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2.2.9 Income and Corporation Taxes Act 1988 (ICTA 88)

  • Legislation for retirement annuities and personal pensions is now encompassed in this Act:-

    1. Retirement Annuity - sections 618-629.
    2. Personal Pensions - sections 630-655.

  • Finance Act 1986 introduced regulations relating to pension scheme surpluses which came into force on 7th April 1987. These are now contained in sections 601-2 of ICTA 88.

  • If, when using the prescribed Government valuation basis, a pension scheme's assets exceed its liabilities by more than 5%, the surplus will have to be reduced to less than 5%. This can be done by one or a combination of the following:-


    1. Increasing benefits.
    2. Reducing/suspending employee and/or employer contributions for up to 5 years.
    3. Refunding sums to the employer to reduce the asset value to exactly 105% of liabilities. (Subject to tax at 40%).

  • Two types of scheme are exempt from the surplus rules:-


    1. Those with less than 12 members.
    2. Certain 'insured' schemes which provide that funding levels take account of surpluses

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