What is an unauthorised personal pension payment under section 601 of the Income Tax (Earnings and Pensions) Act 2003?

An unauthorised personal pension payment is any payment made from funds held for purposes of a personal pension scheme, to or for the benefit of the individual who made the arrangements, that is not authorised by the scheme rules. Such payments are treated as taxable pension income under United Kingdom law.

How are pension payments taxed when a personal pension scheme is approved under section 601?

When both the scheme and the individual's arrangements are approved at the time of payment, any payment not authorised by the scheme rules is taxable as pension income. If the scheme is operating normally but a payment exceeds what the rules permit, it falls within the tax charge under section 601.

What happens to pension payments when a scheme loses its approved status?

When a scheme or individual's arrangements lose approved status, payments are tested against the rules as they stood when last approved. If the payment would not have been authorised under those rules, it remains taxable as pension income. This prevents loss of approved status from allowing unauthorised payments to escape taxation.

Does section 601 apply to non-cash payments from personal pension schemes?

Yes. The definition of payment under section 601 is broad and includes non-cash payments. Benefits in kind received from a personal pension scheme, such as transfers of assets rather than cash sums, can be caught by these provisions and taxed as pension income under United Kingdom law.

Income Tax (Earnings and Pensions) Act 2003 section 601

Unauthorised personal pension payments

Section 601 identifies when payments from personal pension schemes or arrangements are treated as taxable pension income because they are unauthorised.

A personal pension payment is any payment made out of funds held for the purposes of a personal pension scheme, made to or for the benefit of the individual who made the arrangements
If the scheme and the individual's arrangements are approved at the time of payment, any payment not authorised by the scheme rules is taxable as pension income
If the scheme or arrangements are not approved at the time of payment, the payment is taxable if it would not have been authorised under the rules as they stood when the scheme or arrangements were last approved
The term "payment" includes non-cash payments, so benefits in kind received from a personal pension scheme can also be caught by these rules

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