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Document How much will Scheme Pays cost me?

If you use our scheme pays facility to pay your annual allowance charge to HMRC your NHS benefits at retirement are permanently reduced to recover the cost. If you transfer out before retirement your transfer value will be reduced.


If we pay your annual allowance charge this amount is recorded as a notional negative defined contribution (DC) account on your pension record. In basic terms this is similar to NHS Pensions ‘loaning’ you money now to pay your tax bill, which you then repay back with interest when you retire or transfer out of the NHS scheme.


Interest must be added to the amount of annual allowance charge paid and this is applied each year is based on the previous September’s Consumer Price Index (CPI) figure plus the Superannuation Contributions Adjusted for Past Experience (SCAPE) discount rate. The SCAPE discount rate changed from 3% to 2.8% on 16 March 2016 and will reduce further to 2.4% from 1 April 2019.


Interest is applied from 1 January following receipt and acceptance of your scheme pays election. NHS Pensions reserves the right to change the amount of interest charged following guidance received from the Scheme Actuary.


At retirement the total negative DC balance owing, including all relevant interest, is converted into a reduction to your NHS benefits using actuarial factors provided by the Scheme Actuary. Separate factors are provided for ill-health retirements to reflect reduced life-expectancy. The factors are available on our website.


If you are a member of the:

  • 1995 Section - your pension and your lump sum will be reduced; or

  • 2008 Section or 2015 Scheme - your pension will be reduced. This also applies if you chose to move from the 1995 Section to the 2008 Section under the Choice exercise.

If you die before we pay your annual allowance charge your election is cancelled and we will write to your estate that they retain liability for your annual allowance charge.


If we’ve paid the tax charge to HMRC and then you die:

  • before your retirement – we write-off the total amount owing; or


  • after your retirement and your pension benefits had already been reduced - this has a consequential effect on the amount of initial dependent’s pension payable because this is calculated on your reduced pension in payment at the time of your death. A continuing dependent’s pension will be calculated on your unreduced pension.

If you leave and transfer your NHS pension rights then the transfer value is reduced to recover the total negative defined contribution balance owing.


Please ensure that you fully understand the implications of making a scheme pays election on your future NHS benefits before completing the election notice.


You should read the guidance and factsheets available about scheme pays on our website.
scheme pays cost, cost of scheme pays