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HMRC internal manual

Pensions Tax Manual

Other authorised payments: Scheme administration member payments: overview

Glossary PTM000001
   

 

 

What can be a scheme administration member payment
Loans
Interest on refunds of contributions
Rebated commission adviser charging and consultancy charging
Compensation payments for distress, inconvenience or other non-financial loss
How scheme administration member payments are taxed
Payments not at arm’s length commercial basis

 

 

What can be a scheme administration member payment

Section 171 Finance Act 2004

Scheme administration member payments are payments made by a registered pension scheme to or in respect of a member, or former member, for the purposes of administration or management of the scheme. Examples of types of payment which could qualify as scheme administration payments are:

  • the payment of wages to people involved in administering the scheme
  • payments made for the purchase of a pension scheme asset, or
  • an amount reflecting interest earned on a member’s contributions where that amount is paid in addition to a short service refund lump sum.

Payments for the administration or management of the scheme should be made on an arm’s length, commercial basis. They will be treated as authorised payments. If a payment is more than would be expected to be paid on an arm’s length basis the amount over the expected arm’s length price will not be a scheme administration member payment. Any excess will be an unauthorised member payment and taxed accordingly.

A payment of pension advice allowance is not a scheme administration member payment, but an authorised payment in its own right.  See PTM142000.

A scheme administration member payment may be paid as a lump sum.

Loans

Loans to or in respect of a member or former member of a scheme are not scheme administration member payments.

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Interest on refunds of contributions

Paragraphs 5(2) and 6(2) Schedule 29 Finance Act 2004

A short service refund lump sum and a refund of excess contributions lump sum may include an element of interest as well as the contributions being refunded. If so, the interest is treated as part of the lump sum for tax purposes. This is not a scheme administration member payment.

See PTM045000 for further guidance on when interest is and is not part of the lump sum payment.

But where under the scheme rules the interest or payment made representing the investment return on those refunded contributions is treated as separate from the lump sum and it satisfies the conditions for a scheme administration member payment, it is taxable as income of the member.

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Rebated commission adviser charging and consultancy charging

Each case must be assessed on its own particular set of facts and circumstances to determine if the payment can be regarded as a scheme administration member payment - see PTM143200.

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Compensation payments for distress, inconvenience or other non-financial loss

Each case must be assessed on its own particular set of facts and circumstances to determine if the payment can be regarded as a scheme administration member payment - see PTM143300

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How scheme administration member payments are taxed

There are no special rules in the pensions tax legislation concerning taxation of scheme administration member payments from registered pension schemes. However, this does not mean that these payments are not taxed. The normal income tax rules apply to each type of payment. For example, wages would be taxed as employment income. Interest payments associated with short service refund lump sums would be taxable on the member under section 369 Income Tax (Trading and Other Income) Act 2005.

The member must include on their Self Assessment income tax return, as appropriate, any scheme administration member payment received during the tax year to which the return relates.

Changes were made in Finance Act 2013 concerning interest that is payable to an individual in respect of compensation. Section 874(5) Income Tax Act 2007 states such interest must be treated as a payment of yearly interest, meaning the person paying the interest will be required to deduct income tax at source. Further guidance can be found at SAIM9115.      

 

 

Example

Huw received a benefit payment later than he was entitled to receive it and the scheme administrator has paid interest in respect of the delay, on top of the benefit payment.

This interest is paid to Huw in respect of compensation and the scheme administrator should deduct tax at source on this amount. Huw will then receive the net amount from the administrator.

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Payments not at arm’s length commercial basis

Any unauthorised payments relating to the excess over the amount reasonably paid on a commercial basis will be subject to the unauthorised payments charges - see PTM134100.