Funded Unapproved Retirement Benefit Schemes (FURBS)

When the earnings cap was introduced in 1989, employers sought ways to continue to offer generous pension benefits to highly paid employees whose pensions would otherwise have been restricted. Hence two types of unapproved retirement benefit schemes are used, with less generous tax treatment. The main features of these schemes are:

• employer contributions count towards the employee’s taxable income, with no limit, and they also count as a business expense against the employer’s tax liability
• employee contributions are unlimited, but do not attract tax relief;
• there are no limits on benefits, which may be paid as tax free lump sums and or taxable income.

Unapproved retirement benefit schemes may be funded (FURBS) or unfunded (UURBS). In FURBS, there are contributions during the member’s working life, but not in UURBS. So UURBS work because the employer meets the cost of benefits to the employee, when they are payable, out of current income (pay as you go).

Pension schemes, which opt out of the new tax rules for pensions, will be treated as funded unapproved retirement benefit schemes (FURBS).