§ Mr. Houghtonasked the Chancellor of the Exchequer what limits are imposed by the Inland Revenue Department as regards pensions and/or lump sums payable to beneficiaries under approved private pension funds operating under trust deeds, approved private pension schemes reinsured with life offices, deferred annuity policies taken out by self-employed persons under the provisions of the Finance Act, 1956, and non-contributory "Top Hat" schemes in which policies are effected in favour of individuals the cost of which is allowed as a working expense, respectively.
§ Mr. PowellUnless there are special circumstances, the total value of the benefits afforded to an employee on retirement is limited, for tax purposes, to the equivalent of a pension of one-sixtieth of final salary multiplied by the number of years of service with the employer concerned. These limits apply in general to employers' arrangements of all the varieties referred to in the Question.
Annuities for self-employed persons taken out under Part III, Finance Act, 1956, are limited by reference not to the amount of the annuity, but to the amount of the annual premium, as laid down in the Act.
Funds which are wholly approved under Section 379, Income Tax Act, 1952, whether they are privately administered or their liabilities are reinsured with an insurance company, are precluded from paying any retirement benefits in lump sum form. This restriction does not apply to schemes which do not qualify for approval under Section 379. If, however, the lump sum exceeds a quarter of the actuarial value of the total benefit, they are not approved under Section 388; and in such a case, unless it fell within one of the classes specified in Section 387 as not requiring approval, there would be tax liability on the employee in respect of the employer's contributions.