SE15052 - Non-approved "retirement benefits schemes": charges on employer's assets and assets acquired as security for future benefits
Section 595 ICTA 1988
To provide unapproved retirement benefits, an employer will
often make contributions to an independent Trust set up for the
purpose. But an employer may simply promise to make retirement or
death benefits when the time comes.
In the latter case, employees often require some form of
security to reassure them that the promise will be met. This can be
done in a variety of ways, but there is no charge under Section 595
when this is done. To achieve this the employer may:
- execute a legal charge over specific business assets. This means that if the employer goes into liquidation, those assets will be realised firstly to meet the benefits promise
- execute a legal charge generally over all business assets. This means that if the employer goes into liquidation, satisfying the benefits promise will take first call on those assets
- acquire assets sufficient to meet the accrued liability. An actuary calculates how much an employee would need to be given at any particular time to enable the employee to invest and provide the pension promised by the employer. Assets acquired cover that amount.
The common feature of all these arrangements is that they are put in place solely to provide the employee with security or reassurance that the employer’s promise will be met. So if there is an intention from the outset to use those assets to fund or pay for the retirement benefits then a charge under Section 595 ICTA 1988 will arise (see SE15040).
