Pension scheme sanction charge

The scheme sanction charge is a charge relating to an unauthorised payment, this occurs when the commutation lump sum is above that allowed by the HMRC.

In 2011, the commutation factors changed, so payments could breach the maximum HMRC limit. This meant a scheme sanction charge would be payable on these payments, along with a tax charge.

There is a 40% tax charge payable by the member and a further 15% Scheme Sanction Charge which should be paid by the scheme. As guidance from the HMRC in 2011 was unclear some scheme managers passed this charge on to the member.

Retired members who paid tax on their commutation should have received a statement detailing the tax charge, and if a Scheme Sanction Charge had been passed on, this would be detailed separately within the statement.

Our records indicate that the Scheme Sanction Charge for Cambridgeshire retirements was correctly paid by the force and not passed on to members, however members should check their statements and contact [email protected] if they believe the Scheme Sanction Charge was incorrectly applied.