PSI4.3.1 - Maximum Contributions: Maximum Employee Contributions

(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)

[Pn4.4]

The maximum contributions that may be paid into an exempt approved scheme by an employee must be limited by the scheme rules to the maximum that would qualify for tax relief under the legislation (but see PSI4.1.8-10 regarding temporary absence). There are three exceptions to this:

1. The first is where on joining the scheme the employee is to be provided with benefits for service before the tax year in which he or she joined, and the rules require the employee to contribute towards the cost of those benefits in one of the ways set out in regulation 3B(2)(d) of the Retirement Benefits Schemes (Continuation of Rights of Members of Approved Schemes) Regulations 1990 (SI 1990 No 2101) which was inserted by the “Amendment Regulations 1996” (SI 1996 No 3114).
2. The second is where the rules of the scheme require that an employee make good a deficit of contributions by payment of a lump sum.
3. The third is where an employee is working overseas for a United Kingdom resident employer and is receiving remuneration which is not effectively chargeable to United Kingdom tax under Case I or II of Schedule E (see PSI15.2.3). In this third situation the contributions should not exceed those which would have been payable had the employee’s remuneration been chargeable to tax under Case I or II of Schedule E.

The scheme rules should also be subject to the overriding requirement that an employee may not contribute or continue to contribute if this would give rise to benefits in excess of Inland Revenue limits (but see PSI4.3.7 regarding employees’ ability to pay avcs to fund for early retirement benefits and PSI4.3.18-19 for employees whose benefits are subject to a pension sharing on divorce order).