Occupational Pension Schemes Practice Notes

1 IR12 (2001). Occupational Pension Schemes Practice Notes On the Approval of Occupational Pension Schemes Issued by the Inland Revenue's Savings, Pensions, Share Schemes IR Savings, Pensions, Share Schemes Yorke House PO Box 62. Castle Meadow Road Nottingham NG2 1BG. Tel. 0115 974 1600. Fax. 0115 974 1480. Please note that these relate only to the pre-A Day regime and will not be amended in any way. These should only be used as general guidance and any points of difficulty cannot be relied on as the final . HMRC view. These Notes should be read in conjunction with "Pensions Updates" which periodically amend or expand upon them. Crown Copyright 2001. The text of this document may be freely reproduced provided the source is acknowledged CONTENTS.

2 Introductory Notes Part 1. Introduction Part 2. Establishment of Schemes Part 3. Membership of Schemes Part 4. Contributions by Employees Part 5. Contributions by Employers Part 6. Retirement Part 6A. Pension Credit Benefits Part 7. Total Benefits on Retirement Part 8. Lump Sum Benefits Part 9. Increases of Pensions in Payment Part 10. Leaving Pensionable Service Part 11. Benefits on Death in Service Part 12. Benefits on Death After Retirement Part 13. Funding and Surpluses Part 14. Discontinuance of Schemes Part 15. Overseas Employers and Employees Part 16. Administration of Schemes Part 17. Tax Treatment of Approved Schemes Part 18. Application for Approval Part 19.

3 Withdrawal of Approval Part 20. Small Self Administered Schemes Part 21. Centralised Schemes Part 22. Simplified Defined Contribution Schemes Part 23. Ex Gratia Relevant Benefits Part 24. Conversions to Personal Pension Schemes Appendix I. Glossary Appendix II. Mailing list and forms Appendix III. Continued rights Appendix IV. Split service Appendix V. Changes in part time working Appendix VI. Transfers to overseas Schemes Appendix VII. Reporting checklist Appendix VIII. Part A. Amended ABI Funding Guidelines Appendix VIII. Part B. Specifications Appendix VIII. Part C. Worked Example Appendix VIII. Part D. Worked Example Appendix IX. Amended SSAS Funding Guidelines Appendix IX.

4 (annex 1). Appendix X. Statutory Instruments Appendix XI. Appendix XII. Annuity purchase deferral and drawdown Appendix XIII. Pension debits Index Introductory Notes Note 1 - Occasional IR SPSS Updates are used to amplify or amend this manual. Where such amendments are announced, substantive changes can be identified in the body text by background shading or high-lighting. Revised headings are not normally highlighted. This high- lighting is removed when a new set of amendments is announced. However, where a change consists of a large addition (such as a new appendix) and the Update clearly indicates that the entire section is new, the new content may at times be introduced without highlighting in the interests of legibility.

5 Part 1. Introduction Legislation and Discretion The legislation governing the tax treatment of Occupational Pension Schemes is contained in Chapter I Part XIV of the Taxes Act as amended by section 75 and Schedule 6 of the Finance Act 1989 and subsequent Finance Acts. These Notes describe the Practice of the Inland Revenue in approving Schemes under that legislation. They also describe the tax consequences of approval. The legislation sets out certain basic conditions which entitle a Pension scheme to approval (mandatory approval), and supplements this with discretionary powers to enable the Board to approve Schemes which do not fully comply with those conditions.

6 The legislation also contains provision for the making of Regulations which restrict the Board's discretion to approve Schemes . These Notes relate only to Occupational Pension Schemes for which approval is sought under the exercise of the Board's discretion under Chapter I Part XIV of the Taxes Act. They give only general guidance on how that discretion is exercised and reflect the tax position at the time of writing. It should be borne in mind that they are not binding in law and the Board may find in a particular case that there may be special circumstances justifying different treatment, subject of course to any Regulations which restrict the Board's discretion.

7 The Board will not be bound by these Notes where a scheme is involved in or used for the purposes of tax avoidance. In exercising its discretion to approve Schemes , the Board require them to be bona fide established for the sole purpose of providing relevant benefits, and continued approval will be dependent on that sole purpose being maintained. Practice Notes For personal Pension Schemes approved under Chapter IV Part XIV of the Taxes Act, the guidance Notes in IR 76 (2000) should be followed instead of these Practice Notes . IR 76 (2000) is published on the Inland Revenue website - Guidance on converting a retirement benefits scheme approved under Chapter I to a Chapter IV approved personal Pension scheme is included in both sets of Notes .

8 These Notes do not deal with the approval of Free standing Additional Voluntary Contribution Schemes . These are the subject of separate Guidance Notes (IR12 Supplement), which can also be found on the Inland Revenue website. Most Pension Schemes are established under irrevocable trusts and, subject to trust law or the imposition of a Pension sharing order, are governed entirely by their trust instrument and rules. Thus where these Notes are written in imperative form the scheme rules should be framed to ensure that the requirements are met. Where provisions in these Notes are permissive those provisions may come into effect only if the scheme rules authorise them.

9 Where scheme rules are subject to overriding legislation it is necessary to have regard to the effect of such legislation in relation to what is permissible under the scheme. These Notes deal primarily with the current conditions and Practice for approval of new Schemes . In this context 'new Schemes ' should be interpreted to mean not only Schemes which are set up following the publication of these Notes but also Schemes already before the Board for approval prior to the publication but which have not received such approval. The Notes also cover requirements for the continued approval of previously approved Schemes (other than those with certain reserved rights to previous requirements which were in place when their approval was granted).

10 Schemes may also make provision to protect the position of members with continued rights and thus, where relevant, each Part contains a section setting out the Practice which applies to those members. Appendix I consists of a glossary of terms used. Such terms will be identified in the text by the use of italics. Where the term used in the glossary also has a statutory definition, in the event of any doubt over the correct interpretation to be applied to the term, the statutory definition shall prevail. Appendix II contains details of IR SPSS mailing list and forms. Appendix VII contains a checklist of reports required by IR SPSS and Appendix X contains an index of Statutory Instruments applying to Occupational Pension Schemes .