If a member becomes liable to pay an annual allowance charge in any tax year (and certain conditions are met) they can make an election requiring the scheme administrator to pay all or part of the charge on their behalf. This is commonly known as 'scheme pays'.

Following an election for the scheme to meet the annual allowance tax charge, consequential adjustments ('annual allowance debits') must be made to the member's benefit entitlements from the scheme.

Annual allowance debits will need to be calculated in respect of each tax year in which a member elects to allow the scheme to meet the annual allowance tax charge.

This section sets out guidance for calculating annual allowance debits which will be applied to a member's benefits.

The annual allowance debits will not be applied to the benefits payable to a future surviving spouse, civil partner or children on the member's death.

Annual allowance debits do not affect GMPs.

The member's age (last birthday) should be calculated as at the implementation date which is 5 April of the tax year to which the tax charge relates.

The annual allowance debit to apply to the pension entitlement should be calculated as shown below.

The annual allowance pension debit (DP) should be calculated as:

D^P = TC / F^P_x

where:

TC is the annual allowance tax charge payable by the scheme administrator

F^P_x is the factor for tax charge on pension for a member aged x

The factors are set out in:

• Table CSP65a (Table 605 in Consolidated Factors Workbook) for members with NPA 65
• Table CSP66a (Table 606 in Consolidated Factors Workbook) for members with NPA 66
• Table CSP67a (Table 607 in Consolidated Factors Workbook) for members with NPA 67
• Table CSP68a (Table 608 in Consolidated Factors Workbook) for members with NPA 68

Factors should be selected according to a member's normal pension age (NPA) and their age (last birthday) at the implementation date. NPA is defined as a member's state pension age (or 65, if that is higher) in the career average section. For the purpose of this guidance, a member's expected NPA in the career average section is the same as their state pension age as set out in the HMT directions.

Teachers' Pensions should store the debits calculated above and the implementation date of these debits on the member's record. Where a member has multiple annual allowance debits, they should be recorded separately.

Where a member has a non-integer NPA, then factors should be interpolated. For example, for a member with a normal pension age of 67 years and 2 months the factor would be:

F^P_x (NPA 67 years 2 months) = F^P_x (NPA67) + { (2 / 12) x [ F^P_x (NPA68) - F^P_x (NPA67) ]}

Guidance for implementing debits at retirement for members retiring early in normal health or retiring late can be found in the early retirement and late retirement guidance for the scheme.

The annual allowance pension debit will be increased in line with the Pensions (Increase) Act up until the member's retirement.

On ill health retirement, each pension debit must be adjusted as follows:

AdjD^P= D^P x PI x F^R_x

Where:

D^P is the annual allowance pension debit

PI is the pension increase multiplier applying between the implementation date and the date of retirement

F^R_x is the timing adjustment factor for member retiring at age x

F^R_x is taken from Table TA1a (Table 609 in the Consolidated Factors Workbook). The factor should be selected with reference to the period to a member's NPA (in years and months, with part months rounded up to the nearest month).

The pension to be implemented at retirement is the full pension, i.e. the pension before any debits, less all of the member's adjusted pension debits.

Note that if a member:

• takes their pension early due to ill health, and
• is aged under 55 at the time their pension commences, and
• pension increases are not granted until age 55

then the case should be referred to GAD.

Any exchange of pension for a lump sum should occur after the application of annual allowance debits.