Scheme pays lets your pension scheme settle an annual allowance charge for you in exchange for a reduction in your benefits. If your charge for the year is more than £2,000 and your pension savings in that one scheme exceeded the standard annual allowance, the scheme must pay if you give notice by 31 July in the year after the tax year ends; otherwise a scheme may agree to pay voluntarily, but the liability stays with you.

How is the annual allowance charge worked out?

Section 228 Finance Act 2004 sets the annual allowance at £60,000 for 2023 to 2024 and later years, and GOV.UK confirms £60,000 for the current tax year. Your allowance can be lower if you have flexibly accessed a money purchase pension, which brings in the money purchase annual allowance, or if your threshold income is over £200,000 and your adjusted income is over £260,000, which tapers it. You may be able to carry forward unused allowance from the previous three tax years.

Savings above the available allowance are charged at your own marginal rates. PTM056110 explains the method: add the excess to your taxable income after allowances and tax it as the top slice, at 20%, 40% or 45% (or the Scottish or Welsh equivalents) depending on which bands it falls into. Business owners making large employer contributions should also read pension contributions for business owners.

When can you require the scheme to pay?

Mandatory scheme pays under sections 237A to 237E Finance Act 2004 is available only if both conditions in PTM056410 are met:

  1. your total annual allowance charge for the tax year is more than £2,000; and
  2. your pension input amount in that particular scheme for the year is more than the standard annual allowance in section 228, currently £60,000.

The tapered allowance and the money purchase annual allowance are ignored for the second test. That catches many high earners: someone with a tapered allowance who saves £50,000 in one scheme can have a charge well over £2,000 but still cannot force that scheme to pay, because the scheme input does not exceed £60,000. If your charge arises only because of the money purchase annual allowance, you can use mandatory scheme pays only if the charge measured against the standard allowance would have been more than £2,000.

How much can the scheme be asked to pay?

A scheme can only be required to pay the tax on the part of your savings that exceeded the standard allowance in that scheme alone, at the rates that applied to your total excess. If you are in more than one scheme you cannot simply split the charge as you like. You may ask for less than the maximum and pay the rest yourself, but if you ask a scheme to pay £2,000 or less you must confirm that your total charge is more than £2,000.

What are the deadlines for a mandatory election?

PTM056430 sets the normal deadline: the notice must reach the scheme administrator by 31 July in the year after the year in which the tax year ended. For a charge for 2025 to 2026, which ended in April 2026, the notice is due by 31 July 2027. You cannot give notice before the tax year ends. The deadline is varied in two cases:

  • Brought forward. If you are about to become entitled to all your benefits from the scheme, you must give notice before that happens, often with an estimated figure (PTM056450).
  • Extended. If the scheme issues a pension savings statement on or after 2 May in the following year because of new third party information or a rule change, and that change brings you within scheme pays, you have until the earlier of three months from the statement and six years from the end of the tax year.

The notice must be in writing, signed and dated, and give your name, address, National Insurance number, the tax year, the amount you want paid and confirmation that it is calculated at the proper rate. Once received it cannot be withdrawn, though it can be amended if the charge changes. The scheme then becomes jointly and severally liable with you, reports the charge on its Accounting for Tax return and normally pays by 14 February after the quarter ending 31 December of the year after the tax year ended. For 2025 to 2026, that is the quarter ending 31 December 2027, with payment by 14 February 2028.

How does voluntary scheme pays differ?

If the conditions are not met, or you miss the deadline, a scheme may still agree to pay. PTM056300 and PTM056410 stress that the scheme then has no joint liability. The charge remains yours, the scheme’s payment needs to reach HMRC by your normal Self Assessment payment date of 31 January after the tax year, and if it is late you bear the interest and penalties described in HMRC late payment interest. Ask the scheme early when it would make the payment.

How are your benefits reduced?

Section 237E requires the scheme to reduce your benefits, and PTM056460 says the adjustment must be just and reasonable having regard to normal actuarial practice. In a money purchase pot the fund is simply reduced. In a defined benefits scheme your accrued pension is reduced, sometimes through a notional “negative” account rolled up until retirement. A reduction cannot be applied to death benefits alone. If the scheme pays without a proper adjustment, the tax it paid can be an unauthorised member payment, as explained in unauthorised payments charges.

A scheme can refuse to pay where it is being assessed by the Pension Protection Fund or the only benefits available to reduce are contracted out rights, and it can apply to HMRC to be discharged where paying would substantially harm other members or would not be reasonable (PTM056470).

What still goes on your tax return?

You must still report the charge in the pension savings tax charges section of your Self Assessment return, on the SA101 additional information pages if you file on paper, showing how much the scheme is paying. You can still claim higher rate relief on your contributions. If you are not in Self Assessment, you need to register, and our guide to Self Assessment supplementary pages covers the extra pages. If you do not have final figures by the filing date, PTM056200 allows a reasonable estimate, flagged on the return and amended later.

A worked example

Illustration only. Priya is a higher rate taxpayer with no carry forward available. Her employer contributes £80,000 to her only scheme in the year, and all of the £20,000 excess falls within the higher rate band.

Step Figure
Pension input in the scheme £80,000
Excess over £60,000 £20,000
Annual allowance charge at 40% £8,000
Charge over £2,000 and scheme input over £60,000? Yes, mandatory scheme pays available

She can require the scheme to pay up to £8,000 if her notice arrives by the 31 July deadline. If instead her allowance had been tapered to £30,000 and her input was £50,000, her £8,000 charge would still exceed £2,000, but the scheme input is not over £60,000, so only voluntary scheme pays would be possible. Large one off employer contributions can raise separate relief questions, covered in spreading large employer pension contributions.

What mistakes should you avoid?

  • Missing the 31 July date, which cannot be fixed afterwards except by voluntary agreement.
  • Assuming a tapered allowance lets you use mandatory scheme pays.
  • Leaving the charge off your return because the scheme is paying.
  • Taking all benefits before giving notice, which brings the deadline forward.
  • Relying on voluntary scheme pays close to 31 January without checking when the scheme will pay.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.