Private sector pension schemes affected by the public service pensions remedy
Source: gov.uk (2025-05-02)

Private sector pension scheme administrators can pay, discharge or request a refund of a member’s lifetime allowance charge if it has changed following the public service pensions remedy (also known as McCloud).

Where a member of a public service pension scheme has crystallised their benefits the impact of the public service pensions remedy may change:
- the percentage of the lifetime allowance used due to a recalculation of their benefits
- their lifetime allowance protection valuation
- the lifetime allowance protections they are eligible for
If the member had a benefit crystallisation event in your pension scheme after the date of the benefit crystallisation event in their public service pension scheme, they should give you any updated information following the remedy.

There are 2 circumstances where a lifetime allowance charge needs to be paid following a benefit crystallisation event:
- where the amount crystallising at that benefit crystallisation event exceeds the available amount of the member’s lifetime allowance
- where a benefit crystallisation event occurs and the member has no lifetime allowance available (as a result of their lifetime allowance being used up by earlier benefit crystallisation events)
If a member has new or updated lifetime allowance protection, you may need to process the benefit crystallisation event again.

If the member has an increased lifetime allowance charge

You may be able to apply for the lifetime allowance charge to be discharged (https://www.gov.uk/guidance/discharging-a-lifetime-allowance-charge), if there is a new or increased lifetime allowance charge in your pension scheme that would have occurred between 6 April 2019 and 5 April 2023.

If you are going to pay the increased or new lifetime allowance charge (https://www.gov.uk/guidance/submit-an-accounting-for-tax-aft-return-using-the-managing-pensions-schemes-service), you should report it on the Accounting for Tax Return on the:
- quarter that it was originally reported on for an increase to a charge
- quarter it should have been reported on at the time of the benefit crystallisation event if it is a new charge
If the member has a decreased lifetime allowance charge

If you have previously reported and paid a lifetime allowance charge for a member and their charge is reduced as a result of the public service pensions remedy, you’ll need to amend your original Accounting for Tax return. Once this is done you can request a refund for the reduction (https://www.gov.uk/government/organisations/hm-revenue-customs/contact/pension-scheme-enquiries) from HMRC.

If the member has been paid a lifetime allowance excess lump sum

Where the member’s choice under the remedy reduces the amount of lifetime allowance used up, the result could be that the member has additional lifetime allowance available and all or part of a lump sum that was a lifetime allowance excess lump sum is no longer a lifetime allowance excess lump sum.

Where the member’s available lifetime allowance is now more than the amount of the lifetime allowance excess lump sum, the whole lump sum will be authorised. There will be a benefit crystallisation event in the tax year that the member became entitled to the lump sum. 25% of the lump sum will not be subject to income tax. The remaining 75% will be subject to the lifetime allowance charge at a special rate of 40%.

Where the amount of the lifetime allowance excess lump sum is more than the member’s available lifetime allowance, the lump sum will be split into two authorised payments. The amount above the member’s available lifetime allowance remains a lifetime allowance excess lump sum subject to a lifetime allowance charge of 55%. The amount below the member’s available lifetime allowance is authorised and will be a benefit crystallisation event in the tax year that the member became entitled to the lump sum. 25% of the lump sum will not be subject to income tax. The remaining 75% will be subject to the lifetime allowance charge at a special rate of 40%.

Example of where a member has paid a lifetime allowance excess lump sum

In the 2020 to 2021 tax year, Member A crystallises benefits under a Chapter 1 scheme using up 80% of the lifetime allowance. This is used up by:
- scheme pension (benefit crystallisation event 2) — uses up 69% of their lifetime allowance
- pension commencement lump sum (benefit crystallisation event 6) — uses up 11% of their lifetime allowance
In the 2021 to 2022 tax year, Member A crystallises the following benefits under a non-public service scheme:
- drawdown pension designation (benefit crystallisation event 1) — uses up 15% of their lifetime allowance
- pension commencement lump sum (benefit crystallisation event 6) — uses up 5% of their lifetime allowance
- lifetime allowance excess lump sum (benefit crystallisation event 6) — uses up £321,930 (equivalent to 30% of their lifetime allowance)
- £177,061.50 lifetime allowance charge (at 55%) was paid in respect of the lifetime allowance excess lump sum and Member A was paid the remaining £144,868.50
Under the public service pensions remedy, Member A’s immediate choice means that the benefit crystallisation event that occurred in the 2020 to 2021 tax year needs to be recalculated. The amount of lifetime allowance used up by Member A has reduced from 80% to 64%. When Member A crystallised rights under the non-public service scheme she had 36% available lifetime allowance, not 20%. This means she has an extra 16% available lifetime allowance. As a result, the lump sum of an amount equivalent to 30% of the lifetime allowance, cannot be a lifetime allowance excess lump sum, as that requires no lifetime allowance to be available.

The amount of the lump sum where there was available lifetime allowance will now be an authorised payment (in the example this is 16% of the lifetime allowance — £171,696) and treated as a benefit crystallisation event which occurs when Member A became entitled to the lump sum — in this example in the 2021 to 2022 tax year. The amount crystallised is the amount of the new authorised payment.

The remainder of what was an lifetime allowance excess lump sum (14% lifetime allowance, £150,234) remains an lifetime allowance excess lump sum.

As a result, the benefit crystallisation events under the non-public service scheme occur as:
- pension commencement lump sum (benefit crystallisation event 6) — uses up 5% of their lifetime allowance
- drawdown pension designation (benefit crystallisation event 1) — uses up 15% of their lifetime allowance
- lump sum authorised (and a benefit crystallisation event) — uses up 16% of their lifetime allowance (£171,696)
- lifetime allowance excess lump sum (benefit crystallisation event 6) — uses up 14% of their lifetime allowance (£150,234)
For the tax treatment of the £171,696 lump sum:
- 25% of the lump sum (£42,924) is payable tax free
- 75% of the lump sum (£128,772) is subject to the lifetime allowance charge at the special lower rate of 40% — the amount of lifetime allowance charge due is £51,508.80
The amount of lifetime allowance charge originally paid was £177,061.50.

The amount of lifetime allowance charge now due is £134,137.50, calculated as:
- lifetime allowance charge on authorised lump sum — £171,696 at 40% = £51,508.80
- lifetime allowance charge on revised lifetime allowance excess lump sum — £150,234 at 55% = £82,628.70
- the amount of overpaid lifetime allowance charge is £42,924
The scheme administrator of the non-public service scheme may claim back this overpaid lifetime allowance charge from HMRC and can pass this payment on to the member.