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3.7.3 Surpluses
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Similarly a surplus may arise, perhaps because of very good investment
performance, or numerous other factors. Because the Inland Revenue
are concerned that the tax advantages of pension funds should not
be abused, they require that the Trustees act to reduce any such
surplus if it exceeds 5% of scheme liabilities.
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There are a number of ways of doing this, including contribution
holidays for employer and/or employees, benefit improvements, or,
as a last resort, a return of monies to the employer.
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The Inland Revenue specify the assumptions to be used in calculating
any surplus, and must agree the proposals for its reduction. The
timetable is also controlled by the Inland Revenue.
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Where a refund is made to the employer, it is subject to tax at
the special rate of 40%, and the tax must be deducted and paid to
the Inland Revenue at the same time as the refund is made
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