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Employment Income Manual EIM21802 - particular benefits: pension provision: pensions advice provided by an employer: exemption from charge
Pensions information and advice provided by an employer to employees generally (for example, a presentation to which all employees are invited to attend) is unlikely to give rise to an employee benefit tax charge. However, where an employer pays fees to an external provider for one-to-one sessions to provide advice to employees, as a general principle a tax charge will arise on the cost of the advice as this represents an employment-related benefit.
Statutory Instrument 2002/205 as amended by S.I. 2004/3087.
With effect from 6 April 2017 a new Income Tax exemption is available to cover the first £500 worth of relevant pensions advice provided to an employee. This page explains HM Revenue and Customs (HMRC’s) approach to pensions advice up to 5 April 2016. For tax years 2017 onwards see Employment Income Manual EIM21803.
From 14 December 2004, Regulation 5 of S.I.2002/205 exempts from a benefits charge the cost of pensions advice and information provided specifically to an employee (for example, in a one to one session), as long as:
- similar advice is offered to all employees
- the nature of the advice doesn’t extend beyond pensions into general financial, and particularly tax, advice
- the cost is no more than £150 per employee per year
If the cost of the advice exceeds £150 per person the whole amount is taxable, not just the excess over £150.
Section 308B Income Taxes (Earnings and Pensions) Act (ITEPA).
Regulations made under the Pension Schemes Act 2015 impose an obligation on employers running a defined benefit (‘safeguarded benefits’) to defined contribution (flexible benefits) pension scheme transfer exercise to arrange or pay for appropriate independent advice for the pension scheme members concerned.
From 6 April 2015, where the employer provides or pays for advice for an employee in order to meet their obligations, the provision or payment is exempt from tax. If the employer provides or pays for more advice than they are obliged to, only the excess amount is taxable.
The exemption doesn’t apply when the pension advice is funded by the employer as part of salary sacrifice arrangements.
Employment Income Manual EIM21803 - exemption for pensions advice - conditions to be satisfied (from 6 April 2017)
Section 308C ITEPA 2003
Note this guidance has effect for pensions advice provided to an employee from 6 April 2017 onwards. For guidance on HMRC’s approach to this prior to 6 April 2017 see Employment Income Manual EIM21802.
From 6 April 2017, Section 308C ITEPA 2003 introduces a statutory exemption of £500 in a tax year for relevant pensions advice provided to employees. Under this exemption, if an employer provides pensions advice to its employees, or pays or reimburses the costs of pensions advice incurred by the employee, the cost of this advice is exempt from Income Tax up to £500 in a tax year provided either condition A or condition B is met.
The exemption applies to employees, former employees or prospective employees.
The exemption applies to the provision of information or advice in connection with the person’s pension arrangements or the use of the person’s pension funds. It can include advice on general financial and tax issues relating to pensions arrangements or pension funds allowing individuals to make informed decisions about saving for their retirement.
The exemption applies to the first £500 of advice in a tax year, so if the amount exceeds that figure the first £500 in that tax year is tax free.
If an individual has more than one employment and each employer provides pension advice in the relevant tax year the exemption can apply to each employment.
Condition A - availability
The relevant pensions advice or reimbursement or payment is provided under a scheme that is open to:
- all of an employer’s employees generally
- generally to an employer’s employees at a particular location
Condition B – age, ill-health
The relevant pensions advice or reimbursement or payment is provided under a scheme that is open to all of an employer’s employees, or all of the employees at a particular location where the employees:
- have reached the minimum qualifying age (with respect to the employer’s registered pension scheme)
- meet the ill-health condition
Employers can, therefore, provide advice to specific employees who are nearing retirement or are about to retire on ill-health grounds, as long as the advice is available to all employees in the same situation.
‘Minimum qualifying age’ means the employee’s relevant pension age, less 5 years.
Relevant pension age is usually the normal minimum protected pension age or their normal minimum pension age as defined by Section 279(1) of Finance Act 2004.
From 6 April 2010, the normal minimum pension age has been 55, although some pension scheme members may have protected rights to a different age (see Pensions Tax Manual PTM062210). For example if the employee’s normal minimum pension age is 55 the minimum qualifying age is 50.
The ‘ill-health condition’ is met by an employee if the employer is satisfied, on the basis of evidence provided by a registered medical practitioner, that the employee is (and will continue to be) incapable of carrying out their occupation because of their physical or mental impairment.