Unauthorised payments
Since A-Day (6 April 2006) payments by registered occupational pension schemes are categorised as either authorised or unauthorised member or employer payments.
As the FA04 does not list what unauthorised payments are, it sets out what constitutes an authorised payment – basically unauthorised payments are those which are not authorised payments!
For example, except in certain circumstances, the following payments would be classed as unauthorised:
- a children’s pension paid in respect of a child who is over the age of 23
- payments of pension continuing after death.
Sanctions for making unauthorised payments
Up to three tax charges can arise when an unauthorised payment is made:
- an unauthorised payments charge – the recipient of an unauthorised payment is subject to this 40% charge on the value of the payment;
- a scheme sanction charge – the trustees of the pension scheme are liable to this 40% charge in any tax year during which the scheme makes an unauthorised payment. However, the charge is reduced where an “unauthorised payments charge” has already been paid by the recipient;
- an unauthorised payments surcharge – this surcharge is payable by the recipient of the unauthorised payment. It arises where the total unauthorised payments made by a scheme exceed a set threshold within a certain period. It is a charge of 15% of the unauthorised payment.
If more than 25% of payments by a scheme in a year are unauthorised payments, HMRC may withdraw the scheme’s registration.
If registration is withdrawn the trustees are liable to pay a de-registration charge of 40% of the scheme’s assets.
Commonly used abbreviations in pensions
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