FA 2012 analysis: Employer asset-backed pension contributions

FA 2012 Sch 13 regularises the tax treatment of asset-backed pension funding arrangements. These arrangements, which are becoming increasingly popular, are used to address pension scheme deficits while retaining much needed cash in the business. The basic FA 2004 rules giving a tax deduction for contributions to pension schemes are expanded, restricting relief where asset-backed contributions are used unless certain conditions are met. The policy underlying these complex new rules is that tax relief should not exceed the total cash which flows from the employer group to the pension scheme. The rules, which still permit appropriately structured arrangements to benefit from upfront tax relief for the value of the contribution, show that the government has listened to responses made during the course of the consultation.