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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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Income from approved pension schemes including personal pensions (2005-06 and earlier)

Approved retirement benefit schemes

Note: with effect from 6 April 2006, most existing tax approved pension arrangements became registered pension schemes. This page explains the legal position for approved arrangements for tax years before 2006-07.

Section 580 ITEPA 2003 charges pensions and annuities paid under a retirement benefits scheme that has been approved, or is being considered for approval, under the provisions of Part 14 Chapter I ICTA 1988. These schemes are frequently referred to as occupational pension schemes. Section 580 also charges annuities acquired using funds held for the purposes of such a scheme. Section 587 ITEPA 2003 extends the definition of approved retirement benefits scheme to include marine pilots’ benefit funds approved under Section 607 ICTA 1988. See EIM74101 for how to find the taxable pension income for a tax year.

Former approved superannuation funds

These funds are occupational schemes approved before 1980 when the code for retirement benefits schemes in Part 14 Chapter 1 ICTA 1988 took full effect. The schemes provide for the payment of annuities (see EIM74007) and these annuities will continue to be paid for many years to come. Section 590 ITEPA 2003 charges annuities that are:

  • paid under a former approved superannuation fund, or
  • acquired using funds held for the purposes of such a fund.

Approved personal pension schemes

Personal pension schemes are defined in Part 14 Chapter 4 ICTA 1988, which deals with the approval of and reliefs available for personal pensions. Income may be taken in the form of an annuity or by means of an income withdrawal under arrangements made in accordance with the scheme. Section 595 ITEPA 2003 charges annuities acquired using funds held for the purposes of an approved personal pension scheme (see EIM74007). Section 598 ITEPA 2003 charges any income withdrawal under approved personal pension arrangements. See EIM74101 for how to find the taxable pension income for a tax year.

Unauthorised payments from approved schemes

Section 583 ITEPA 2003 charges as pension income certain unauthorised payments made out of funds held for the purposes of an approved retirement benefits scheme. It does not apply to payments representing the return of surplus employee additional voluntary contributions (see EIM74013). Section 593 ITEPA 2003 applies Section 583 to similar payments from former approved superannuation funds. A similar provision in Section 601 ITEPA 2003 charges unauthorised personal pension payments.

Section 583 applies where the unauthorised payment is made to or for the benefit of an employee or an ex-spouse or former civil partner of an employee and it is that person who will be liable for tax. The person liable for any tax chargeable on unauthorised personal pension payments is the individual who made the personal pension arrangements and to whom or for whose benefit the payment is made whether or not the individual is the recipient of the payment.

For all approved schemes, the amount or value of unauthorised payments made in a tax year will be taxable in that year.

You should advise APSS (Nottingham) if you come across such payments.

Payments from funds before or upon retirement including exemption for certain lumpsums

Payments made to employees out of funds held for the purpose of an approved scheme, either before retirement or on retirement, may fall to be assessed as earnings rather than as pensions (see EIM04800). Section 637 ITEPA 2003 provides an exemption for lump sums provided under certain pension schemes. Guidance is given at EIM04800.