Policy paper

The Authorised Surplus Payments Charge (Variation of Rate) Order 2024

Updated 12 March 2024

Who is likely to be affected

Pension scheme administrators of registered pension schemes who make authorised surplus payments to a sponsoring employer of a registered pension scheme.

General description of the measure

This measure will reduce the amount of tax due on the amount of the authorised surplus payment from 35% to 25% from 6 April 2024. This is known as the authorised surplus payment charge.

Policy objective

This measure was part of a package of pension reforms announced at Autumn Statement 2023 to provide better outcomes for savers, drive a more consolidated pensions market and enable pension funds to invest in a diverse portfolio.

Background to the measure

An authorised surplus payment is a type of authorised payment that can be made under the tax rules for registered pension schemes. Where such a scheme does have surplus funds, it is possible that rules of the scheme will allow that surplus to be returned to an employer in relation to the scheme. A tax charge of 35% is due on the amount of the authorised surplus payment made and the person liable for the charge is the scheme administrator of the scheme making the payment. The scheme administrator remains liable even if they, or the sponsoring employer, or both, are not resident or domiciled in the United Kingdom.

The authorised surplus payments charge is a free-standing tax on the scheme administrator and the payment is not treated as income under any other tax provision. This means that the tax is due even if the employer receiving the payment is making a loss.

Detailed proposal

Operative date

This measure will have effect on and after 6 April 2024.

Current law

The current pensions tax rules for registered pension schemes came into force on 6 April 2006 and are set out in Part 4 of the Finance Act 2004 (FA04).

An authorised surplus payment, section 177 of FA04 is made by occupational pension schemes and is a type of authorised employer payment (section 175) that can be made under the tax rules for registered pension schemes. The description of authorised surplus payments is prescribed by regulations, The Registered Pension Schemes (Authorised Surplus Payments) Regulations 2006, SI 2006/574. And, as amended by The Registered Pension Schemes (Miscellaneous Amendments) Regulations 2011, SI 2011/1751.

The surplus is funds held by a registered pension scheme that are in excess of those required to meet the schemes total liabilities to its members. They may arise where the fund can provide benefits in excess of the limits set out in the scheme rules, but the scheme does not want to exceed those limits. Any amounts paid that exceed the amount of the surplus are unauthorised.

A tax charge of 35% is due on the amount of the authorised surplus payment made, section 207 (4), FA04. The provisions for assessing the charge to tax is prescribed by regulation 3, The Registered Pension Schemes (Accounting and Assessment) Regulations 2005 No. 3454, SI 2005/3454.

Proposed revisions

The legislation will amend section 207(4), FA04 by replacing 35% with 25%. This will take effect from 6 April 2024.

Summary of impacts

Exchequer impact (£ million)

2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029
-5	negligible	negligible	-5	-5	-5

These figures are set out in table 5.1 of Autumn Statement 2023 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Statement 2023.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

The measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

The nature of the change means this could benefit shareholders of sponsoring employers and, depending on scheme rules on how the surplus can be shared, this could also benefit scheme members. Traditionally men tended to accrue more pension rights than women and so might benefit more from this measure, although auto-enrolment will modify that over time.

No other impacts are anticipated in respect of groups sharing other protected characteristics.

Impact on business including civil society organisations

This measure is expected to have a negligible impact on businesses who administer occupational pension schemes. One-off costs will include familiarisation with the change.

There are not expected to be continuing costs. 

Customer experience is expected to stay the same because it does not significantly alter how businesses would interact with HMRC. This measure is not expected to impact civil society organisations.

Operational impact (£ million) (HMRC or other)

HMRC will need to make changes to its IT systems to support implementation of this measure. These changes are expected to cost in the region of £380K. There will also be changes needed to online guidance on GOV.UK.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

This will be kept under review through communication with pension scheme administrators who operate occupational pension schemes.

Further advice

If you have any questions about this change, please contact the Pensions Policy team in HMRC at:

Email: [email protected]

Telephone: 03000 512336

Declaration

Bim Afolami MP, Economic Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.