§ Mr. McCrindleasked the Chancellor of the Exchequer if he is satisfied that the legislative controls governing pension scheme funds are adequate to prevent their use in maintaining an employer's cash flow; and if he will make a statement.
§ Mr. MooreI imagine that my hon. Friend is referring to the Inland Revenue practice concerning surpluses that may arise in occupational pension funds. It has long been304W the case that where it appears, on an actuarial valuation, that a pension scheme is significantly over-funded, the Revenue's practice is to require such a surplus somehow to be disposed of if the exempt approved status of the scheme is not to be affected. Normally, this had to be done by increasing benefits or reducing contributions; only exceptionally could refunds be made to the employer, and treated as taxable income.
Recently, however, the Revenue gave fresh thought to this matter and concluded that a slightly more flexible approach would be appropriate. The Revenue practice now is as follows. It will no longer insist, as a matter of course, that increased benefits must be provided before any refund can be considered. If the surplus can be reduced to an acceptable level by reducing contributions for a period of, say, five years or less, the scheme will generally be required to take this course.
However, if reductions in contributions will still not achieve the desired result and the trustees do not wish to increase benefits, the Revenue may be prepared to consider allowing part or all of such a surplus to be returned to the employer and included in his taxable profits. Every application case will be looked at on all the facts of the particular case; and one of the factors which may be relevant is the extent to which members of the scheme are aware, and approve, of what the trustees propose to do.
It is, of course, the duty of the trustees to administer the scheme in the best interests of the members, but they may well consider—and the members may agree—that these interests would best be served by a refund to the employer if the alternative is, for example, the failure of the company and the loss of the members' jobs.
I hope this statement will clear up any possible misconceptions created by some recent press articles about the change in the Revenue's practice in this area.