirement
• Pension debits applying in retirement will be subject to annual increases in line with the Pensions (Increase) Act 1971
• Separate factors are provided for ill-health retirement cases to reflect reduced life-expectancy.

This guidance describes the steps necessary to calculate AA benefit reductions in the following circumstances:

This guidance reflects our current interpretation of how Scheme Pays reductions will be treated in practice. Please note, however, that certain aspects of the Scheme Pays mechanism may require clarification from your legal advisors and/or HM Revenue and Customs (HMRC). The calculations set out in this guidance are therefore subject to change.