Employer-Financed Retirement Benefit Schemes

EFRBS are commonly being used to help the SME marketplace to dramatically reduce Corporation Tax and enable the directors and key personnel to mitigate their personal and income tax instead of using their small salary and dividend route.

What is an EFRBS?

An EFRBS or Employer Financed Retirement Benefit Schemes is a pension scheme that is unregistered. They replaced the FURBS (Funded Unapproved Retirement Benefit Scheme) and UURBS (Un-funded Unapproved Retirement Benefit Scheme) on A-Day 6 April 2006.

Unapproved pension schemes were introduced to allow employers to compensate employees who were subject to the earnings cap in their approved occupational pension scheme or employees wish to pay into a pension while working overseas and non UK tax payers. Since A-Day the distinction between approved and unapproved pension schemes has been replaced with a distinction between registered and unregistered schemes. Unregistered schemes, (EFRBS) will not be subject to the pensions taxation regime that registered schemes have. Therefore contribution to an EFRBS is not subject to the Annual Allowance Charge and benefits from an EFRBS are not to be tested against the Lifetime Allowance. They also have greater investment scope and are able to invest in buy to lets and do not have limitations that a registered pension scheme has.

The tax regime applicable to EFRBS is as follows:

Employer payments are not taxable or liable to National Insurance contributions.

The employer will not normally get any tax relief on contributions until retirement benefits start to be paid and taxed on the employee. 

No National Insurance Contributions charge will be levied on any benefits paid provided these are within the limit of benefits that could be paid from a registered pension scheme.

Benefits from an EFRBS are only excluded from a tax charge if they are:

(a) benefits in respect of ill-health or disablement of an employee during service
(b) benefits in respect of the death by accident of an employee during service
(c) benefits in respect of an employee's non-accidental death in service and payment of which is already provided for under the rules of the scheme on 6 April 2006
(d) benefits under a group life policy or certain prescribed individual life policies.