Which of the following scenarios would cause an immediate taxable withdrawal from an employer pension scheme?

• A. The scheme buys quoted shares direct from an unconnected third party
• B. The scheme buys shares in a close company in which a member's spouse is already a shareholder
• C. The scheme invests in a life company geared property unit fund
• D. The scheme invests in bonds denominated in US currency

Answer: (B)

The key idea here is how investments inside an employer pension scheme can trigger tax consequences when they involve a connected party. If the scheme buys shares in a close company where a member’s spouse already holds shares, that creates a connected-party transaction. Pension rules typically prohibit or tightly restrict investments with connected parties because such arrangements can benefit the member in ways outside normal, arm’s-length investing. When a scheme makes a transaction with a connected party, any resulting proceeds or benefits are treated as an immediate taxable withdrawal to the member, hence the tax charge right away.

The other scenarios involve arms-length investments with unrelated parties or standard fund assets: quoted shares purchased from an unconnected third party are ordinary market investments; a geared property unit fund managed by a life company is a common investment option; and bonds denominated in US currency are simply currency-denominated assets. None of these automatically trigger the connected-party rule that would cause an immediate taxable withdrawal.