PSI13.4.11 - Withdrawal from Service: Deferred Benefits under Individual Policies (Buy-Out Policies) - Surpluses Under Buy-Out Contracts

(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)

[PN10.43]

PSI13.4.7-8 explain the limitations on benefits which are to be included in a buy-out contract. Where limits are required on the amount rather than the form of benefits it is possible for surpluses to arise. If a surplus should arise after providing the leaver's maximum benefits it may be used to provide or augment other approvable benefits within Inland Revenue maxima. Ideally the contract should reduce the possibility of a surplus by indicating how any monies not needed for the main benefits should be dealt with. In the absence of such a provision, however, excess monies may be used to provide post-retirement increases on the pensions payable (see Part 7).

Any remaining surplus after all possible augmentation should either be returned to the employer or retained by the insurer as a windfall profit. Contracts should provide for the insurer to deduct and account to the Inland Revenue for any tax liability under Section 601 (see Section 3 of Part 17 and Sections 6-7 of Part 20). On no account should any surplus be returned to the scheme trustees.

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