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23.0 Introduction

This section features the tax regime brought in by the Finance Act 2004: there is no limit on the amount of pension savings an individual can build up in a registered pension scheme, but two key controls (the Annual Allowance – see 23.2.9 – and the Lifetime Allowance – see 23.3.13) influence tax-efficient savings.

Finance Act 2004

At 6 April 2006, limits on benefits and contributions that previously applied to exempt approved pension schemes were replaced by members’ Annual [see 1.23 and 23.2.9] and Lifetime Allowances [see 23.3.13].

Summary of the main detail


An Annual Allowance (the maximum level of annual tax-privileged savings for contributions and benefits) started at £215,000 in April 2006, rising to £255,000 then falling to £40,000 from 6 April 2015 [see 23.2.9] (though a lower limit may apply to members in receipt of pension)


a Lifetime Allowance (the capital value of the maximum level of lifetime tax-privileged saving) started at £1.5 million in April 2006, rising to £1.8 million then falling to £1 million in 2015/2016


every £1 of pension accrual is valued at £10, regardless of age and gender, when testing increased defined benefits against the Annual Allowance  


every £1 of pension is valued at £20 when testing defined benefits (including any contracted-out benefits) and money purchase funds against the Lifetime Allowance; £1 p.a. pension in payment is valued at £25


funds in excess of the Lifetime Allowance may be taken as a lump sum, subject to a higher recovery charge of 55% (25% if taken as pension), and


when introducing these changes in 2006, the government facilitated the longer-term preservation of pre-April 2006 limits [see 23.3.1] including the continuation of a notional earnings cap [see 23.3.5].

An outline guidance manual called the Pensions Tax Manual (which replaced the Registered Pension Schemes Manual in April 2015) is available (from to help answer questions arising under the Finance Act 2004 on matters that became effective after 2006.

The Scheme Administrator: the person responsible to HMRC

The Administrator of the scheme (not to be confused with the person who handles day-to-day administrative duties) is responsible for the scheme to HM Revenue & Customs (HMRC). Legislation sets out the legal duties of the Administrator.

Normally the scheme rules state that the Administrator is the trustee(s) of the scheme (alternatively, it could be the employer or another person). Basically, the Administrator has to ensure that the scheme runs properly, that appropriate accounts and records are kept, that taxes due are paid and statutory returns are completed.

Tax relief can be jeopardised through unwitting maladministration. Examples of errors causing trouble include:


failing to observe Lifetime and Annual Allowance limits


failing to collect taxes due to HMRC


paying benefits to persons not beneficiaries of the trust as specified under the rules of the scheme.

Under the Finance Act 2004 and effective 6 April 2006, the term ‘exempt approved schemes’ ceased to apply and the conditions for obtaining and maintaining tax exemptions became applicable to ‘registered pension schemes’.

In September 2014, HMRC confirmed that it may refuse to continue to register a scheme where the Administrator of the scheme proved it was unfit to carry out the role of Administrator.

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