Payment of surplus to the employer—pension schemes in winding-up

Produced in partnership with Squire Patton Boggs and Catherine Lonergan of Eversheds Sutherland (International) LLP

Practice notes

Payment of surplus to the employer—pension schemes in winding-up

Produced in partnership with Squire Patton Boggs and Catherine Lonergan of Eversheds Sutherland (International) LLP

Practice notes

THIS PRACTICE NOTE APPLIES ONLY TO defined benefit AND HYBRID OCCUPATIONAL PENSION SCHEMES

A payment to the sponsoring employer(s) of a pension scheme must be an authorised employer payment for the purposes of section 175 of the Finance Act 2004 (FA 2004). The list of authorised employer payments includes an authorised surplus payment under the FA 2004, s 177.

For further information on authorised payments, see Practice Note: The Finance Act 2004, a-day and the pensions tax regime—Authorised and unauthorised payments.

A payment to an employer will be an authorised surplus payment if:

•
the scheme making the payment complies with the requirements of section 76 of the Pensions Act 1995 ('section 76') (for further information, see Requirements of section 76 below), and
•
the payment is made in connection with the winding-up of the scheme

An authorised surplus payment attracts a tax charge of 25% payable by the employer (the charge having been reduced from 35% to 25% with effect from

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Jurisdiction(s):

United Kingdom

Key definition:

Surplus definition

What does Surplus mean?

The financial result at the end of a financial accounting period expressing the excess funds available after accounting for movement in the liabilities within a fund and therefore potentially available for distribution by way of a bonus declaration, or withheld via the process of smoothing to bolster the estate of a with-profits fund.

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