PSI4.3.2 - Maximum Contributions: Basic/Contractual 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)

[PN Glossary]

Because employee AVC arrangements first entered into on or after 8 April 1987 may not be taken in the form of a lump sum in commutation of pension (see PSI8.1.5), it is necessary to distinguish clearly between an employee's regular contributions to a scheme, ie basic or contractual contributions (which may be variable) and an employee's AVCs. Where an employee is permitted to select a scale at which he or she will contribute, the chosen rate of contribution will not be regarded as voluntary provided that, once selected, payment at that rate is a condition of membership. However, this should not be taken to cover frequent voluntary changes by the employee between a number of contribution scales available under a scheme. If a contribution is to be accepted as regular we look for a degree of permanence about the chosen level, involving some restriction in the freedom to switch at will to another level. Where, therefore, an employee, either alone or with the agreement of the employer or trustees, can vary his regular, as distinct from voluntary contributions, the rules of the scheme must specify a minimum period of contribution at any selected rate and this must be at least 12 months. This requirement should be included in all scheme rules submitted for approval and all rule amendments to existing schemes where the scheme allows employees to select their rate of contribution from a scale.

Contact: | Date issued: | Next review: