RPSM12101050 - Technical Pages: Information Requirements and Administration: Genuine errors: Member ‘contributions’ to pension schemes that are not contributions
Member ‘contributions’ to pension schemes that are not contributions
Ordinarily, the tax rules limit the circumstances under which a contribution paid into a registered pension scheme by, or on behalf of, a member can be refunded.
The value of contributions paid by, or on behalf of, a member (not including contributions paid in respect of a member by the member’s employer) can be refunded if the payment meets the conditions for:
However, if, as part of the day to day administration of the pension scheme, the scheme receives contributions from (or on behalf of) of a member in genuine error, the repayment to the payer of the sums inadvertently received by the scheme will not be an unauthorised payment. This is because the scheme was not entitled to the contributions under its rules. The contributions are not therefore held for the purposes of the scheme. So a return of the contributions to the payer is not a payment (either authorised or unauthorised) for the purposes of Part 4 of Finance Act 2004 as they fall outside the definition in section 279(2).
Example 1
A member’s contributions to a registered pension scheme are paid, by direct debit or standing order, from the member’s bank account. The member properly instructs the bank to cancel the arrangement but, despite the request, the bank continues to make payments to the scheme out of the member’s account.
The inadvertent payments made by the bank were beyond the control of the member and the member never intended that the payments should be contributions, as evidenced by the cancellation instructions to the bank. On this basis, as the inadvertent payments were not contributions to the pension scheme, the return of the inadvertent payments to the member would not be an unauthorised member payment.
Example 2
An employee agrees to pay contributions to the employer’s pension scheme at a rate of 5% of the employee’s monthly salary and enters into an arrangement with the employer for the contributions to be deducted by the employer out of the employee’s monthly salary. However, the employer inadvertently deducts contributions at a rate of 15% of the employee’s monthly salary instead. Or the employer deducts employee contributions to an occupational pension scheme at the rate of 8% when the scheme’s employee contribution rate is 6%
Rather than adjust the level of future monthly contributions from the employee’s salary (which otherwise might be expected), the amount of the overpayment is returned to the employee by the pension scheme. As the overpayment from the monthly salary was never intended to be made by the employee and its payment was beyond the control of the employee, the return of the overpayment would not be an unauthorised member payment. (The employer will be responsible for making any necessary adjustments to PAYE and NIC.)
