Answers · UK 2025/26

What is "Scheme Pays" and when can I use it for my pension annual allowance charge?

Scheme Pays lets your pension scheme pay your annual allowance charge to HMRC on your behalf, deducting the cost from your future pension benefits. Mandatory Scheme Pays applies when the charge exceeds £2,000 and your pension input to that scheme exceeds £60,000. You must notify the scheme by 31 July after the relevant tax year.

Last updated: 10 June 2026Last reviewed: 10 June 2026How we verify

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When your total pension input for a tax year exceeds your annual allowance (£60,000 for 2026/27, or less if you have a tapered or money purchase annual allowance), HMRC charges you Income Tax on the excess at your marginal rate. This charge is declared on your Self Assessment return. If the charge is large, you can use Scheme Pays to have the pension scheme pay it on your behalf, rather than finding cash from your own resources. Mandatory Scheme Pays is available as of right when two conditions are both met: (1) your annual allowance charge for the year is more than £2,000; and (2) the pension input amount to that specific pension scheme exceeded the standard annual allowance (£60,000) in the same year. If these conditions are met, you can require the scheme to pay the charge and deduct the equivalent actuarial reduction from your future benefits (either at a fixed rate or on a scheme-specific basis). Voluntary Scheme Pays is available at the scheme's discretion for smaller charges or where only the MPAA (£10,000) has been breached -- not all schemes offer it. The deadline for notifying the pension scheme of a Mandatory Scheme Pays election is 31 July in the year following the relevant tax year. For 2026/27 that means 31 July 2027. Miss that deadline and you lose the right to use Mandatory Scheme Pays for that year. Scheme Pays is particularly relevant for NHS consultants, GPs, and senior hospital doctors who may see large pension inputs in years of high overtime or additional Programmed Activities. The McCloud remedy has also created retrospective annual allowance charge corrections for some NHS, teacher, and other public sector members -- amended Scheme Pays elections may be available for those affected years. Use a pension annual allowance calculator to establish your pension input amount and whether a charge arises before deciding whether to notify your scheme.