RPSM09106030 - Technical Pages: Member benefits: Scheme administration member payments: Interest on refunds of contributions

Interest on refunds of contributions

A short service refund lump sum and a refund of excess contributions lump sum may include an element of interest as well as the contributions being refunded. If so, the interest is treated as part of the lump sum for tax purposes. This is not a scheme administration member payment.

Please see RPSM09104740 and RPSM09104830 for further guidance on when interest is and is not part of the lump sum payment.

But where under the scheme rules the interest or payment made representing the investment return on those refunded contributions is treated as separate from the lump sum and it satisfies the conditions for a scheme administration member payment, it is taxable as income of the member. In this latter case, the scheme administrator should pay the gross interest to the member, and the member should return their liability to tax on their self assessment income tax return, or if they do not receive a self assessment income tax return, the member should inform HMRC that they have received the scheme administration member payment.