Introduction Background Note
5.The Financial Services Compensation Scheme (FSCS) is an independent body established by Part 15 of the Financial Services and Markets Act 2000. It is the UK's statutory fund of last resort for customers of authorised financial services firms, including insurers, banks, building societies and investment firms.
6.The FSCS protect policyholders of insurance companies authorised by the Financial Services Authority that are unable, or likely to be unable, to meet claims made against them.
7.Insurance companies can make pension provision which benefits from tax privileges in return for providing members with an income in retirement. Such pension provision can be registered as a registered pension scheme. They can also provide pensions in the form of annuities and transfer tax-relieved pension savings to other registered pension schemes. In doing so they must abide by the pensions tax rules or there will be tax charges that recoup the tax relief.
8.Individuals who have tax-relieved pension savings with an insurance company that gets into financial difficulties and becomes subject to an intervention by the FSCS may find that unexpected tax consequences arise from that intervention. In particular, tax is chargeable if a pension is reduced; the FSCS rules generally only allow 90 per cent of a pension to be paid by way of compensation.
9.Also, as the FSCS is not a registered pension scheme, it will not benefit from the same tax exemptions available to a registered pension scheme.
10.The section would provide the power to make regulations adapting the tax treatment applicable where the FSCS intervenes.