Employer asset-backed pension contributions

In the Budget the government announced a consultation on a change to the rules for tax deductions involving asset-backed pension contributions. The principle expressed was that tax relief should ‘accurately reflect the increase in fair value of pension plan assets while maintaining flexibility’.

This article explores why asset-backed contributions are increasingly used considers the likely direction and effect of the proposed changes and makes the case that the proposals are as much recognition of the legitimacy and importance of such strategies as an attack on avoidance.

The importance of asset-backed contributions

It is critical to understand when and why asset-backed contributions occur. When an actuarial valuation indicates a defined benefit pension scheme is in deficit the fund’s trustees and the sponsoring employer must agree a deficit...