Smaller schemes to benefit from HMRC consultation on asset backed contributions: PwC

Smaller Pension Schemes to Benefit from Asset Backed Contributions, Says PwC

Smaller Pension Schemes to Benefit from Asset Backed Contributions, Says PwC

Global consultancy major PwC welcomed the conclusion of HMRC’s consultation on tax relief for asset backed contributions saying it will make such arrangements accessible to smaller schemes and bring much needed clarity.

The consultation had suggested two alternative approaches: continue with the present system of upfront tax relief claim on assets, but bring them inline with the structured finance tax regime, or restricting the relief to cash contributions generated by the assets.

“The most important thing to note is that, whatever the outcome, it will be here to stay, which is good news in itself because it cuts through the uncertainty,” said Simon de Young, partner at PwC.

The first alternative of continuing with up-front tax relief was supported by PwC as the other alternative runs the risk of undermining one of the key business drivers – lowering cash burn-rate of employers.

It’s important to let sponsors enter this type of arrangement, said De Young, since the current stock market slide has brought the focus back on capital protection as the top agenda for trustees.

The option of offering up-front tax relief is however, open to abuse, warned De Young since firms may over-value assets being transferred to schemes or fail to contribute initially claimed amounts.

Re-drafting the regulations may, however, outlaw legitimate practices and cast the net too wide, he added.

The number of schemes that had made asset backed contributions since the consultation was announced in spring, either by setting up new schemes like TUI Travel or making additional contributions in existing schemes like ITV, was the outcome of HMRC’s open consultation, said De Young.

However, it’s unlikely a slew of sponsors will push through these arrangements before any new law is initiated as setting up asset backed partnership requires time.

“But once HMRC starts to draft these laws, the added clarity will open the option up to smaller firms and schemes who had previously thought these arrangements were too pricey,” observed De Young.

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