Category: Flexibilities

Consultation – Interest on Back Pay

One of the details hidden away as a reference to another document and then a reference from that document is the amount of “interest” that will be added to amounts owed to members for underpaid lump sums and pension payments.

Under Part 8, “Liabilities and payment”, in Chapter 2. (Page 35 of the draft regulations)

Interest
66.—(1) The scheme manager must calculate interest on a relevant amount described in direction 15 of the PSP Directions 2022 in accordance with the provisions of directions 14 and 15 which apply to that description of relevant amount.

On page 40 of this document is the table that lays out what the “interest” amounts will be…and they fall a long way short of inflation!

For comparison I have added a column to this table showing the inflation factors that were in effect on the dates shown:

https://docs.google.com/spreadsheets/d/1D_wdYsWUPTWMR_Cb6KEq3QNDIlld6AV4dc8_pTGX51g/edit?usp=sharing

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Lump in the throat

Could you be owed hundreds of pounds?

If you bought additional pension with a lump sum, quite possibly.

HMRC are not used to dealing with pension schemes that are NOT set up for automatic tax relief.

https://youtu.be/43nSpsANhBc

Link to spreadsheet

The relevant HMRC manual page to quote if the first person you talk to doesn’t understand this fully is the 3rd bullet point on this page:

www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044210

  • where a member makes gross contributions to a registered pension scheme, they can make a claim to HMRC to obtain the tax relief on the contribution. The amount of the contribution is then relieved by being deducted from the member’s total income for the tax year in which the payment is made. The deduction will be shown on the member’s Self-Assessment to give them the correct amount of tax relief. Further information on claims is at PTM044240.
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