Pension scheme benefits: independent advice for employees

19 March 2015

There is a new Income Tax exemption which will affect employers running a defined benefit to defined contribution pension scheme transfer exercise on or after 6 April 2015.

The measure will introduce a new income tax exemption for payments made when employers are mandated to provide employees or former employees with appropriate independent advice as part of any employer-led transfer exercise from defined benefit (DB) to defined contribution (DC) pension schemes.

The Pension Schemes Act 2015 introduced the new definitions of ‘safeguard’ and ‘flexible’ benefits, which broadly cover the benefits offered in defined benefit and defined contribution schemes, respectively.

Where the employer provides or pays for advice to an employee in order to meet their obligation, then that provision or payment is covered by the new income tax exemption.

When this obligation is met by an advisor whom the employer has contracted with for the purpose, the employee benefits. This would ordinarily be chargeable to tax and the exemption will remove this charge. No Class 1A National Insurance contributions (NICs) liability will arise as its treatment automatically follows the tax position. When this obligation is met by means of a reimbursement to the employee there will be a corresponding disregard for Class 1 NICs.

For full details see Tax Information and Impact Note