Finance Bill Tracking Service 2010 | Budget 2010


Who is likely to be affected?

1. Employers, their employees (referred to as "jobholders" in the Pensions Act 2008), the National Employment Savings Trust (NEST) and its members, other qualifying pension schemes when automatic enrolment of jobholders is introduced from 2012 and scheme administrators of all registered pension schemes.

General description of the measure

2. This measure will:

•    allow NEST to register with HM Revenue & Customs (HMRC) for tax purposes, and to be subject to the same tax rules as other tax-registered pension schemes;

•    remove the tax liability on any interest charges on late pension contributions made by an employer to qualifying pension schemes;

•    provide a regulation-making power to deal with any unintended tax consequences that may emerge as a result of the implementation of NEST and the employer duties and compliance as set out in the Pensions Act 2008; and

•    remove the tax charge on borrowing linked to the cost of establishing and operating a registered pension scheme, subject to conditions.

3. The Government intends to legislate this measure in a Finance Bill to be introduced as soon as possible in the next Parliament.

Operative date

4. The amendments will have effect on and after the date that the legislation receives Royal Assent.

Current law and proposed revisions


5. Pension schemes must be registered under Part 4 of the Finance Act 2004 for their members and contributing employers to benefit from tax relief on contributions and investment growth. This measure will allow NEST to register with HMRC and to operate as an occupational pension scheme for tax purposes. This will mean that members of NEST and contributing employers will be able to benefit from the tax reliefs available to registered pension schemes.

Pensions Act 2008: employer duties

6. The Pensions Act 2008 places a duty on employers to ensure that their jobholders are active members of a pension scheme. The introduction of this "automatic enrolment" duty is planned for 2012.

7. The Pensions Act 2008 also obliges the employer of a jobholder to make pension contributions to qualifying pension schemes. When the contributions are paid late the employer may, at the Pensions Regulator's discretion, be asked to pay interest to their jobholder's pension account.

8. Under section 369 of the Income Tax (Trading and Other Income) Act

2005, the jobholder would be taxed on any interest paid by employers to a jobholder's pension account. This tax charge on the jobholder will be removed.

NEST and employer duties

9. Unintended tax charges may arise following the introduction of NEST and the implementation of employer duties. The legislation will include a regulation-making power to allow changes to be made through secondary legislation where necessary. The regulations made under this power may take effect retrospectively but only in so far as they are wholly relieving and do not increase any person's liability to a tax charge.

Unauthorised borrowing

10. Under the current rules, borrowing repaid out of the sums or assets of a registered pension scheme will incur a tax charge if it is in excess of half of the value of the fund.

11. Changes will be introduced so that borrowing linked to the cost of establishing and operating a registered pension scheme will be excluded from this tax charge, subject to certain conditions.

Further advice

12. If you have any questions about this change, please contact Beverley Davies on 020 7147 2869 (email: Information about Budget measures is available on the HM Revenue & Customs website at