SE13735 - Termination payments and benefits: contributions to an approved retirement benefits scheme etc

Statement of Practice 2/1981

As part of the arrangements on termination of an employment, employer and employee may reach an agreement that the employer:

• makes a special contribution into an approved retirement benefit scheme or
• makes a special contribution into an approved personal pension scheme or
• purchases an annuity

for the employee’s benefit. Normally this means an adjustment to the termination payment.

These payments are not assessed under Section 148 ICTA 1988 provided that IR SPSS (Nottingham) confirms that they do not breach any approval rules.

Note that payments that qualify under these rules should not be treated as using up any of the £30,000 exemption available for that termination under SE13505and subsequent instructions. So if an employer makes a contribution of £30,000 satisfying the above conditions and there is also a payment within Section 148 ICTA 1988 of a further £30,000, there will be no charge at all under Section 148 ICTA 1988.

Statement of Practice 2/81 removes a charge under Section 148 ICTA 1988; it cannot remove a charge under Section 19 ICTA 1988. However, arrangements are usually made so that any entitlement to a termination payment that would fall within Section 19 ICTA 1988 is lawfully waived before the special contribution is made (see SE42750).