(This archived guidance relates to HMRC discretionary
practice before the 6th April 2006. For current guidance on
Registered Pension Schemes see the Registered Pension Schemes
Manual)
In the early 1980s pension scheme surpluses became a common
feature. The Finance Act 1986 therefore introduced new legislation
to control the way in which surpluses could be dealt with. Certain
schemes (mainly large self-administered schemes) must provide a
periodic valuation or certificate on a basis prescribed by
Regulations. Where the scheme assets exceed its liabilities by more
than 5% action must be taken to reduce the surplus funds to an
acceptable level. The options available are a reduction or
suspension of employer and/or employee contributions for up to 5
years, the provision of new or improved benefits, or a refund to
the employer. Any refund to the employer is subject to a
free-standing 35% tax charge which is broadly intended to recoup
the tax reliefs given. Failure to reduce a surplus to an acceptable
level will result in a partial loss of the tax reliefs (see Part
20).
