PTM146100 - Other authorised payments: genuine errors: overview and principle of promptly rectified payments errors
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Genuine errors: General
Promptly rectified genuine ‘payment’ errors that are not unauthorised payments
Benefit payments in error covered by regulations
Genuine errors: General
As part of the day to day administration of a registered pension scheme, it is possible that a genuine error could result in:
- an unauthorised payment seemingly being made but which is not actually a payment at all for the purpose of the tax rules applying to the scheme, or
- an overpayment of pension being made that is an unauthorised payment (PTM146300), or
- a contribution seemingly being made into the scheme but which is not actually a contribution at all for the purpose of the tax rules applying to the scheme (PTM146600).
Contributors to registered pension schemes obtain tax relief on contributions they make into the scheme and the scheme is exempt from tax on the income from, or gains made on the disposal of, investments held by the scheme. Also, certain lump sums paid under the scheme are exempt from income tax. These tax reliefs and exemptions are given by the Government to encourage saving for an income in retirement.
To protect the integrity of these tax reliefs and exemptions, the tax rules distinguish between authorised payments and unauthorised payments when a payment is made by a registered pension scheme to or in respect of a person who is, or was, a member of the scheme and also, in the case of a registered pension scheme that is an occupational pension scheme, to or in respect of a person who is, or was, a sponsoring employer.
These same principles apply, equally, when a registered pension scheme is treated as making a payment where that payment is made under or in connection with an investment acquired with funds that have been held for the purpose of a registered pension scheme.
Despite putting in all appropriate checks and balances within an administration system, errors by administrators of a pension scheme or by the scheme’s bank may still occur which could result in an inadvertent payment being made, or the receipt of a contribution into the scheme, that was not intended. Equally, errors could occur as a result of incorrect information or late information being given to the scheme, such as by, or in respect of, a member or the employer of a member or by a member’s or employer’s bank.
The facts and circumstances of each payment from, or to, a registered pension scheme will determine whether or not that payment out, or payment in, is an unauthorised payment or a contribution to the scheme. However, in certain circumstances, an inadvertent payment caused by a genuine error would not be regarded as an unauthorised payment or a contribution into the scheme, as the case may be.
Promptly rectified genuine ‘payment’ errors that are not unauthorised payments
An inadvertent payment made in the following circumstances will not be an unauthorised payment:
- the payment is made in genuine error, such that there was no intention to make a payment to that extent or at all, and
- the erroneous payment is spotted by someone involved with the management of the scheme (or the recipient of the payment or the recipient’s adviser might have brought the matter to the attention of the scheme managers), and
- the error is rectified as soon as reasonably possible.
There is no requirement for the scheme administrator to report a payment made in these circumstances as an unauthorised payment, as the payment is not an unauthorised payment for the purpose of the tax rules relating to registered pension schemes.
Benefit payments in error covered by regulations
The Registered Pension Schemes (Authorised Payments) Regulations 2009 - SI 2009/1171
The regulations prescribe conditions when particular errors, usually left in place, will be treated as authorised. These are separate to the instances covered in the following pages in this chapter. The types of error covered by the regulations include: