The funding of defined benefit pension schemes and the volatility and risk associated with these schemes has been a key issue for many employers over many years. asset-backed contribution (ABC) arrangements can be used to reduce pension scheme deficits as an alternative to cash payments under a standard schedule of contributions.
However, ABC arrangements are not without complexity, and tax is a key consideration both to ensure the desired tax outcome is achieved and to mitigate the risk of any undesirable tax consequences arising.
This Practice Note provides a brief overview of ABCs and then looks at the key tax considerations relevant to an ABC structure, including their restructuring and unwinding, which is principally addressed in sections 196–196L of the Finance Act 2004 (FA 2004).
For further information on what ABCs are, how they can be used to reduce pension scheme deficits and the main considerations when setting up such an arrangement, see Practice Note: asset-backed contributions for pension schemes.
ABC structures were initially developed to enable companies to address pension scheme deficits
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(1) Any item of value; (2) The holdings of a fund, which may include stocks, shares, fixed-interest securities or cash; (3) The main types of investment available: bonds, equities, real estate, commodities etc.
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