Employer asset-backed pension contributions
The Government recently announced in Budget 2011 that it will consult on changing the tax rules in relation to employers making asset-backed contributions to their defined benefit pension schemes. A new consultation paper has now been published. The aim is to ensure that the amount of tax relief given accurately reflects the value of the contributions received by pension schemes.
The Government is keen to preserve the flexibility of these arrangements for employers and pension schemes, recognising such funding structures can meet both the commercial needs of employers and offer pension schemes secure, high- quality funding.
However, the Government will seek to limit unintended tax relief that may arise from the way these contributions are structured. This can arise where tax relief is given twice: up-front for the discounted value of a future income stream and again for each instalment of the income stream. It can also arise where the employer structures an income stream so that it is conditional on the future funding position of the pension scheme, resulting in a situation where tax relief given up-front may exceed the final value received by the pension scheme.
The closing date for comments on the issues raised in the consultation document is 16 August 2011. Subject to the consultation outcome and draft clauses that would be published in the autumn, new legislation will be introduced in Finance Bill 2012.