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Revenue shuts stakeholder overfunding loophole

The Government is closing a potential loophole in its stakeholder

legislation which would have allowed controlling directors in occupational

pension schemes to escape overfunding checks.

The loophole arose because stakeholder legislation allowed occupational

schemes such as executive pension plans and small self-administered schemes

to be transferred to the new defined- contribution tax regime governing

stakeholder.

As part of the new regime, trustees of occupational schemes could apply

for approval to convert their existing scheme to a personal pension or

stakeholder from October, ahead of fully converting the scheme in April

2001.

Once the scheme had been registered, industry experts feared that, in the

interim between registration for approval and transfer to the new regime,

many controlling directors would have seized the opportunity to pay in

thousands of pounds for past service, exceeding the maximum funding

requirements governing occupational schemes.

Having gained approval to convert, the scheme would no longer have been

subject to the overfunding checks on occupational schemes designed to

prevent controll ing directors abusing the tax breaks available on

pensions.

But the Revenue has now reserved the right to place further conditions to

prevent abuse of the system.

Technical Connection pensions consultant John Page says: “The Revenue is

making sure people cannot take advantage of the process.”

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