HMRC internal manual

Inheritance Tax Manual

Pensions: types of pension scheme: occupational pension and related schemes

You should check the other guidance available on GOV.UK from HMRC as Brexit updates to those pages are being prioritised before manuals.

An occupational pension scheme is a scheme that is provided by an employer to provide benefits to members in relation to their service as employees. The scheme may be defined benefit or defined contribution (or a hybrid). It may be provided by the employer themselves, usually via a trust arrangement, or by an insurance company on their behalf.

Small self-administered scheme (SSAS)

A SSAS is a type of occupational pension scheme that is available for up to 12 members. It is often used by sole traders, directors and family businesses. The members have control over investment policy, subject to certain statutory restrictions on the type of assets that can be held. The description ‘small’ refers to the number of members and not to the amount held within the fund which can be very substantial.

Deferred annuity contracts (buyout/section 32 policies)

A deferred annuity contract is a policy or contract bought from an insurance company, using funds from a registered occupational pension scheme. It provides an annuity to the member at some time in the future. A deferred annuity contract is a separate arrangement to the original pension scheme. Such contracts are often referred to as:

  • ‘buyout policies’ as the members rights are bought out of the original scheme or
  • ‘section 32 policies’ - from the provision in FA81/S32.

National employment savings trust (NEST)

The NEST is a default pension scheme that can be used by employers to meet their legal obligations (introduced from October 2012) to provide access to a pension scheme and to auto enrol their employees. It can be used alongside any existing scheme. It is designed to be low cost and will be operated by a non-profit corporation.

Additional voluntary contributions

These are products designed to top up occupational pension schemes. They are known as additional voluntary contributions (AVCs) when run by the employer and free standing additional voluntary contributions (FSAVCs) where the member takes out an individual plan with a financial institution such as an insurance company.