Asset-backed contributions—tax treatment
Asset-backed contributions—tax treatment

The following Pensions guidance note provides comprehensive and up to date legal information covering:

  • Asset-backed contributions—tax treatment
  • ABCs—an overview
  • The structure of a typical ABC
  • Accounting for ABC structures
  • How the tax treatment has changed over time
  • Tax treatment of contributions under ABC structures post-Finance Act 2012
  • Non-qualifying structures
  • Finance Act 2004—the ABC rules
  • Qualification under ABC legislation
  • Ongoing payments
  • more

Contributed by Chris Coulston and Harry Stead, Deloitte LLP

The funding of defined benefit pension schemes and the volatility and risk associated with these schemes has been a key issue for many employers over recent years. Asset-backed contribution (‘ABC’) arrangements can be used to reduce pension scheme deficits as an alternative to cash payments under a standard schedule of contributions.

However, ABC arrangements are not without complexity, and tax is a key consideration both to ensure the desired tax outcome is achieved and to mitigate the risk of any undesirable tax consequences arising.

This Practice Note provides a brief overview of ABCs and then looks at the key tax considerations relevant to an ABC structure, which is principally addressed in the Finance Act 2004 (FA 2004), ss 196–196L.

For more information on what ABCs are, how they can be used to reduce pension scheme deficits and the main considerations when setting up such an arrangement, see Practice Note: Asset-backed contributions for pension schemes.

ABCs—an overview

ABC structures were initially developed to enable companies to address pension scheme deficits in a manner that met trustees’ needs, both through funding and providing enhanced protection, in a way that was affordable for sponsoring employers and didn’t adversely impact their financial performance. These structures provide schemes with an investment, often in the form of an interest in a