TPAS - The Pensions Advisory Service

Unfunded Unapproved Retirement Benefit Scheme (UURBS)

Unfunded Unapproved Retirement Benefits Schemes (UURBS) are a type of top-up arrangement to the occupational pension scheme offered by some employers. 

They are set up under trust, as an individual arrangement between employee and employer.  The employer acts as the trustee. 

No funds are put aside to provide the benefits from an UURBS, so neither the employee nor the employer pays any contributions to the scheme.  The employee does not therefore get any tax relief by being a member but also avoids paying tax on any contribution by the employer (see FURBS).

An UURBS can provide a pension at retirement.  However, as there is no advance funding for the scheme, there is no guarantee that a pension can be paid into the future.  The pension from an UURBS can, therefore, be exchanged for a lump sum instead.

The HM Revenue's preferred term for an UURBS is now an Employer-Financed Retirement Benefits Scheme (EFRBS).

Q & As

Who might take out an UURBS?

An employer could decide to set up an UURBS for an individual whose benefits are currently or likely to exceed the Lifetime Allowance (£1.6m in 2007-08). However, in many circumstances it is possible to apply to the Revenue to protect a pension that existed before 6 April 2006 (A day) that was or is likely to exceed the Lifetime Allowance.

What are the advantages of an UURBS?

An UURBS has an advantage over a FURBS in that membership does not give rise to any extra tax liabilities. Other advantages include:

there are no limits on the benefits payable;

there is no requirement for the UURBS to be used to provide an annuity. This means that the entire accumulated fund can be taken as a one-off lump sum;

many of the requirements introduced by the Pensions Act 1995 are not relevant (i.e. minimum Funding Requirement (MFR); appointment of member-nominated trustees (MNTs), scheme auditor or scheme actuary; audited accounts; disclosure of information);

there is no age limit on taking the benefits from the scheme.

What are the disadvantages of an UURBS?

The major drawback of an UURBS is that there are no contributions made to the scheme so the promise of benefits is less secure than with a funded arrangement. In addition, there is a risk that once a pension comes into payment, the company sponsoring the UURBS will not be able to continue to make the pension payments indefinitely.

Pensions paid by the UURBS are taxable as income and so are lump sums.

I am a member of a registered occupational pension scheme. Can I have an UURBS?

Broadly speaking, yes. However, an UURBS will only be appropriate if your pension benefits are currently or likely to exceed the Lifetime Allowance.

Can I transfer the UURBS to another pension scheme?

You do not have a right to transfer an UURBS but you might still be able to do so; your ability to transfer depends on the terms of the scheme.

Do the benefits under my UURBS built up prior to the 6th April 2006 count toward my lifetime allowance?

No, these benefits will not count towards your lifetime allowance. Benefits are taxed under separate rules.

However, an UURBS which existed before 6 April 2006 may apply to become a registered pension scheme with effect from a date on or after 6 April 2006. If the registration conditions set out in the Registered Pension Schemes Manual are satisfied, HMRC will register the scheme, which will become subject to the tax regime for registered pension schemes from the date of registration.

Benefits will then count towards the lifetime allowance.

What if my employer goes bust?

You will risk losing all your benefits unless the promise is secured in some way. That could be achieved by your employer granting the UURBS a charge over some of its assets or by arranging an insurance policy to cover the benefits if the employer becomes insolvent. However, the plan must remain unfunded and the Revenue could view the grant of a charge as a means of “funding” the UURBS.

Is there a need for a provision in the employer accounts for the UURBS?

The employer does not need to reserve an amount in the accounts for the UURBS, but accounting standard FRS17 will require the employer to declare the cost of any UURBS pensions in their accounts.