Member pension contributions to registered pension schemes

By Tolley

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

  • Member pension contributions to registered pension schemes
  • Introduction
  • The taxation life-cycle of private pension schemes
  • Member pension contributions
  • Carrying forward any unused annual allowance
  • Scottish law and pension contributions
  • Welsh rate of tax and pension contributions


For nearly 100 years, the UK has operated a system which encourages private pension provision through a system of taxreliefs.

The operation of the taxation system associated with pensions was radically reformed in Finance Act 2004 which 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 as a consequence of the provisions contained in Finance Act 2004.

The registered pension scheme rules will specify who can join it. There are no HMRC restrictions on who is allowed to join a specific scheme and 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, eg 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 taximplications 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. If the scheme is funded by contributions from only the employer, then it is known as a ‘non-contributory scheme’.

The UK system is based upon taxprivileges. Therefore, contributions are taxallowable on the part of both the employer and the member, as this supposedly gives an incentive to make adequate retirement provisions. However, there are limits on the extent of taxprivileged pension contributions based upon the annual allowance. There is

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