Taxation of Pensions Bill (HC Bill 122)

Taxation of Pensions BillPage 60

(2) In pension death benefit rule 1 (pension death benefit may be paid only to
dependant of deceased member) after “dependant” insert “, or nominee or
successor,”.

(3) After pension death benefit rule 3 (pension death benefits which may be
5paid under a money purchase arrangement to a dependant) insert—

Pension death benefit rule 3A

No payment of pension death benefit, other than nominees’
drawdown pension in respect of a money purchase arrangement,
may be made to a nominee of the member.

10Pension death benefit rule 3B

(4) After subsection (1) insert—

(1A) For the purposes of this Part, a person becomes entitled to
dependants’ income withdrawal, nominees’ income withdrawal or
successors’ income withdrawal under a registered pension scheme
15whenever sums or assets held for the purposes of an arrangement
under the pension scheme are designated as available for the
payment of (as the case may be) dependants’ drawdown pension,
nominees’ drawdown pension or successors’ drawdown pension.

(5) In subsection (2) (meaning of “pension death benefit”) after “see section
20165)” insert “, or a pension payable in respect of the member on the
subsequent death of a dependant, nominee or successor of the member”.

3 (1) In Part 2 of Schedule 28 (interpretation of the pension death benefit rules) at
the end insert—

Meaning of “nominee”

27A (1) 25“Nominee of the member” means an individual—

(a) nominated by the member, or

(b) nominated by the scheme administrator,

who is not a dependant of the member, but see sub-paragraph (2).

(2) In relation to any particular benefits under an arrangement, no
30individual nominated by the scheme administrator counts as a
nominee of the member at any time when there is—

(a) a dependant of the member, or

(b) an individual, or charity, nominated by the member in
relation to the benefits.

(3) 35The reference in sub-paragraph (2)(b) to being nominated in
relation to particular benefits under an arrangement includes—

(a) a reference to being nominated in relation to the scheme,

(b) a reference to being nominated in relation to arrangements
that include the arrangement,

(c) 40a reference to being nominated in relation to the
arrangement, and

(d) a reference to being nominated in relation to benefits that
include the particular benefits.

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Nominees’ drawdown pension

27B “Nominees’ drawdown pension” means—

(a) a nominees’ short-term annuity, or

(b) nominees’ income withdrawal.

5Nominees’ short-term annuity

27C (1) For the purposes of this Part an annuity payable to a nominee is a
nominees’ short-term annuity if—

(a) it is purchased by the application of sums or assets
representing the whole or any part of the nominee’s flexi-
10access drawdown fund in respect of an arrangement,

(b) it is payable by an insurance company,

(c) the nominee becomes entitled to it on or after 6 April 2015,
and

(d) it is payable for a term which does not exceed five years
15and ends before the nominee dies.

(2) The Commissioners for Her Majesty’s Revenue and Customs may
by regulations make provision in relation to cases in which a
nominees’ short-term annuity payable to a person (“the original
nominees’ short-term annuity”) ceases to be payable and in
20consequence of that—

(a) sums or assets (or both) are transferred from the insurance
company to another insurance company and are applied—

(i) towards the provision of another nominees’ short-
term annuity (a “new nominees’ short-term
25annuity”) by the other insurance company, or

(ii) otherwise, or

(b) sums or assets are transferred to the relevant registered
pension scheme.

(3) The regulations may provide that—

(a) 30in a case where a new nominees’ short-term annuity
becomes payable, the new nominees’ short-term annuity is
to be treated, to such extent as is prescribed by the
regulations and for such of the purposes of this Part as are
so prescribed, as if it were the original nominees’ short-
35term annuity, and

(b) in any other case, the relevant registered pension scheme is
to be treated as making an unauthorised payment in
respect of the member of an amount equal to the aggregate
of the sums, and the market value of the assets, transferred.

(4) 40For the purposes of sub-paragraphs (2) and (3) a registered
pension scheme is the relevant registered pension scheme if the
original nominees’ short-term annuity was acquired using sums
or assets held for the purposes of the pension scheme.

Nominees’ income withdrawal

27D 45“Nominees’ income withdrawal” means an amount (other than an
annuity) which the nominee is entitled to be paid from the

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nominee’s flexi-access drawdown fund in respect of an
arrangement.

Nominee’s flexi-access drawdown fund

27E (1) For the purposes of this Part a nominee’s flexi-access drawdown
5fund in respect of an arrangement consists of such of the sums or
assets held for the purposes of the arrangement as are newly-
designated nominee funds.

(2) For the purposes of this Part sums or assets held for the purposes
of an arrangement are newly-designated nominee funds if—

(a) 10they—

(i) have, at any time on or after 6 April 2015, been
designated under the arrangement as available for
the payment of nominees’ drawdown pension, and

(ii) were, immediately before being so designated,
15unused drawdown funds or unused uncrystallised
funds, or

(b) they arise, or (directly or indirectly) derive, from newly-
designated nominee funds under paragraph (a) or from
sums or assets which so arise or derive.

(3) 20Sums or assets held for the purposes of an arrangement after the
member’s death are unused drawdown funds if—

(a) immediately before the member’s death, they were held
for the purposes of the arrangement and represented
(whether alone or with other sums or assets) the member’s
25flexi-access drawdown fund, or drawdown pension fund,
in respect of the arrangement, or

(b) they arise, or (directly or indirectly) derive, from unused
drawdown funds under paragraph (a) or from sums or
assets which so arise or derive.

(4) 30In the case of a cash balance arrangement, sums or assets held for
the purposes of the arrangement after the member’s death are
unused uncrystallised funds if—

(a) they represent the whole or any part of the sum that would
have been available immediately before the member’s
35death for the provision of benefits to or in respect of the
member if entitlement had arisen immediately before the
member’s death to all benefits under the arrangement to
which entitlement had not previously arisen, and

(b) since the member’s death they have not been designated as
40available for the payment of dependants’ drawdown
pension, not been designated as available for the payment
of nominees’ drawdown pension, not been applied
towards the provision of a dependants’ annuity and not
been applied towards the provision of a dependants’
45scheme pension.

(5) In the case of any other money purchase arrangement, sums or
assets held for the purposes of the arrangement after the member’s
death are unused uncrystallised funds if—

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(a) immediately before the member’s death they were held for
the purposes of the arrangement and at that time—

(i) were not member-designated funds,

(ii) were not newly-designated funds,

(iii) 5had not been applied towards the provision of a
scheme pension, and

(iv) had not been applied towards the provision of a
dependants’ scheme pension, or

(b) they arise, or (directly or indirectly) derive, from unused
10uncrystallised funds under paragraph (a) or from sums or
assets which so arise or derive,

and since the member’s death they have not been designated as
available for the payment of dependants’ drawdown pension, not
been designated as available for the payment of nominees’
15drawdown pension, not been applied toward the provision of a
dependants’ annuity and not been applied toward the provision
of a dependants’ scheme pension.

Meaning of “successor”

27F (1) “Successor of the member” means an individual—

(a) 20nominated by a dependant of the member,

(b) nominated by a nominee of the member,

(c) nominated by a successor of the member, or

(d) nominated by the scheme administrator,

but see sub-paragraph (2).

(2) 25In relation to any particular benefits under an arrangement
relating to a dependant, nominee or successor of the member (“the
beneficiary”) in that capacity, no individual nominated by the
scheme administrator counts as a successor of the member at any
time after the beneficiary’s death when there is an individual, or
30charity, nominated by the beneficiary in relation to the benefits.

(3) A reference in sub-paragraph (2) to being nominated in relation to
particular benefits under an arrangement includes—

(a) a reference to being nominated in relation to the scheme,

(b) a reference to being nominated in relation to arrangements
35that include the arrangement,

(c) a reference to being nominated in relation to the
arrangement, and

(d) a reference to being nominated in relation to benefits that
include the particular benefits.

(4) 40Where a successor of the member is an individual who is also a
dependant of the member, the individual in the capacity of a
successor of the member is to be treated as not also being a
dependant of the member.

Successors’ drawdown pension

27G 45“Successors’ drawdown pension” means—

(a) a successors’ short-term annuity, or

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(b) successors’ income withdrawal.

Successors’ short-term annuity

27H (1) For the purposes of this Part an annuity payable to a successor is a
successors’ short-term annuity if—

(a) 5it is purchased by the application of sums or assets
representing the whole or any part of the successor’s flexi-
access drawdown fund in respect of an arrangement,

(b) it is payable by an insurance company,

(c) the successor becomes entitled to it on or after 6 April 2015,
10and

(d) it is payable for a term which does not exceed five years
and ends before the successor dies.

(2) The Commissioners for Her Majesty’s Revenue and Customs may
by regulations make provision in relation to cases in which a
15successors’ short-term annuity payable to a person (“the original
successors’ short-term annuity”) ceases to be payable and in
consequence of that—

(a) sums or assets (or both) are transferred from the insurance
company to another insurance company and are applied—

(i) 20towards the provision of another successors’ short-
term annuity (a “new successors’ short-term
annuity”) by the other insurance company, or

(ii) otherwise, or

(b) sums or assets are transferred to the relevant registered
25pension scheme.

(3) The regulations may provide that—

(a) in a case where a new successors’ short-term annuity
becomes payable, the new successors’ short-term annuity
is to be treated, to such extent as is prescribed by the
30regulations and for such of the purposes of this Part as are
so prescribed, as if it were the original successors’ short-
term annuity, and

(b) in any other case, the relevant registered pension scheme is
to be treated as making an unauthorised payment in
35respect of the member of an amount equal to the aggregate
of the sums, and the market value of the assets, transferred.

(4) For the purposes of sub-paragraphs (2) and (3) a registered
pension scheme is the relevant registered pension scheme if the
original successors’ short-term annuity was acquired using sums
40or assets held for the purposes of the pension scheme.

Successors’ income withdrawal

27J “Successors’ income withdrawal” means an amount (other than an
annuity) which the successor is entitled to be paid from the
successor’s flexi-access drawdown fund in respect of an
45arrangement.

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Successor’s flexi-access drawdown fund

27K (1) For the purposes of this Part a successor’s flexi-access drawdown
fund in respect of an arrangement consists of such of the sums or
assets held for the purposes of the arrangement as are newly-
5designated successor funds.

(2) For the purposes of this Part sums or assets held for the purposes
of an arrangement are newly-designated successor funds if—

(a) they—

(i) have, at any time on or after 6 April 2015, been
10designated under the arrangement as available for
the payment of successors’ drawdown pension,
and

(ii) were, immediately before being so designated,
unused drawdown funds of the same deceased
15dependant, nominee or successor of the member,
or

(b) they arise, or (directly or indirectly) derive, from newly-
designated successor funds under paragraph (a) or from
sums or assets which so arise or derive.

(3) 20Sums or assets held for the purposes of an arrangement after the
death of a dependant, nominee or successor (“the beneficiary”) are
unused drawdown funds of the beneficiary’s if—

(a) immediately before the beneficiary’s death, they were held
for the purposes of the arrangement and represented
25(whether alone or with other sums or assets) the
beneficiary’s—

(i) dependant’s flexi-access drawdown fund,

(ii) dependant’s drawdown pension fund,

(iii) nominee’s flexi-access drawdown fund, or

(iv) 30successor’s flexi-access drawdown fund,

in respect of the arrangement, or

(b) they arise, or (directly or indirectly) derive, from unused
drawdown funds of the beneficiary’s under paragraph (a)
or from sums or assets which so arise or derive.

(2) 35The provisions inserted by sub-paragraph (1) have effect even in relation to
cases where the member concerned, or any dependant concerned, dies
before 6 April 2015.

Nominees and successors: further drawdown amendments

4 In section 169(1D) (regulations about transfers of drawdown funds) after
40paragraph (aa) (which is inserted by this Act) insert or

(ab) a nominee’s flexi-access drawdown fund, or

(ac) a successor’s flexi-access drawdown fund,.

5 In section 172(1)(a) (assignment of rights or benefits) after “dependant”
insert “, nominee or successor”.

6 45In section 172A(1)(a) (surrender of rights or benefits) after “dependant”
insert “, nominee or successor”.

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7 In section 172A(5) (exceptions to provisions on surrender: entitlement to
benefits)—

(a) in paragraph (b) after “dependant” insert “, or nominee,”,

(b) after paragraph (b) insert—

(ba) 5a surrender (or agreement to surrender) by a
dependant, nominee or successor of the member (“the
beneficiary”) in return for the conferring, on a
successor of the member, of an entitlement to benefits
after the beneficiary’s death,, and

(c) 10in paragraph (c) for “or dependant” substitute “, dependant,
nominee or successor”.

8 In section 172A(5A) (further provision on surrender exceptions)—

(a) after “dependant”, in the first place it occurs, insert “, or nominee,”,
and

(b) 15after “dependant”, in the second place it occurs, insert “or nominee”.

9 In section 172A after subsection (5A) insert—

(5B) Subsection (5)(ba) applies only if the entitlement is held (or is to be
held) by the successor under an arrangement under the pension
scheme relating to the beneficiary or successor.

10 20In section 172A(7) (exceptions to provisions on surrender: prospective
entitlements)—

(a) in the opening words after “dependant” insert “or nominee or
successor”, and

(b) in paragraph (a) after “dependant” insert “, or nominee or
25successor,”.

11 In section 172B(2) (rights of a “relevant member”)—

(a) in paragraph (a) after “dependant” insert “or nominee or successor”,
and

(b) after paragraph (aa) insert—

(ab) 30rights representing the nominee’s flexi-access
drawdown fund or successor’s flexi-access
drawdown fund in respect of an arrangement under
the pension scheme,.

12 In section 172B(7A) (section does not apply to certain increases in rights)
35before “dependant’s drawdown pension fund” (in both places) insert
“nominee’s flexi-access drawdown fund, successor’s flexi-access drawdown
fund,”.

13 In section 182(3) (value of arrangement for purposes of borrowing limits)
after paragraph (b) insert—

(ba) 40the amount of such of the sums and the market value of such
of the assets as represent nominees’ flexi-access drawdown
funds in respect of the arrangement (if any),

(bb) the amount of such of the sums and the market value of such
of the assets as represent successors’ flexi-access drawdown
45funds in respect of the arrangement (if any),.

14 In section 280(2) (index of defined expressions) at the appropriate places

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insert—

dependant (of a member of a
registered pension scheme)
paragraph 15 of Schedule 28”
“nominee (of a member of a
registered pension scheme)
paragraph 27A of Schedule 28”
5
“nominees’ drawdown pension paragraph 27B of Schedule 28”
“nominee’s flexi-access
drawdown fund
paragraph 27E of Schedule 28”
“nominees’ income withdrawal paragraph 27D of Schedule 28”
“nominees’ short-term annuity 10paragraph 27C of Schedule 28”
“successor (of a member of a
registered pension scheme)
paragraph 27F of Schedule 28”
“successors’ drawdown pension paragraph 27G of Schedule 28”
“successor’s flexi-access
drawdown fund
paragraph 27K of Schedule 28”
15
“successors’ income withdrawal paragraph 27J of Schedule 28”
“successors’ short-term annuity paragraph 27H of Schedule 28

Nomination of charities by nominees and successors of deceased scheme members

15 (1) Paragraph 18 of Schedule 29 (charity lump sum death benefit) is amended as
20follows.

(2) After sub-paragraph (2) insert—

(2A) A lump sum death benefit is also a charity lump sum death benefit
if—

(a) it is paid on the death of an individual who is—

(i) 25a nominee of the member, or

(ii) a successor of the member,

(b) there are no dependants of the member,

(c) it is paid in respect of the individual’s nominee’s flexi-
access drawdown fund or successor’s flexi-access
30drawdown fund at the date of the individual’s death in
respect of an arrangement relating to the individual in the
capacity of a nominee or successor of the member, and

(d) it is paid to a charity nominated by the member or, if the
member made no nomination, by the individual.

(3) 35In sub-paragraph (3) (cases where lump sum exceeds the permitted
maximum) for “or (2)” substitute “, (2) or (2A)”.

(4) In sub-paragraph (4) (meaning of “permitted maximum”) after
“arrangement” insert “, or the nominee’s or successor’s flexi-access
drawdown fund in respect of the arrangement,”.

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Related amendments in regulations

16 (1) Regulation 12 of the Registered Pension Schemes (Transfer of Sums and
Assets) Regulations 2006 (S.I. 2006/499S.I. 2006/499) (drawdown funds—recognised
transfers) is amended as follows.

(2) 5In the heading before “—recognised” insert “and nominee’s flexi-access
drawdown fund and successor’s flexi-access drawdown fund”.

(3) In paragraph (1) (transfer recognised only if transferred items are only items
held under arrangement to which transfer made) before “member’s
drawdown pension fund” insert “nominee’s flexi-access drawdown fund,
10successor’s flexi-access drawdown fund,”.

(4) The amendments made by this paragraph—

(a) come into force on 6 April 2015, and

(b) are to be treated as having been made by the Commissioners for Her
Majesty’s Revenue and Customs under the powers to make
15regulations conferred by section 169(1D) and (1E) of FA 2004 (as
amended by this Schedule).

Part 2 Lump sum death benefits

Special lump sum death benefits charge

17 (1) 20Section 206 of FA 2004 (special lump sum death benefits charge) is amended
as follows.

(2) After subsection (1) insert—

(1ZA) In subsection (1) the reference to a member (and to the member’s
death) are to be read—

(a) 25in relation to—

(i) a drawdown pension fund lump sum death benefit
under paragraph 17(2) of Schedule 29, or

(ii) a flexi-access drawdown fund lump sum death
benefit under paragraph 17A(2) of Schedule 29,

30as a reference to a dependant (and to the dependant’s death),

(b) in relation to a flexi-access drawdown fund lump sum death
benefit under paragraph 17A(3) of Schedule 29, as a reference
to a nominee (and to the nominee’s death), and

(c) in relation to a flexi-access drawdown fund lump sum death
35benefit under paragraph 17A(4) of Schedule 29, as a reference
to a successor (and to the successor’s death).

(3) After subsection (1A) insert—

(1B) The special lump sum death benefits charge also arises where—

(a) a lump sum death benefit is paid by a registered pension
40scheme in respect of a member of the scheme who had not
reached the age of 75 at the date of the member’s death,

(b) the lump sum death benefit is—

(i) a drawdown pension fund lump sum death benefit
under paragraph 17(1) of Schedule 29,

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(ii) a flexi-access drawdown fund lump sum death
benefit under paragraph 17A(1) of Schedule 29, or

(iii) an uncrystallised funds lump sum death benefit, and

(c) the lump sum death benefit is not paid before the end of the
5period of two years beginning with the earlier of the day on
which the scheme administrator of the scheme first knew of
the member’s death and the day on which the scheme
administrator could first reasonably have been expected to
have known of it.

(1C) 10The special lump sum death benefits charge also arises where—

(a) a lump sum death benefit is paid by a registered pension
scheme on the death of a dependant, nominee or successor of
a deceased member of the scheme,

(b) the dependant, nominee or successor (“the beneficiary”) had
15not reached the age of 75 at the date of the beneficiary’s
death,

(c) the lump sum death benefit is—

(i) a drawdown pension fund lump sum death benefit
under paragraph 17(2) of Schedule 29, or

(ii) 20a flexi-access drawdown fund lump sum death
benefit under paragraph 17A(2), (3) or (4) of Schedule
29, and

(d) the lump sum death benefit is not paid before the end of the
period of two years beginning with the earlier of the day on
25which the scheme administrator of the scheme first knew of
the beneficiary’s death and the day on which the scheme
administrator could first reasonably have been expected to
have known of it.

(4) For subsection (7) (lump sum death benefits which are not to be treated as
30income for tax purposes) substitute—

(7) A lump sum death benefit in respect of which income tax is charged
under this section is not to be treated as income for any purpose of
the Tax Acts.

(5) In consequence of sub-paragraph (4) omit paragraph 41(5) of Schedule 16 to
35FA 2011.

18 In section 280(2) of FA 2004 (index of defined expressions) in the entry for
“special lump sum death benefits charge” for “206(1)” substitute “206”.

Uncrystallised funds lump sum death benefit

19 (1) In paragraph 15 of Schedule 29 to FA 2004 (uncrystallised funds lump sum
40death benefit)—

(a) in sub-paragraph (1) omit the second sentence (lump sum is
uncrystallised funds lump sum death benefit only if paid before end
of relevant two-year period), and

(b) omit sub-paragraph (1A) (meaning of “relevant two-year period” in
45the second sentence of sub-paragraph (1)).

(2) In paragraph 16 of Schedule 32 to FA 2004 (benefit crystallisation event 7:
uncrystallised funds lump sum death benefit is a “relevant lump sum death