The Retirement Benefits Schemes (Indexation of Earnings Cap) Order 1991

Explanatory Note

(This note is not part of the Order)

Section 59OC(1) of the Income and Corporation Taxes Act 1988 (“the Act”) provides that in arriving at an employee’s final remuneration for the purposes of section 590(3)(a) or (d) of the Act (conditions for approval of retirement benefit schemes), any excess over the permitted maximum figure (“the earnings cap”) for the year of assessment in which the employee’s participation in the scheme ceases shall be disregarded. Section 59OC(3) fixed the earnings cap for the years of assessment 1988-89 and 1989-90 at £60,000.

By virtue of section 59OC(4) and (5), for any subsequent year of assessment the earnings cap is increased in accordance with the percentage increase in the retail prices index for the December preceding that year of assessment over that for the previous December, rounded up to the nearest amount which is a multiple of £600. This resulted in the earnings cap being increased to £64,800 for the year of assessment 1990-91.

The “retail prices index” is defined in section 833(2) of the Act, as amended by paragraph 5 of Schedule 2 to the Transfer of Functions (Economic Statistics) Order 1989 (S.I. 1989/992), as the “general index of retail prices (for all items) published by the Central Statistical Office of the Chancellor of the Exchequer”. The retail prices index for the month of December 1989 is 118.8 and for December 1990 is 129.9 (based on January 1987 as 100) (Table 6.1 on page S. 58 of the February 1991 number of the Employment Gazette, the official journal of the Department of Employment.)

Section 59OC(6) of the Act provides that the Treasury shall in the year of assessment 1989-90, and in each subsequent year of assessment, make an order by statutory instrument, specifying the earnings cap for the following year of assessment.

The earnings cap for the year of assessment 1991-92 specified by this Order is £71,400.

This figure is also the figure found as the permitted maximum or allowable maximum for 1991-92 for the purposes of the following sections of the Act:

• section 590B (maximum remuneration for the purposes of calculating the aggregate amount of pension and commuted pension in cases of associated employments and connected schemes);

• section 592 (maximum remuneration for the purposes of calculating amount deductible in respect of employee contributions to exempt approved schemes);

• section 594 (maximum remuneration for the purposes of calculating amount deductible in respect of a person’s contributions paid under relevant statutory schemes);

• section 599 (maximum final remuneration for the purposes of calculating amount of excess of commuted entire pension on which tax chargeable);

• section 640A (maximum net relevant earnings for the purposes of deductions from contributions under approved personal pension arrangements);

• section 646A (maximum net relevant earnings for such purposes in cases of associated employments);

and for the purposes of paragraph 20 and by paragraph 22 for the purposes of paragraph 21 of Schedule 6 to the Finance Act 1989 (rules of retirement benefit schemes approved before 27th July 1989).