Taxation of Pensions Bill (HC Bill 97)

(ii) do not to any extent represent rights attributable to
a disqualifying pension credit, and

(g) none of sub-paragraphs (3) to (5) applies to the member.

(2) But if a lump sum falling within sub-paragraph (1)—

(a) 5is paid when the member has not reached the age of 75,
and

(b) exceeds the member’s available lifetime allowance,

the excess is not an uncrystallised funds pension lump sum.

(3) This sub-paragraph applies to the member if—

(a) 10paragraph 12 of Schedule 36 applies to the member
(enhanced protection from 6 April 2006) immediately
before the sum is paid, and

(b) the lump sum condition (see paragraphs 24(2) and (3), 25
and 26 of Schedule 36) is met in relation to the member.

(4) 15This sub-paragraph applies to the member if—

(a) paragraph 7 of Schedule 36 makes provision for the
operation of a lifetime allowance enhancement factor in
relation to the member immediately before the sum is
paid, and

(b) 20the lump sum condition (see paragraphs 24(2) and (3), 25
and 26 of Schedule 36) is met in relation to the member.

(5) This sub-paragraph applies to the member if—

(a) any of the provisions listed in sub-paragraph (6) makes
provision for the operation of a lifetime allowance
25enhancement factor in relation to the member immediately
before the sum is paid, and

(b) immediately before the sum is paid, the available portion
of the member’s lump sum allowance for the purposes of
paragraph 2 of Schedule 29 is nil or less than 25% of the
30sum.

(6) The listed provisions are—

• (a)

  paragraph 7 of Schedule 36 (primary protection);

  (b)

  section 220 (pension credits from previously
  crystallised rights);

  (c)

  35section 221 (non-residence arrangements);

  (d)

  section 224 (transfers from recognised overseas
  pensions schemes);

  (e)

  paragraph 18 of Schedule 36 (pre-commencement
  pension credits).

(7) 40In paragraph (1)(f) “disqualifying pension credit” is to be read in
accordance with paragraph 2(3) and (4).”

58 In paragraph 12(2)(b) of Schedule 29 (conditions for treating the whole of the
lump sum as paid when all or part of the member’s lifetime allowance is
available) after “4(1),” insert “4A(1),”.

59 45In paragraph 12(4) of Schedule 29 (exceptions to treating the whole of the
lump sum as paid when all or part of the member’s lifetime allowance is

available) before the “and” at the end of paragraph (a) insert—

“(aa) in the case of a lump sum that would satisfy all the
requirements of paragraph 4A(1) and is paid when the
member has not reached the age of 75, to so much of it as
5would be prevented from being an uncrystallised funds
pension lump sum by paragraph 4A(2),”.

60 In paragraph 12(5) of Schedule 29 (when an excess can be an authorised
lump sum) after “1(2),” insert “4A(2),”.

61 In paragraph 15 of Schedule 32 (benefit crystallisation event 6: meaning of
10“relevant lump sum”) before the “or” at the end of paragraph (b) insert—

“(ba) an uncrystallised funds pension lump sum,”.

Related amendments in Part 9 of ITEPA 2003

62 (1) Section 636A of ITEPA 2003 (taxation of pension lump sums) is amended as
follows.

(2) 15After subsection (1) insert—

“(1A) In the case of an uncrystallised funds pension lump sum paid under
a registered pension scheme when the member has not reached the
age of 75—

(a) no liability to income tax arises on 25% of the sum, and

(b) 20section 579A applies in relation to the other 75% of the sum
as it applies to any pension under a registered pension
scheme.

(1B) In the case of an uncrystallised funds pension lump sum paid under
a registered pension scheme when the member has reached the age
25of 75—

(a) if the member’s available lifetime allowance when the sum is
paid is equal to or greater than the sum—

(i) no liability to income tax arises on 25% of the sum,
and

(ii) 30section 579A applies in relation to the other 75% of the
sum as it applies to any pension under a registered
pension scheme, and

(b) if the member’s available lifetime allowance when the sum is
paid is less than the sum—

(i) 35no liability to income tax arises on the part of the sum
that is equal to 25% of the member’s available lifetime
allowance when the sum is paid, and

(ii) section 579A applies in relation to the rest of the sum
as it applies in relation to any pension under a
40registered pension scheme.

(1C) For the purposes of subsection (1B), the amount of the member’s
available lifetime allowance when the sum is paid is what it is for the
purposes of Part 4 of FA 2004 (see section 219 of FA 2004), but
adjusted in accordance with the rules in paragraphs (a) and (b) of
45paragraph 12(1A) of Schedule 29 to FA 2004.”

(3) In subsection (2) (subsection (1) does not limit operation of lifetime
allowance charge) for “subsection (1) does” substitute “subsections (1) to
(1B) do”.

(4) In subsection (6) (definitions) after ““serious ill health lump sum”,” insert—

• 5““uncrystallised funds pension lump sum”,”.

Part 4 Annual allowances

Basic structure of the annual allowance charge

63 (1) Section 227 of FA 2004 (pensions under registered pension schemes: annual
10allowance charge) is amended as follows.

(2) In subsection (1) (imposition of the charge) for the words from “where” to
the end substitute “where an individual who is a member of one or more
registered pension schemes has a chargeable amount for a tax year.”

(3) After subsection (1) insert—

“(1A) 15The chargeable amount (if any) is to be determined in accordance
with section 227ZA.”

(4) In subsection (4) (basic calculation of charge) for the words in the first
sentence after “in respect of” substitute “the chargeable amount.”

(5) In subsection (4A) (the appropriate rate) for “excess” (in each place)
20substitute “chargeable amount”.

(6) In subsection (5) (excess is not income) for “That excess” substitute “The
chargeable amount”.

(7) In subsection (6) (further provision)—

(a) before the entry for section 228 insert—

• 25“sections 227ZA and 227B (chargeable amount),

• sections 227C to 227G (supplemental provision for
  calculations under section 227B),”,

(b) in the entry for section 229, for “229” substitute “229(1)”, and

(c) after that entry insert—

• 30“section 229(2) to (4) (how to arrive at the pension input
  amount in respect of an arrangement),”.

(8) The amendments made by this paragraph have effect for the tax year 2015-16
and subsequent tax years.

64 (1) In FA 2004 after section 227 insert—

“227ZA 35 The chargeable amount

(1) The chargeable amount is the alternative chargeable amount (see
section 227B) if—

(a) the year is—

(i) the tax year in which the individual first flexibly
40accesses pension rights (see section 227G), or

(ii) a tax year later than that tax year,

(b) the money-purchase input sub-total (see section 227C)
exceeds £10,000, and

(c) the alternative chargeable amount exceeds the default
chargeable amount.

(2) 5Otherwise, the chargeable amount is the default chargeable amount.

(3) The default chargeable amount is the amount (if any) by which—

(a) the total pension input amount calculated in accordance with
section 229(1), exceeds

(b) the annual allowance for the year in the case of the individual
10(see sections 228(1) and 228A).”

(2) The amendment made by this paragraph has effect for the tax year 2015-16
and subsequent tax years.

Annual allowance charge where rights have been flexibly accessed

65 (1) In FA 2004 before section 228 insert—

“227B 15 The alternative chargeable amount

(1) The alternative chargeable amount is the total of—

(a) the amount (if any) by which the defined-benefit input sub-
total exceeds the alternative annual allowance, and

(b) the amount by which the money-purchase input sub-total
20exceeds £10,000.

(2) The alternative annual allowance is—

(3) 25The defined-benefit input sub-total is the total of—

(a) the pension input amounts in respect of each defined benefits
arrangement relating to the individual under a registered
pension scheme of which the individual is a member (see
section 229(2)(c)),

(b) 30the pension input amounts in respect of each hybrid
arrangement—

(i) relating to the individual under a registered pension
scheme of which the individual is a member, and

(ii) in respect of which the pension input amount is input
35amount C mentioned in section 237, and

(c) any amounts required to be included by section 227E(3) or
227F(4) or (6) (pension input periods that end in the year but
before the day on which rights are first flexibly accessed or
that end in the year and contain that day).

(4) 40Subsection (3)(b) is subject to section 227D (pension input amounts
for certain hybrid arrangements).

(5) If, in the case of a hybrid arrangement, input amount C mentioned in
section 237—

(a) is a relevant input amount for the purposes of section 237,
45and

(b) is equal to—

(i) input amount A or B mentioned in section 237 if that
is the only other relevant input amount for the
purposes of section 237, or

(ii) 5the greater of input amounts A and B mentioned in
section 237 if both are relevant input amounts for the
purposes of section 237,

the pension input amount in respect of the arrangement is, for the
purposes of subsection (3)(b) and sections 227C(1)(b) and 227D(1)(c),
10treated as being input amount A or B or, as the case may be, the
greater of input amounts A and B (and, in either case, not input
amount C).

227C Meaning of “money-purchase input sub-total”

(1) The money-purchase input sub-total is the total of—

(a) 15the pension input amounts in respect of each money
purchase arrangement relating to the individual under a
registered pension scheme of which the individual is a
member (see section 229(2)(a) and (b)), and

(b) the pension input amounts in respect of each hybrid
20arrangement—

(i) relating to the individual under a registered pension
scheme of which the individual is a member, and

(ii) in respect of which the pension input amount is input
amount A or B mentioned in section 237.

(2) 25Subsection (1) is to be read with—

(a) section 227E(2) (pension input periods that end in the tax
year but before the day on which rights are first flexibly
accessed), and

(b) section 227F(2), (3) and (5) (pension input periods that end in
30the tax year and contain that day).

(3) Subsection (1)(b) is to be read with—

(a) section 227B(5) (hybrid arrangements where input amount C
is highest-equal input amount), and

(b) section 227D (pension input amounts for certain hybrid
35arrangements).

227D Pension input amounts in respect of certain hybrid arrangements

(1) In this section “relevant hybrid arrangement” means a hybrid
arrangement—

(a) relating to the individual under a registered pension scheme
40of which the individual is a member,

(b) made on or after 14 October 2014 or having become a hybrid
arrangement (whether or not for the first time) on or after
that day, and

(c) in respect of which the pension input amount is input
45amount C mentioned in section 237.

(2) As respects each relevant hybrid arrangement in the maximising set
of relevant hybrid arrangements—

(a) the pension input amount in respect of the arrangement is for
the purposes of sections 227B(3)(b) and 227C(1)(b) treated as
being not input amount C mentioned in section 237 but,
instead, the greater of such of input amounts A and B
5mentioned in section 237 as are, for the purposes of section
237, relevant input amounts in the case of the arrangement,
and

(b) accordingly, the arrangement—

(i) is not to be included among the arrangements
10mentioned in section 227B(3)(b) whose pension input
amounts are totalled under section 227B(3), but

(ii) is to be included among the arrangements mentioned
in section 227C(1)(b) whose pension input amounts
are totalled under section 227C(1).

(3) 15For the purposes of subsection (2)—

(a) the maximising set contains no relevant hybrid
arrangements,

(b) a particular relevant hybrid arrangement makes up that set,
or

(c) 20two or more particular relevant hybrid arrangements make
up that set,

if the alternative chargeable amount with the maximising set so
made up is not less than it would be with the maximising set made
up in any other way.

(4) 25In particular, the maximising set may be identified by taking the
following steps—

Step 1

Identify all of the relevant hybrid arrangements.

Step 2

30Identify all of the different combinations of the arrangements
identified at Step 1 (including the combination consisting of all of
those arrangements, and the combination consisting of none of them,
as well as every possible combination of each possible size in
between).

35Step 3

For each combination identified at Step 2 calculate what the money-
purchase input sub-total would be if each relevant hybrid
arrangement in the combination were treated in accordance with the
rules in paragraphs (a) and (b) of subsection (2).

40Step 4

If the result of each calculation at Step 3 is less than or equal to
£10,000 the chargeable amount is the default chargeable amount.

Step 5

If the amount calculated at Step 3 for a combination is greater than
45£10,000 then calculate in accordance with section 227B what the
alternative chargeable amount would be if—

• each relevant hybrid arrangement in the combination were
  treated in accordance with the rules in paragraphs (a) and (b)
  of subsection (2), and

Taxation of Pensions BillPage 26

• for each relevant hybrid arrangement not in the combination,
  input amount C mentioned in section 237 were included in
  the total under section 227B(3).

Step 6

5Identify the highest (or higher) of the amounts calculated at Step 5.
The maximising set is made up of each relevant hybrid arrangement
in the combination concerned.

Identify the highest (or higher) of the amounts calculated at Step 5.
The maximising set is made up of each relevant hybrid arrangement
10in the combination concerned.

(5) Subsection (1)(c) is to be read with section 227B(5) (hybrid
arrangements where input amount C is highest-equal input
amount).

(6) A hybrid arrangement is not a relevant hybrid arrangement if section
15227E(2) applies in the case of that arrangement.

227E Pension input periods ending before rights are first flexibly accessed

(1) Subsections (2) and (3) apply if, for an arrangement mentioned in
section 227C(1), the pension input period ending in the tax year is a
period that ends before the individual first flexibly accesses pension
20rights.

(2) The pension input amount in respect of the arrangement is for the
purposes of section 227C(1) treated as being nil.

(3) The (actual) pension input amount in respect of the arrangement (see
section 229(2)(a), (b) or (d)) is required to be included in the defined-
25benefit input sub-total calculated under section 227B(3).

227F Pension input periods in which rights are first flexibly accessed

(1) Subject to subsection (7), subsections (2) to (6) apply if, for an
arrangement mentioned in section 227C(1), the pension input period
ending in the tax year contains the day on which the individual first
30flexibly accesses pension rights (whether or not that day is in the tax
year).

(2) If the arrangement is a cash balance arrangement, the pension input
amount in respect of that arrangement is for the purposes of section
227C(1)(a) treated as being—

35

(3) 45If the arrangement is a money purchase arrangement other than a
cash balance arrangement, the pension input amount in respect of
that arrangement is for the purposes of section 227C(1)(a) treated as
being the amount in respect of the arrangement that would be
arrived at under section 233 for a pension input period—

(a) beginning with the day after that on which the individual
first flexibly accesses pension rights, and

(b) ending at the end of the pension input period mentioned in
subsection (1).

(4) 5If the arrangement is a money purchase arrangement, the amount (if
any) by which—

(a) the (actual) pension input amount in respect of the
arrangement (see section 229(2)(a) or (b)), exceeds

(b) the amount treated by subsection (2) or (3) as being the
10pension input amount in respect of the arrangement,

is required to be included in the defined-benefit input sub-total
calculated under section 227B(3).

(5) If the arrangement is a hybrid arrangement—

(a) input amount A mentioned in section 237 is for the purposes
15of sections 227C(1)(b) and 227D(2) treated as being—

(b) input amount B mentioned in section 237 is for the purposes
of sections 227C(1)(b) and 227D(2) treated as being the
30amount for the arrangement that would be arrived at under
section 233 for a pension input period—

(i) beginning on the day after that on which the
individual first flexibly accesses pension rights, and

(ii) ending at the end of the pension input period
35mentioned in subsection (1).

(6) If the arrangement is a hybrid arrangement, the amount (if any) by
which—

(a) the (actual) pension input amount in respect of the
arrangement (see section 229(2)(d)), exceeds

(b) 40the amount which, in accordance with subsection (5) and
section 227D, is for the purposes of section 227C(1)(b) the
pension input amount in respect of the arrangement,

is required to be included in the defined-benefit input sub-total
calculated under section 227B(3).

(7) 45Subsections (2) to (6) do not apply if section 165(3A) applied in the
individual’s case to the arrangement, or any other arrangement, at
any time before 6 April 2015.

227G When pension rights are first flexibly accessed

(1) References in sections 227B to 227F to when the individual first
flexibly accesses pension rights are to the time, or the earlier or
earliest of the times, given for that by the following subsections.

(2) 5If—

(a) the individual has a member’s flexi-access drawdown fund
in respect of an arrangement, and

(b) the fund came into being—

(i) as a result of sums or assets being designated on or
10after 6 April 2015 as available for the payment of
drawdown pension, or

(ii) as a result of the operation of paragraph 8D(2) of
Schedule 28,

the individual first flexibly accesses pension rights immediately
15before the first qualifying payment is made from the fund (see
subsection (10)).

(3) If section 165(3A) applied in the individual’s case to an arrangement
at any time before 6 April 2015, the individual first flexibly accesses
pension rights at the start of 6 April 2015.

(4) 20If—

(a) the individual has a member’s drawdown pension fund in
respect of an arrangement, and

(b) the sums and assets that make up the fund become newly-
designated funds by the operation of paragraph 8B of
25Schedule 28,

the individual first flexibly accesses pension rights immediately
before the first qualifying payment (see subsection (10)) is made from
the individual’s member’s flexi-access drawdown fund in respect of
the arrangement (whether that is the payment that triggers the
30operation of paragraph 8B of Schedule 28 or a subsequent payment).

(5) If—

(a) the individual has a member’s drawdown pension fund in
respect of an arrangement, and

(b) the sums and assets that make up the fund become newly-
35designated funds by the operation of paragraph 8C of
Schedule 28,

the individual first flexibly accesses pension rights immediately
before the first qualifying payment is made from the individual’s
member’s flexi-access drawdown fund in respect of the arrangement
40(see subsection (10)).

(6) The individual first flexibly accesses pension rights immediately
before the payment of the first uncrystallised funds pension lump
sum paid to the individual.

(7) If the individual is entitled to payment of a lifetime annuity under a
45flexible annuity contract (see subsection (8)), the individual first
flexibly accesses pension rights immediately before the first payment
of the annuity is made.

(8) In subsection (7) “flexible annuity contract” means a contract for a
lifetime annuity where—

(a) the annuity is within paragraph 3(1A) of Schedule 28, and

(b) the terms of the contract are such that there will or could be
5decreases in the amount of the annuity other than decreases
from time to time allowed by regulations under paragraph
3(1)(d) of Schedule 28 (and any such regulations are to be
treated as having effect for this purpose).

(9) If—

(a) 10the individual is entitled to payment of a scheme pension
under a money purchase arrangement under a registered
pension scheme,

(b) the individual became entitled to the scheme pension—

(i) on or after 6 April 2015, and

(ii) 15at a time when fewer than 11 other individuals were
entitled to the present payment of a scheme pension,
or dependants’ scheme pension, under the registered
pension scheme, and

(c) the scheme pension is not payable under an annuity contract
20treated under section 153(8) or (8A) as having become a
registered pension scheme,

the individual first flexibly accesses pension rights immediately
before the first payment of the scheme pension is made.

(10) In subsections (2), (4) and (5), a reference to a qualifying payment
25from a fund is a reference to—

(a) payment of income withdrawal from the fund, or

(b) payment of a short-term annuity purchased using sums or
assets out of the fund,

but does not include payment at a time when the whole of the fund
30represents rights attributable to a disqualifying pension credit.

(11) In subsection (10) “disqualifying pension credit” is to be read in
accordance with paragraph 2(3) and (4) of Schedule 29.”

(2) The amendment made by sub-paragraph (1) has effect for the tax year
2015-16 and subsequent tax years.

35Further amendments

66 (1) Omit section 227A of FA 2004 (annual allowance charge: individuals who
met flexible drawdown conditions).

(2) In consequence of sub-paragraph (1)—

(a) in section 227(4) of FA 2004, omit the second sentence, and

(b) 40omit paragraph 45 of Schedule 16 to FA 2011.

(3) The amendments made by sub-paragraphs (1) and (2) have effect for the tax
year 2015-16 and subsequent tax years.

67 (1) In section 228A of FA 2004 (carry forward of unused annual allowance) after