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HMRC internal manual

Employment Income Manual

Employment income provided by third parties: exclusions: pension schemes

Sections 554E and 554Z17(2) ITEPA 2003

If a pension arrangement is one of the schemes listed below, no relevant step taken under it will give rise to Part 7A income.

  • An arrangement the sole purpose of which is the provision of ‘excluded benefits’ see EIM15021.
  • A pension scheme (within the meaning of Part 4 of FA 2004) set up by a government outside the United Kingdom for the benefit of its employees (or primarily for their benefit) - you will find this definition of ‘pension scheme’ in the Pensions Tax Manual at PTM021000
  • A registered pension scheme.
  • An arrangement the sole purpose of which is the making of ‘payments’:

    • to which section 161(4) FA 2004 applies in relation to a registered pension scheme (or a registered pension scheme which has been wound up), and
    • which are authorised in relation to that scheme by section 160(1) of FA 2004.

‘Payment’ here has the same meaning as in Part 4 Chapter 3 FA 2004 (payments by registered pension schemes) and thus includes a transfer of assets and any other transfer of money’s worth. See PTM026000.


An EFRBS will not come within the last of those bullet points. That bullet point will only apply where:

  • the sole purpose of an arrangement is to make payments to or in respect of a member, and
  • statute deems the payments to be paid by a registered pension scheme (even though in reality they are not).

The most common example of such an arrangement is where a registered pension scheme provides a pension by purchasing an annuity from a life insurer for payment to the member.

The exclusion will not apply where the payments under the arrangement:

  • would have been authorised payments if they had been paid by a registered pension scheme, but
  • are neither so paid nor treated as so paid for the purposes of FA 2004.

Relevant steps within sections 554Z18 and 554Z19

If the statutory conditions are met, a relevant step within section 554Z18 or 554Z19 can come within a section 554E exclusion.

On sections 554Z18 and 554Z19 (undertakings given by employers etc in relation to retirement benefits etc: earmarking etc and provision of security), see EIM45150 and EIM45155 respectively.