Inland Revenue Comments
It would appear that at the time the ROPS Trustees may have been under the misapprehension that when a "surplus" arises the they had to "use it or loose it" to the Inland Revenue.
Our Secretary sought the views of the IR on this point:
Question from Bernard Potter:
In relation to pension fund surpluses, can the Inland Revenue give confirmation that the basis for calculating the 105% is vastly more prudent than normal actuarial valuation? In the Royal Ordnance Scheme, we have anecdotal evidence that the Trustees were told by the Company that the scheme surplus had to be used, or lost, to the 'taxman'. Even though our scheme surplus was in the order of 120%, I believe it did not offend the Inland Revenue basis at 105%
Response from the Inland Revenue:
1. From a Revenue perspective, when considering funding of a pension scheme(s) not too much weight is given to scheme funding results disclosed in company accounts (FRSI7 and formerly SAPP24) or by actuarial bases other than described by ICTA 1988 - The Pension Scheme Surpluses (Valuation) Regulations 1987 (Sl.1987 No.412) (as amended).
2. Generally, in respect of large self administered schemes (LSAS) the scheme administrator is required to commission an Actuarial Valuation Report once every 3.5 years and submit it to APSS (formerly PSO) within a prescribed time-scale. In reality however, generally, AVR's are produced and submitted every 3 years.
3. An AVR is in effect a number of different valuations. For example, actuary's own funding basis, MFR, discontinuance and the Revenue prescribed basis. The different valuations are done for different reasons using different assumptions and are entirely disparate. So while the actuary's own valuation may disclose a surplus it is quite possible that the prescribed one will not. So the point made by Bernard Potter is correct regarding the prescribed and actuary's own basis.
4. However, what is not clear is the comment "lost to the taxman". Assuming the scheme in question is 120% funded on the actuary's own basis but within 105% on the Revenue prescribed basis, as far as the Revenue is concerned there is no requirement for the Trustees to take any action to reduce the surplus. Further contributions could be made provided they are justified.
5. It is suggested that if the Trustees are still concerned, they should seek advice from the scheme actuary who should be able to explain the position and allay any concerns the Trustees may have.
6. If further advice or explanation is required, application should be made direct to
Inland Revenue
Revenue Policy RP CS SPSS Nottingham
P0 Box 62
Castle Meadow Road
Nottingham
NG2 IBG