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HMRC internal manual

PAYE Manual

PAYE operation: pensioners: financial assistance scheme


The Financial Assistance Scheme (FAS) administered by the Department of Work and Pensions (DWP), was set up in 2005 to help people whose pension scheme had become under-funded when the relevant employer became insolvent.

FAS was only payable to people at age 65 but an extension to the scheme means that certain pensioners are now entitled to receive FAS from age 60. People who were not entitled to FAS assistance because they had not attained the age of 65, are now entitled to payments for past periods. FAS payments will not be paid for a period earlier than 14 May 2004 when FAS was first announced.

This means that about 10,000 people may be due payments from earlier years, some back to 2004. The amounts will be calculated by DWP and paid in one sum, starting from the end of June 2010 and continuing into July and August.

Basis of assessment

FAS payments are chargeable on the accruals basis which means they are taxable in the year to which they relate. But, because the payments will be made in one lump sum they will be taxed through PAYE at the date of payment, rather than in the year to which they relate. This may give rise to higher rate liability for the year for a pensioner who is usually a basic rate taxpayer (similarly, it may result in basic rate liability for someone who was only liable at the starting rate or who was not liable in the relevant tax years). As a result, you may receive queries from FAS recipients about the taxation treatment of their pension payments.

Guidance for Contact Centres or customer correspondence

DWP have issued advice to FAS members who have received payments. If you receive a query, you should refer the pensioner to theguidance provided by DWP (Word 56KB).

If a FAS pensioner contacts you and they have not received the guidance, you should advise them to obtain a breakdown of their FAS payments from DWP and to send this in to us.

We will need this information in order to review earlier and current year liabilities at the end of the year.

Action to take

FAS payments are made on the 21 of each month. When calculating the amount of FAS due for each year you should apportion the first month’s payment, as FAS do not hold a breakdown on their systems. However, this is giving incorrect first and last payments. In all cases, divide the gross amount of the payment by the total number of months from the start date to the finish date.

The gross amount of payment should then be divided by the total number of months and then multiplied by the relevant number of months in each year.