PSI25.3.10 - Flexibility in Pension Provision – Flexible Use of AVCs - Surplus AVC Regulations

(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)

The Retirement Benefits Schemes (Restriction on Discretion to Approve)(Additional Voluntary Contributions) Regulations 1993 – SI 1993 No 3016) have been amended to make clear that a maximum benefits limits check will take place when the employer funded benefits are paid. A check under the Surplus AVC Regulations will not be required when AVC benefits first come into payment before employer funded benefits come into payment.

Where the AVC benefit is to be paid at a later date than the employer funded benefits, the Surplus AVC check should be made when the employer funded benefits start. This test is quite a separate test from the maximum benefits check described in PSI25.2.4 one determines the maximum limits on benefits for the purposes of Revenue limits, whereas the other strips out any surplus from the AVC fund.

To enable a benefits limit check to be made at this time, the member should be asked to specify the form of AVC benefits even though payment is being deferred, although the member may select any approvable form of annuity when an annuity is purchased. From the Surplus AVC test, avcs can arise or be dissolved according to choices made by the employee. For example, an option not to seek full increases in a pension in payment can in turn enhance the amount of surplus avcs to be returned and taxed. It is for this reason that we ask for the member to choose the profile of benefits so as to enable the regulatory check to proceed. Unless the member dies before taking an AVC pension - see PSI25.3.12 no further check for the purposes of the Surplus AVC Regulations will be necessary.