SE15010 - Non-approved 'retirement benefits schemes': Introduction

Sections 595 & 596A ICTA 1988

In general terms, a 'retirement benefits scheme' is one which provides for benefits on an employee’s retirement or death.

Retirement benefits schemes can be granted 'approval' from IR SPSS (Nottingham). These, and some other similar schemes (see SE15030), receive significant tax advantages. For example, their investment income is not taxed, contributions to the scheme can qualify for tax relief and lump sum benefits (not pensions) are exempt from tax. Consequently, there are detailed regulations governing such schemes. SE15030 has more information on identifying them.

None of those tax advantages apply if the scheme is not of that type, so those regulations do not apply. But such 'non-approved' schemes are nevertheless common, both for individual employees and groups, mainly because what an approved scheme can provide is limited by legislation. For example, in calculating retirement benefits from an approved scheme, any salary above a certain sum £91,800 for 2000/01) cannot be taken into account. A non-approved scheme is often set up to 'top up' benefits and so provide benefits based on the salary in excess of that sum

The general structure of the legislation for non-approved schemes is to tax under Schedule E:

• employer’s contributions to the scheme on the employee under Section 595 ICTA 1988: see SE15040 and
• lump sum payments out of the scheme on the recipient under Section 596A ICTA 1988: see SE15100 (including commutations: see SE15150) and
• pensions out of the scheme under Section 19(3) ICTA 1988 (see SE74001)

See SE15020 for the definition of non-approved 'retirement benefits scheme'