(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)
[PN16.61-92]
Loanback arrangements linked with insured earmarked schemes
and individual arrangements operate in the following way. Life
offices may lend an employer up to 50% of the value of the policy
or policies underlying the scheme (although only 25% may be lent in
the first 2 years following establishment of the scheme). The loan
must be used by the employer for business purposes and becomes
immediately repayable in certain circumstances (for example if the
member dies or leaves service). Otherwise it is repayable no later
than twelve months prior to the member's normal retirement date.
The policy is commonly used as security for the loan. Thus, if the
employer defaults the life office can claim part of the policy
proceeds, which reduces the retirement benefits. In such case we
stipulate that the employee's lump sum retirement benefits are
reduced first. Instructions on how to deal with these arrangements
can be found in
psi22.4.37-40.
