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HMRC internal manual

National Insurance Manual

Earnings of employees and office holders: retirement benefits schemes from 6th April 2006 - employer-financed retirement benefits schemes: payments out of such schemes: overview

Paragraphs 8 and 10 of Part 6 of Schedule 3 to the Social Security (Contributions)Regulations 2001 (as inserted by regulation 8(7) of the Social Security (Contributions)(Amendment No. 2) Regulations 2006)

Section 164(a), (b), (e) and (f) Finance Act 2004

Section 399A ITEPA 2003 (as inserted by section 249(11) of the above Act)

A payment out of an employer-financed retirement benefits scheme (“EFRBS”; NIM02756) is disregarded in the calculation of earnings if:

  • had the scheme been a registered pension scheme (“RPS”; NIM02715), the payment would have been one of the following types of authorised member payments:
    • a pension allowed by the pension rules (section 164(a) - see NIM02766)
    • a lump sum allowed by the lump sum rule (section 164(b) - see NIM02767 - NIM02769)
    • a payment made pursuant to a pension sharing order (section 164(e) - see NIM02772)
    • a payment of a kind set out in regulations made by HMRC (section 164(f) - see NIM02773);
  • satisfies other conditions in relation to the type of payment (NIM02760 (contents))
  • is made after the employed earner’s employment with:


  • the secondary contributor (usually the employer); or
  • a person connected with the secondary contributor; or
  • a subsidiary of the secondary contributor 

has ceased.

For these purposes:

“subsidiary” has the meaning in section 838 ICTA 1988 (see CG53006); and

“connected person” has the meaning in section 839 of that Act (see CG14580 - 14627).

  • is not made for any period during which the individual is: 


  • engaged as a self-employed earner under a contract for services with; or
  • re-employed as an employed earner by 

Although the first bullet on the previous page requires a payment out of an EFRBS to beconsidered as if it were made from a RPS, not all the rules relating to such schemesapply. For instance, in order to be a RPS, the scheme must have a scheme administrator(RPSM02102030). But there is no such requirement for an EFRBS.

Instead, for an EFRBS, there is the concept of “responsible person”. In simpleterms, this is the person (or persons) who is responsible for dealing with the EFRBS. Forthe purposes of the disregard, “responsible person” has the same meaning as thatfor income tax purposes. EIM15036 gives details.

There are flowcharts at:

  • NIM02780 (first considerations)
  • NIM02781 (pensions)
  • NIM02782 (lump sums - general)
  • NIM02783 (pension commencement lump sums)
  • NIM02784 (serious ill-health lump sums)

which provide a guide to establishing whether a payment out of an EFRBS can bedisregarded in the calculation of earnings.

  Words in bold are defined in the Glossary to the Registered Pension Schemes Manual (RPSM20000000). They have the same meaning for NICs purposes unless otherwise stated.