RPSM04104835 - Technical Pages: Taxation: Unauthorised Payments: Scheme Sanction Charge: Prescribed unauthorised payments that are not scheme chargeable

Prescribed unauthorised payments that are not scheme chargeable

[S241(2), The Registered Pension Schemes (Unauthorised Payments by Existing Schemes) Regulations 2006 - SI 2006/365] [Para 3 Sch 36, The Registered Pension Schemes (Modification of Rules of Existing Schemes) Regulations 2006 - SI 2006/364] 

Pension schemes in existence before 6 April 2006

Pension schemes in existence before 6 April 2006 that automatically became registered pension schemes from that date may have existing provisions in their rules that were acceptable for the purposes of the tax rules for pension schemes before 6 April 2006 but have the effect of requiring a payment that is an unauthorised payment in the tax regime for registered pension schemes. For a period from 6 April 2006, called the transitional period, the trustees or manager of such a scheme have been given a statutory discretion to enable them to decide whether such a payment should be made. This discretionary power is given in the Registered Pension Schemes (Modification of Rules of Existing Schemes) Regulations 2006.

Where the existing scheme rules required the consent of the sponsoring employer or any other person to be given before the trustees or scheme manager could have made any other discretionary payment under the scheme, the trustees or manager can only use the statutory discretion with the consent of that same sponsoring employer or other person.

An existing provision in the rules of an existing pension scheme that automatically becomes a registered pension scheme on 6 April 2006, means a provision that was in the scheme rules immediately before 6 April 2006.

What is the transitional period?

The transitional period is the period beginning on 6 April 2006 and ending on the earlier of

• the first date, after 5 April 2006, when amendments to the scheme rules take effect that state that all of the modifications applying to the scheme by the Registered Pension Schemes (Modification of Rules of Existing Schemes) Regulations 2006 no longer have effect, or
• the end of the tax year 2010-11 (or a later time prescribed by HMRC).