What are FURBS?

In this series of articles, we examine common financial assets with which family lawyers may wish to familiarise themselves.

A lawyer’s view of FURBS and EFRBS

Mena Ruparel MCIArb family solicitor and arbitrator, says that it is not always immediately obvious that a FURB is a pension because of its unusual trust features. For this reason, clients and solicitors are misled into thinking that it is a type of investment held in trust which can be sold in the same way as shares, rather than be subject to pension orders.

The fact that they are pensions with complicating features means that the lawyer should get specialist regulated advice from a financial planner with experience of FURBS/EFURBS. In these cases, it is likely that the early assistance of a specialist financial planner and possibly a Pension on Divorce Expert (PODE) will be needed to help the parties reach a fair settlement.

What are FURBS (Fund Unapproved Retirement Benefit Schemes) & EFRBS (Employer-Financed Retirement Benefit Schemes)?

FURBS and EFRBS are trusts used for saving for retirement with fewer restrictions than approved pension schemes. Until their replacement by EFRBS in 2006, FURBS were retirement benefit schemes set up by employers for senior staff members whose remuneration packages exceeded the approved scheme limits. They were used when those individuals wanted to continue to make pension provision over the earnings cap.

Although the schemes did not have the same tax relief as approved pension schemes, FURBS were generally free of inheritance tax.

Since 2006 no new FURBS have been created, although older ones still exist and sometimes surface during financial remedy. The fact that they appear infrequently is good news, but they will require specialist financial input.

Whilst EFRBS are taxed differently to FURBS (they are taxed in line with general trust rates), their purpose in providing a pension based on the trust rules remains the same.

A RBC Brewin Dolphin financial planner comments:

FURBS and EFBRS usually do not require the involvement of an actuary as the value is often straightforward. However, as the rules can be complex, they are often more difficult to deal with than defined benefit pensions and expert financial planning advice is recommended.

FURBS and EFRBS are rare pensions and when a lawyer receives disclosure from the client, they might not appreciate that it is a pension. The lawyer will need a copy of the trust deeds to ascertain whether it is a FURBS pension or a standard trust.

FURBS and EFRBS can be subject to Pension Sharing Orders, even though the trust documents may make no provision for pension sharing or pension attachment orders. This might be because the trust documents were drafted before the introduction of pension attachment orders in 1996 and the introduction of pension sharing in December 2000.

Whilst trustees can be professionally appointed, more often they are inexperienced family members (for instance acting on behalf of small family companies), and may be unfamiliar with the process of pension sharing. An added factor to consider with family appointed trustees during a financial settlement is their possible partisanship. Implementing a pension sharing order might not be a straightforward process.

Whilst FURBS and EFRBS can be shared, as explained, it is not practical to transfer a portion prior to retirement, and usually the benefits are taken as a tax-free lump sum on retirement. Alternatives to pension sharing should be explored with a financial planner and it is possible that a PODE can assist with offsetting calculations.

Key considerations for lawyers

• Identify the FURBs as a pension and treat it as a complex pension from an early stage.
• Obtain the trust deed as soon as possible.
• Take advice from a specialist financial planner with experience in dealing with FURBS/EFURBS on divorce.
• Remember that although Pension Sharing Orders can be obtained in respect of these schemes, it might not be the best option for the non-member spouse.

This article should not be misconstrued as advice.

If you wish to discuss any of the contents or if you need further information, please contact hannah.rockey@brewin.co.uk.

*RBC Brewin Dolphin’s internal training and accreditation programme ensures our specialist wealth managers understand the legal considerations of a relationship breakdown and they can add best value to family lawyers and their clients before, during and after financial settlement.

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Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct at the time of writing, RBC Brewin Dolphin is not a tax adviser and tax law is subject to frequent change. Tax treatment depends on your individual circumstances; therefore you should not rely on this information without seeking professional advice from a qualified tax adviser.

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