RPSM15104580 - Technical Pages: Special annual allowance: Anti-avoidance rules: Employer-financed retirement benefits schemes

This guidance only applies for the 2009-10 and 2010-11 tax years.

Employer-financed retirement benefits schemes

Contributions paid to, or benefit rights accruing under, an employer-financed retirement benefits scheme are not included as part of an individual’s total pension input amount for a particular tax year. Therefore pension input amounts to such pension schemes are not tested against the individual’s special annual allowance.

An employer-financed retirement benefits scheme might be used in conjunction with a registered pension scheme. For example, the employer-financed retirement benefits scheme may be established in order to provide ‘top up’ benefits for an individual whose benefits under a registered pension scheme have reached the individual’s lifetime allowance. Another example might be that contributions stop being made into registered pension schemes in respect of an individual because the value of an individual’s rights under other money purchase arrangements are close to the individual’s lifetime allowance and are expected to reach or exceed the allowance on future investment growth alone and are, instead, paid to an employer-financed retirement benefits scheme.

To assist with their effectiveness, the anti-avoidance provisions are cast very wide. Whether they will apply in a particular case involving one or more employer-financed retirement benefits schemes will depend on the facts and circumstances of the case.

In light of the announcement on the reduction of the annual allowance and the Government’s change of view on employer-financed retirement benefits schemes, HMRC will look more closely at cases, where contributions stop being paid to registered pension schemes and are paid into an employer-financed retirement benefits scheme instead, when considering whether or not the anti-avoidance provisions relating to the special annual allowance apply.