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 & A's
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.
- 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.
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.
Broadly speaking, yes. However, an UURBS will only be
appropriate if your pension benefits are currently or likely to
exceed the Lifetime Allowance.
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.
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.
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.
The employer must reserve an amount in their accounts for
the value of the UURBS.
The Pensions Advisory Service has very little to do with
unapproved schemes. However HM Revenue and Customs publish
information and guidance on such schemes in the Employment Income Manual (EIM) found on their
webpage.
