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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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Employment income: Registered pension schemes: employer's contributions

On this page:

Sections 308 and 224 ITEPA 2003
Registered pension schemes: general
Registered pension schemes: employer’s contributions for employees
Approved and registered personal pension schemes
Unapproved personal pension schemes and employer-financed retirement benefit schemes
Payments from approved and registered pension schemes

Sections 308 and 224 ITEPA 2003

Up to 5 April 2006 Section 308 ITEPA 2003 applied in relation to approved personal pension arrangements made by an employee. From 6 April 2006 Section 308 has applied to registered pension schemes generally, following an amendment by sections 201(2) and 284 FA 2004. Its application in relation to registered pension schemes was further amended by section 11 FA 2013 for the tax year 2013/14 onwards.

Registered pension schemes: general

Registered pension schemes receive significant tax advantages: For example, Part 4 of FA 2004 (together with supporting schedules and related regulations) provides that their investment income is not taxed, contributions to such schemes qualify for tax relief up to a point, and lump sum benefits (not pensions) are also exempt from tax up to certain limits.

You may also have heard of approved pension schemes or exempt approved schemes. These were the predecessors of registered pension schemes. However, from 6 April 2006, the system of HMRC granting such approval was replaced with a registration system. Most existing approved schemes automatically became registered pension schemes on that day.

Registered pension schemes include both occupational and personal pension schemes, as well as other types of pension scheme.

There is detailed guidance available in the Pensions Tax Manual (https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual) though mostly this is for Pension Schemes Services in Specialist PT; the Employment Income Manual does not deal directly with registered pension schemes.

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Registered pension schemes: employer’s contributions for employees

Employer contributions to a registered pension scheme in respect of an employee are not chargeable on the employee as earnings of the employment (Section 308 ITEPA 2003).

In practice this means the employer contribution must be used to fund:

  • the provision of benefits for the employee, and/or
  • benefits payable (actually or contingently) on the death of the employee.

The provision of death-in-service benefits, such as a lump sum payable on the death of the employee, is an example of where employer contributions are, or may be, used to provide benefits payable (actually or contingently) on the death of the employee.

However, an employer contribution to a registered pension scheme in relation to an employee in the following circumstances is not regarded as ‘in respect’ of an employee for the purpose of the exemption in Section 308 ITEPA 2003. The circumstances are where:

  • the employer pays contributions to members of the employee’s family or household’s own arrangements under a registered pension scheme (i.e. the arrangement is not for the provision of benefits following the death of the employee as described immediately above), and
  • the member of the employee’s family or household is not an employee of the employer.

Such a contribution to the member of the employee’s family or household’s own pension arrangement will be chargeable on the employee as earnings of the employment.

The contribution will be treated as earnings under the benefits code (see EIM20001).

The exemption under Section 307 ITEPA 2003 (see EIM21800) will not apply. This is because the cost incurred by the employer is not for the provision of a pension or similar benefit that will be paid or given to the employee or for a pension or similar benefit that will be given to the member of the employee’s family or household in the event of the employee’s death.

Note - the requirement for the employer contribution to be in respect of the employee in order for the contribution not to be chargeable on the employee as earnings of the employment applies for the tax year 2013/14 onwards.

For the tax years 2006/07 to 2012/13 there is no distinction between employer contributions in respect of the employee’s own arrangement under the registered pension scheme and employer contributions for members of the employee’s family or household’s own arrangements for the purpose of the exemption given by Section 308 ITEPA.

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Approved and registered personal pension schemes

Approved or (from 6 April 2006) registered personal pension scheme arrangements made by an employee (or director) may provide for employer contributions as well as employee contributions. Where, under such arrangements, the employer pays employer’s contributions the contributions are not chargeable on the employee as earnings of the employment (Section 308 ITEPA 2003).

If you find that the employer has paid contributions that the employee (or director) was supposed to make, without recovering the full amount from the employee, send a brief report to RISK team at SPT Pension Scheme Services in Nottingham. The report should include the following details:

  • the name of the employee concerned
  • the name and address of the employer
  • the name of the pension provider
  • the pension plan reference number.

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Unapproved personal pension schemes and employer-financed retirement benefit schemes

If the employer contributes before 6 April 2006 to personal pension arrangements made by the employee which are not approved arrangements, the amount of the employer’s contribution is chargeable on the employee as earnings of his employment (Section 224 ITEPA 2003). Section 224 is repealed with effect from 6 April 2006. There is no equivalent to that Section in connection with employer-financed retirement benefits schemes, so there can be no charge in respect of a contribution after 5 April 2006 to the extent that the contribution is not employment income provided through third parties (see EIM45000).

For information about non-approved and employer-financed retirement benefit schemes see EIM15010 onwards.

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Payments from approved and registered pension schemes

As regards payments received by an employee out of an approved pension scheme, see EIM74009 (for tax years before 2006/07) and for payments from a registered pension scheme see EIM74014 (for tax years 2006/07 onwards).