Choose the right pension scheme

There are a variety of unregistered pension options available to directors and owners, but they don't benefit from all the tax advantages of a pension scheme registered with HM Revenue & Customs (HMRC). These are specialist areas and you should obtain advice before setting up one of these types of schemes.

Employer-financed retirement benefit schemes (EFRBS)

EFRBS (formerly known as Funded Unapproved Retirement Benefit Schemes and Unfunded Unapproved Retirement Benefit Schemes) are targeted at owner-managers. They are unregistered pension arrangements set up as a top-up scheme, supplementing an HMRC-registered scheme. Following the simplification of the tax regime, many of the advantages of these schemes no longer exist.

In an EFRBS, employer contributions:

• are not liable for tax or National Insurance contributions as they are made
• are not deductible in the employer's accounts until benefits start to be paid to the employee

Non-registered schemes may also be liable to income tax and capital gains tax at the rate applicable to trusts.

The benefits paid by such schemes are:

• subject to income tax (there is no entitlement to a tax-free lump sum)
• not subject to National Insurance contributions, if the benefits paid are consistent with general benefit rules for benefit schemes
• subject to inheritance tax

Reform of the tax rules governing pensions has affected the relative attractions of unregistered pension arrangements, so you might want to consult a professional adviser before making a decision to invest.