RPSM04104840 - Technical Pages: Taxation: Unauthorised Payments: Scheme Sanction Charge: Prescribed unauthorised payments that are not chargeable: refunds of additional voluntary contributions

Refunds of additional voluntary contributions

[S241(2), The Registered Pension Schemes (Unauthorised Payments by Existing Schemes) Regulations 2006 - SI 2006/365] 

Where an unauthorised member payment that is made in the circumstances set out RPSM04104836 and the payment is a refund of additional voluntary contributions, there is an additional adjustment to the amount of the payment potentially exempted from being a scheme chargeable payment and so exempt from the scheme sanction charge.

If all of a refund of additional voluntary contributions to a member related to subsisting rights under a defined benefits arrangement or pre-6 April 2006 contributions to a money purchase arrangement, all of the payment would, ordinarily, be exempt from the scheme sanction charge. If some or all of that refund could have been used to provide benefits to the member and the member’s dependants that would not have prejudiced the tax approval of the scheme immediately before 6 April 2006, that part of the refund is not exempted from being a scheme chargeable payment and the scheme sanction charge will apply in respect of it.

Similarly, if part of a refund of additional voluntary contributions is ordinarily exempted from the scheme sanction charge because it relates to subsisting rights under a defined benefits arrangement or pre-6 April 2006 contributions to a money purchase arrangement, that part of the payment is further reduced by the amount that could have been used to provide additional benefits that would not have prejudiced approval before 6 April 2006.

Example

A registered pension scheme makes an unauthorised member payment of £15,000 that comprises a refund of additional voluntary contributions, of which £10,000 relates to money purchase contributions made before 6 April 2006 and the balance (£5,000) to contributions made on or after 6 April 2006.

Out of the portion relating to pre-6 April 2006 contributions, £7,000 could have been used to provide benefits in respect of the member that would not have prejudiced the tax approval of the scheme before 6 April 2006. The amount of that part of the unauthorised member payment which is exempted from being a scheme chargeable payment is £3,000 (£10,000 - £7,000).

The scheme sanction charge applies to all of the part of the refund - £5,000 - that relates to the contributions made on or after 6 April 2006 as all of that part of the payment is not exempted from being a scheme chargeable payment .

Overall, the amount of the unauthorised member payment that is a scheme chargeable payment scheme is £12,000 (£7,000 worth of the part of the payment relating to pre-6 April 2006 contributions plus all £5,000 worth of the part of the payment relating to the post-5 April 2006 contributions). The scheme sanction charge is based on the amount of £12,000.