FA 2012 analysis: Employer asset-backed pension contributions

Asset-backed funding for pension schemes is an increasingly popular way for employers to fund their pension scheme deficits. A typical example (see Example) is where an employer transfers real estate or other assets to a partnership and makes a contribution to the pension scheme which is used by the pension scheme to acquire an interest in the partnership. The pension scheme then receives regular distributions from the partnership funded via payments made by the employer to the partnership to use the assets. These distributions replace more traditional pension contributions. The payment of a pension contribution which is used to invest in this way is referred to by HMRC as an asset-backed contribution (ABC).

The main benefit of an ABC is that the employer can spread the cost of funding the deficit over a longer period than...