SE15022 - Non-approved "retirement benefits schemes": meaning of "retirement"

Section 612(1) ICTA 1988

Deciding whether a payment is given “on retirement” can be difficult because there is no full statutory definition of the word. Section 612(1) ICTA 1988 states that “retirement” is to be interpreted according to the way “service” is defined, but that only means that there cannot be a “retirement” unless the employment has ended.

Payments made in respect of age-related retirement should not cause problems, for example where the typical age of natural retirement in a job is at a fixed age.

But the situation can be less clear where the termination is described as “early retirement” since this is often in fact a dismissal (for example, due to redundancy or inefficiency). A payment in such a case can represent compensation for loss of the employment rather than a payment on “retirement” and so is chargeable only under Section 148 ICTA 1988 (provided that no contractual entitlement exists: see SE12850). That is so even if the employee also becomes entitled, at the time of termination, to immediate pension benefits from the employer's approved pension scheme (see SE15030). This could occur, for example, where the approved scheme allows a pension to be paid to persons made redundant at age 50 or over.

If the circumstances of the termination do not suggest that there is a dismissal (including a redundancy), severance, resignation or death, then it is likely that it is a “retirement” (but see SE15024 if ill health causes the termination). There are some further guidelines at example SE15400