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Occupational Pension Schemes

Volume 114: debated on Tuesday 7 April 1987

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asked the Chancellor of the Exchequer what tax treatment will be given, in the light of the proposal that pension rights accruing under the new free-standing additional voluntary contributions shall not be commutable into a tax-free lump sum, to existing additional voluntary contributions paid under an employer's occupational pension scheme.

Tax relief is given for additional voluntary contributions (AVCs) to a pension scheme in order to assist members to top up their expected pension benefits and thereby provide themselves with an improved level of income in retirement.This is why my right hon. Friend proposed in his Budget that benefits derived from the new "free-standing" AVCs, which will start next October, should not be commutable into a tax-free lump sum.Where AVCs are paid under existing arrangements within an employer's occupational scheme, part — in many cases all—of the benefit is at present normally commuted. In order that such in-scheme AVCs should not enjoy an unfair competitive advantage over "freestanding" AVCs, we shall be bringing forward proposals under which the benefits of new AVCs will not be capable of commutation.This provision will not apply, however, to AVCs paid (i) to an occupational scheme which provides lump sum and pension benefits in fixed proportions, thereby making it impossible for the whole AVC benefit to be taken as a lump sum or (ii) to an existing scheme by a member who is paying, or has in the past paid, AVCs to that scheme in respect of current service.