Employer financed retirement benefit schemes (EFRBS)

What is an EFRBS?Employer-Financed Retirement Benefits Schemes (EFRBS) are unapproved pension schemes that provide retirement benefits to employees but do not offer the same tax advantages as conventional occupational pension schemes.

These schemes involve the establishment of a discretionary trust by an employer company, which transfers funds into the trust for the benefit of employees and their families.

The trustees of the EFRBS then manage the funds and distribute them through sub-trusts to provide retirement benefits.

EFRBS have faced scrutiny from tax authorities due to their potential for tax avoidance, and various tax implications and consequences apply to these schemes, including income tax charges, the loan charge, inheritance tax considerations, and reporting requirements.

While EFRBS have been used for tax planning purposes in the past, changes in legislation and increased HMRC scrutiny have made them less popular in recent years.

What is an EFRBS?

An Employer-Financed Retirement Benefits Scheme (EFRBS) is a type of pension scheme that offers retirement benefits to employees. It provides a means for employers to financially support their employees both during their working years and after retirement.

EFRBS facilitates payments in anticipation of, or upon, retirement, ensuring a steady income stream for employees in their golden years. It also includes provisions for payments after retirement, acknowledging an employee’s past service and dedication.

In the unfortunate event of an employee’s death, EFRBS can provide payments to support their beneficiaries. Furthermore, EFRBS covers payments related to any changes in an employee’s role, providing flexibility in compensating employees based on the nature of their services.

An EFRBS is a versatile scheme that offers various financial benefits to employees or former employees.

The scheme covers the following scenarios:

  • Retirement or Death: EFRBS provides a lump sum, gratuity, or other benefits upon an employee’s retirement or in the event of their death.
  • After Retirement or Death: Benefits can be offered to individuals after their retirement or death, linked to their past service.
  • Change in Service: EFRBS accommodates benefits related to any changes in the nature of an employee’s service.
  • Pension Sharing: The scheme also includes provisions for distributing benefits through pension sharing orders or provisions.

Overall, EFRBS serves as a comprehensive and flexible pension scheme that offers financial security and peace of mind to both employees and employers.

What is the benefit of an EFRB?

The benefits of an Employer-Financed Retirement Benefits Scheme (EFRBS) are numerous and can provide advantages for both employers and employees.

Firstly, an EFRBS offers a flexible and customizable retirement benefits solution. It allows employers to tailor the scheme to meet the specific needs and preferences of their workforce. This flexibility enables employees to have more control over their retirement planning, ensuring that their financial goals are met effectively.

Secondly, EFRBS can help in attracting and retaining talented employees. By offering a robust retirement benefits package, employers can enhance their overall employee value proposition, making them more competitive in the job market. This, in turn, can lead to higher employee satisfaction and loyalty, ultimately benefiting the employer by reducing turnover and attracting top talent.

Overall, the benefits of an EFRBS include:

  • Customisable retirement benefits tailored to individual employee needs
  • Enhanced control and flexibility over retirement planning
  • Attracting and retaining talented employees
  • Increased employee satisfaction and loyalty

By offering a comprehensive retirement benefits package through an EFRBS, employers can support their employees’ financial well-being and ensure a secure retirement future.

Who can benefit from an EFRB?

An Employer-Financed Retirement Benefits Scheme (EFRBS) can benefit various individuals and groups, depending on their specific circumstances and financial goals.

Firstly, employees who prioritise a secure and well-planned retirement can benefit from an EFRBS. By participating in the scheme, they gain access to a reliable and structured retirement benefits package that helps them build a substantial nest egg for their post-employment years. EFRBS provides a means to accumulate funds and ensure financial stability during retirement.

Secondly, employers seeking to enhance their employee benefits offerings and attract top talent can benefit from implementing an EFRBS. By providing a robust retirement benefits scheme, employers can demonstrate their commitment to employee well-being and improve their overall value proposition. This can help attract and retain high-performing employees, contributing to the organization’s success.

Some key beneficiaries of an EFRBS include:

  • Employees aiming for a secure and well-planned retirement
  • Employers looking to enhance their employee benefits package
  • Individuals seeking greater control and flexibility in retirement planning
  • Those interested in customizing their retirement benefits to align with their unique needs and goals

By considering the specific needs and goals of employees and employers alike, an EFRBS can provide valuable retirement benefits and contribute to long-term financial security.

What are the costs of an EFRB?

Employer-Financed Retirement Benefits Schemes (EFRBS) can involve various costs that should be carefully considered. These costs can impact both the employer and the employee participating in the scheme. Some of the common costs associated with EFRBS include:

  1. Setup Costs: EFRBS often incur significant setup costs, including arrangement fees, legal fees, and administrative expenses. These costs are incurred during the establishment of the scheme and can vary depending on the complexity of the EFRBS structure and the services provided by trustees or advisors.
  2. Ongoing Management Fees: EFRBS require ongoing management and administration to ensure compliance, investment management, and benefit distribution. Trustees and service providers may charge annual management fees, which can vary based on the complexity and size of the EFRBS.
  3. Reporting and Compliance Costs: EFRBS must adhere to regulatory requirements and reporting obligations. This includes registering the scheme with HM Revenue and Customs (HMRC) and potentially complying with reporting obligations under the Trust Registration Service. Fulfilling these requirements may involve additional administrative costs.
  4. Beneficiary Costs: From an employee’s perspective, there can be costs associated with participating in an EFRBS. For example, an employee may incur annual tax charges on beneficial loan interest if loans from the scheme are interest-free. Additionally, the employer may be liable for Class 1A Employer’s National Insurance contributions on certain payments made through the EFRBS.

It is crucial to carefully evaluate the costs associated with an EFRBS before implementing the scheme. Employers and employees should consider the financial implications, ongoing expenses, and administrative burdens involved to make an informed decision that aligns with their goals and resources

EFRBS structure targeted by HMRC

The government has classified Employer-Financed Retirement Benefits Schemes (EFRBS) as disguised remuneration schemes, with the Finance (No 2) Bill 2017 introducing measures to address tax avoidance within such schemes. These measures included the implementation of the 2019 loan charge, which required HMRC to review loans issued as far back as 1999 and request repayment or arrange for the appropriate levels of Pay As You Earn (PAYE) and National Insurance Contributions (NICs) to be collected.

Individuals who had utilized or were still using these schemes were given a three-year period from the 2016 Budget to repay outstanding loans or reach a settlement agreement with HMRC. While settlement agreements did not necessarily affect the amount of unpaid tax owed, they provided individuals with the option to clear the debt through a payment plan over several years.

The settlement opportunity period concluded on April 5th, 2019, and the 2019 loan charge subsequently took effect. Any outstanding loans of this nature or loans not covered by an existing settlement agreement are treated as taxable income for the 2018/19 tax year. The associated tax must be paid by the end of January 2020. These measures were implemented to address tax avoidance issues within EFRBS and similar schemes.


In conclusion, Employer-Financed Retirement Benefits Schemes (EFRBS) offer a flexible and customizable approach to retirement benefits for both employers and employees. While they provide the potential for tailored financial solutions and enhanced employee value propositions, it is crucial to carefully consider the associated costs, regulatory implications, and potential tax implications such as disguised remuneration.

Employers and employees should evaluate their specific needs, consult with tax and legal professionals, and ensure compliance with reporting obligations and regulations.

If you are currently operating an EFRBS and facing questions from HMRC regarding reporting obligations, it is advisable to seek professional advice promptly to navigate the situation effectively.

By proactively addressing any concerns and engaging with the appropriate authorities, you can work towards a resolution that ensures compliance and mitigates any potential penalties.

Steve Jones Profile
Insolvency & Restructuring Expert at Business Insolvency Helpline

With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.