Employer contributions to registered pension schemes

By Tolley
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The following Employment Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Employer contributions to registered pension schemes
  • Introduction
  • The taxation life-cycle of private pension schemes
  • Tax relief and employer contributions

Introduction

For many years, the UK has operated a system which encourages private pension provision through a system of tax reliefs.

The operation of the taxation system associated with pensions was radically reformed in Finance Act 2004 (FA 2004), which effectively disposed of a complex system that had developed since the last occasion of radical reform in 1970. This new basis was introduced with effect from 6 April 2006 through the provisions contained in FA 2004.

The rules of any registered pension scheme will specify who can join it. There are no HMRC restrictions on who is allowed to join a specific scheme, even non-UK residents may join a registered pension scheme if the scheme rules permit.

Contributions may be paid by the scheme member, a third party on behalf of the member, or a member’s employer or former employer. Where a third party pays a contribution, those contributions are treated as if they had been paid by the member, ie they count towards the member’s annual allowance.

The taxation life-cycle of private pension schemes

The taxation life-cycle of private pension arrangements can be divided into three stages. At each point, there are tax implications for the member and, where applicable, the member’s employer.

Contributions ― payments are made into a fund. These payments will be paid by the individual member and, in many cases, by their employer as well. Where the scheme is an occupational scheme (generally associated with a scheme-sponsoring employer), then if the scheme is funded by contributions from the employer with no member contributions, it is known as a ‘non-contributory scheme’. Such schemes are rare as most occupational schemes require a member contribution.

The UK system is based upon tax privileges so contributions are tax-allowable on the part of both the employer and the member, as this supposedly gives

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