From 6 April 2006, legislation, introduced in the Finance Act 2004 as part of pension simplification, made changes to the taxation of retirement benefits that are provided by employer financed retirement benefit schemes (EFRBS). An arrangement under which an employer pays private medical insurance premiums for a former employee after they have retired qualifies as an EFRBS.
The changes ensure that both cash and non-cash retirement benefits paid from EFRBS to pensioners are taxable as employment income. Before 6 April 2006, it was possible to avoid paying tax on such retirement benefits by paying them solely in non-cash form.
A Regulatory Impact Assessment (“Regulatory Impact Assessment for Simplifying the taxation of pensions—Update”) was published on 22 March 2006. This sets out the Government's assessment of the impact of pension simplification and is available at www.hmrc.gov.uk/ria/ria-pensions-simplification.pdf. The Government estimate that pensions tax simplification will have an overall cost to the Exchequer building up to £250 million per year.