If you have no scope to carry forward your contributions from the three previous tax years, you’ll be required to pay a tax charge on the value of your pension savings above the annual allowance. You will normally pay this directly to HM Revenue & Customs through your Self-Assessment return.
However, if the charge is more than £2,000 you can ask your pension scheme to pay the charge directly out of your pension pot.
If you have more than one pension scheme, the maximum you can ask The People’s Pension to pay would be the amount of your pension savings that went above the annual allowance in The People’s Pension only.
You can elect for The People’s Pension to pay all or part of the annual allowance charge on your behalf by completing the Scheme Pays election notice – this is available on request. The election must be made by 31 July every year. If you make a Scheme Pays election then the amount of the annual allowance charge (and any interest due) will be deducted from your personal account. The election is final which means it can’t be cancelled at a later date (although it may be amended by sending in a further notice within HM Revenue & Custom’s time limits).
We’re unable to provide advice on your personal tax circumstances. If you’re unsure about the tax implications, we recommend you seek independent financial advice – you may be charged for this service. If you don’t have one already, you can find an adviser at www.unbiased.co.uk.