The long-delayed HMRC guidance on the meaning of retirement for the purposes of Revenue-approved share incentive plans has just been published. This is a change from the previous position, where plan rules had to contain a “specified age”, leaving at or after which would be retirement. The new guidance is short, but not particularly sweet.
For savings-related (SAYE) schemes and share incentive plans (SIPs), the guidance is confined to:
“There is no statutory definition of retirement, therefore the natural meaning of retirement is to apply. HMRC will not automatically apply meanings used for other tax purposes. For the purposes of a [SIP/SAYE scheme], companies should determine whether termination of employment constitutes retirement in accordance with their retirement policies and practices. This however should not be on a discretionary basis and neither should a cessation of employment be treated as retirement solely for the purpose of gaining tax advantages. HMRC will not give rulings and does not expect retirement to be defined in the Plan rules.”
In another section of guidance, relating to company share option plans (executive plans or CSOPs), there is a little more on the meaning of retirement, with some examples:
“As there is no legislative definition of the term ‘retirement’ the natural meaning applies and it is for the company to determine what falls within the definition. The type of circumstances where the requirement would be met for example would be where the employee leaves employment with the scheme employer and takes up their company pension accordingly. But it is recognised that some retirees will not immediately draw a pension and other indicators would include;
- leaving the employment and retiring in accordance with the scheme company’s own retirement policy
- leaving the employment and retiring with the agreement of the employer
- leaving the employment and drawing a state pension.
The requirement would not be met if the retirement is on the grounds of ill health and the payment of the pension is made purely as consolation for loss of health which results in premature termination of employment. The employee may still be a good leaver however on the grounds of injury and disability.”
So companies will need to consider carefully how they operate these share plans in the case of a participant who leaves in a situation that may be retirement. It may be best to amend the rules of these schemes in order to align them with the company’s policy and practice in these circumstances.