Explanatory note

These Regulations make provision for the tax treatment of changes to the benefits payable to members of Parliament, the Senedd and the Northern Ireland Assembly under their respective pension schemes. These changes are the result of rectification exercises, under which members' benefits change between final salary and career average methods of calculation.

Part 1 deals with introductory matters. Regulation 1(3) provides for the regulations to have retrospective effect for the tax year 2024-25. This retrospection is authorised by section 15(8) of the Finance Act 2024.

Part 2 deals with rectification payments, which are payments of pension benefits and refunds of pension contributions resulting from a rectification exercise conducted in respect of an MPs', Senedd or Northern Ireland Assembly pension scheme (“a relevant pension scheme”).

Regulation 3 provides for refunds of pension contributions, resulting from a rectification exercise, to be authorised payments that are not subject to income tax.

Regulation 4 provides that, where a rectification exercise has increased the amount of pension payable to scheme members or their dependants, the amount that would have been paid if the rectification exercise was retrospective is an authorised payment that is subject to the same income tax rules as ordinary pension payments.

Regulation 5 provides that a further lump sum death benefit, which is payable in respect of a scheme member as a result of a rectification exercise, will receive the same tax treatment as the original payment.

Regulation 6 provides that where a lump sum is paid after the death of a member, and it would have been a pension commencement lump sum if the member was still alive, it will be treated as a pension commencement lump sum to which the member had become entitled.

Part 3 deals with tax redress payments, which are payments made to compensate for income tax charges that an individual would not have had to pay if a rectification exercise had been retrospective.

Regulation 7 provides that the qualifying amount of a tax redress payment is not subject to income tax and, where paid from a registered pension scheme, is an authorised payment. These payments can relate to:

• Annual allowance charges that were paid by the member in respect of a tax year in the period 2015-16 to 2023-24, where a rectification exercise means that the member would not have been subject to those charges (regulation 8),

• An annual allowance charge paid by the member in respect of the tax year in which a rectification exercise takes place, where that charge is greater than the annual allowance charges that would have arisen if the rectification exercise had been retrospective (regulation 9),

• A lifetime allowance charge paid by the member, or a charge arising by virtue of section 19 of the Finance (No. 2) Act 2023, under a relevant pension scheme (regulation 10),

• A lifetime allowance charge, or a charge arising by virtue of section 19 of the Finance (No. 2) Act 2023, under another pension scheme (regulation 11),

• An income tax charge that is connected to the lifetime allowance (regulation 12),

• Tax relief in respect of pension contributions that an individual is required to pay as a result of a rectification exercise (regulation 13),

• An income tax charge on a payment that falls within regulation 4 (regulation 14), and

• Interest in connection with one of the above payments (regulation 15).

Part 4 deals with the lifetime allowance windfall charge.

Regulation 16 provides for this new income tax charge, which arises where a member of a relevant pension scheme had a benefit crystallisation event in one of the tax years 2020-21 to 2022-23 (inclusive) and, if the rectification exercise had been retrospective, the chargeable amount (which is the basis on which the lifetime allowance charge was calculated) would have arisen or increased in respect of that event. The charge is 25% of that new or increased chargeable amount.

Regulation 17 provides for the way in which the lifetime allowance windfall charge is to be reported to HMRC.

Part 5 deals with changes in the value of rights under a relevant pension scheme.

Regulation 18 provides for members' benefits under an MPs’ scheme to be valued, for the purpose of the annual allowance charge in the tax year in which the rectification exercise takes place, on the basis of their rights under that exercise.

Regulation 19 provides for an additional pension input amount to be recognised, for the purpose of the annual allowance charge, where a rectification exercise increases the value of a pensioner member's rights under a relevant pension scheme or any member’s rights under an MPs’ scheme. This amount is 16 times the difference in value between the member's rights before and after that exercise.

Regulation 20 provides for an increase in a member's total pension input amount that resulted from a rectification exercise, but would not have done so if that exercise had been retrospective, to be disregarded for the purpose of determining whether that member's unused annual allowance can be carried forward to a future tax year.

Regulation 21 restricts the ability to carry forward annual allowance to the tax year in which a rectification exercise takes place to active members of a pension scheme.

Regulation 22 provides that, where a scheme administrator has adjusted a member's benefits because they paid a tax charge in respect of a member, and that tax charge would not have arisen if the rectification exercise had been retrospective, the member's benefits can be corrected without triggering an annual allowance tax charge.

Regulation 23 permits a scheme member's pension to be reduced, where that is a result of a rectification exercise, without ceasing to be an authorised payment.

Part 6 deals with miscellaneous matters.

Regulation 24 requires pension savings statements to be sent to members of relevant pension schemes, where they are affected by a rectification exercise.

A Tax Information and Impact Note covering this instrument was published on 22nd November 2023 alongside the Autumn Statement and is available on the website at https://www.gov.uk/government/collections/tax-information-and-impact-notes-tiins. It remains an accurate summary of the impacts that apply to this instrument.