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HMRC internal manual

Employment Income Manual

Employer-financed retirement benefits schemes: meaning of 'retirement'

Section 393B(1) ITEPA 2003

[Notice: the guidance on this page should be read with the notice at the top of EIM15015]

EIM15021 explained that a relevant benefit includes a provision given on retirement.

Deciding whether a payment is given on retirement can be difficult because there is no full statutory definition of the word. Consequently, its natural meaning applies.

Payments made in respect of age-related retirement should not cause problems, for example where the typical age of natural retirement in a job is at a fixed age.

But the situation can be less clear where the termination is described as ‘early retirement’ since this is often in fact a dismissal (for example, due to redundancy or inefficiency). A payment in such a case can represent compensation for loss of the employment rather than a payment on retirement and so may be chargeable only under Section 401 ITEPA 2003 (provided that no contractual entitlement exists, see EIM12850). That is so even if the employee also becomes entitled, at the time of termination, to immediate pension benefits from the employer’s registered pension scheme (see EIM15050). This could occur, for example, where a registered pension scheme allows a pension to be paid to persons made redundant at age 50 or over (age 55 or over from 6 April 2010).

If the circumstances of the termination do not suggest that there is a dismissal (including a redundancy), severance, resignation or death, then it is likely that it is a retirement (but see EIM15044 if ill health causes the termination and the scheme is non-registered). There are some further guidelines at example EIM15300.