(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)
Section 208 approval did not allow retirement benefits to be
paid in lump sum form. To get round this restriction it became
common for employers to establish unapproved schemes to provide
lump sum retirement benefits. The growth in the number and size of
lump sum retirement benefits - normally not chargeable to tax -
through these unapproved schemes led to considerable loss of tax.
Thus, in 1947, legislation was enacted - sections 19-23 Finance Act
1947 (later section 220-225 ICTA 1970) - to curb this abuse.
Section 21 Finance Act 1947 (later section 222 ICTA 1970) enabled
the Revenue to control both the level of aggregate benefits in
pension schemes and the proportion which could be taken in lump sum
form.
Under the 1947 Act, payments made by a company to secure
retirement benefits for its employees were assessable as income of
those employees. But this charge did not apply if payments were
made to an approved section 208 Fund, a section 222 Scheme, and in
certain other limited circumstances.
