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Session 1999-2000
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Finance Bill

S C H E D U L E S :

SCHEDULE 13

OCCUPATIONAL AND PERSONAL PENSION SCHEMES

PART I

AMENDMENTS OF THE TAXES ACT 1988

Introductory

    1. Amend the Taxes Act 1988 as follows.

Exception of certain life policies from chargeable events legislation

    2. - (1) Amend section 539 as follows.

    (2) In subsection (2) (exception for certain policies of life insurance) at the end of paragraph (d) insert "; or

(d) to any policy of life insurance held in connection with a personal pension scheme, within the meaning of Chapter IV of Part XIV, for the time being approved under that Chapter".

    (3) This paragraph has effect for the year 2000-01 and subsequent years of assessment.

No charge to tax under section 591C on conversion under Schedule 23ZA

    3. - (1) Amend section 591C as follows.

    (2) In subsection (1) (charge to tax where approval of scheme ceases to have effect) after "ceases to have effect" insert "otherwise than by virtue of paragraph 3(2)(a) of Schedule 23ZA".

Definition of "retirement benefits scheme"

    4. - (1) Amend section 611 as follows.

    (2) In subsection (1) (which defines "retirement benefits scheme" for the purposes of Chapter I and specifies certain schemes which are excluded) after "but does not include" insert "(a)" and at the end add "; or

(b) any scheme providing such benefits which is an approved personal pension scheme under Chapter IV of this Part".

    (3) In subsection (3) (power to treat retirement benefits scheme as two or more separate such schemes for the purposes of Chapter I)-

(a) omit "retirement benefits" in both places; and

(b) after "for the purposes of this Chapter" insert "and Chapter IV of this Part".

    (4) In subsection (4)(a) (classes or descriptions of employees with different employers) for "employees" substitute "scheme members".

    (5) In subsection (6) (definition of "scheme member") at the end of paragraph (b) add "; or

(c) if the scheme is an approved personal pension scheme under Chapter IV of this Part, any other person who is a member of the scheme.".

Interpretation of Chapter IV of Part XIV

    5. - (1) Amend section 630 as follows.

    (2) In subsection (1) (definitions) in the definition of "approved"-

(a) in paragraph (a) (approved schemes), after "scheme" insert "(other than an approved retirement benefits scheme)"; and

(b) in paragraph (b) (approved arrangements), after "means" insert "(i)" and at the end of the sub-paragraph so formed add "; or

(ii) made in accordance with a scheme which is for the time being an approved converted scheme but which was, when the arrangements were made, an approved retirement benefits scheme;".

    (3) In subsection (1), in the definition of "pension date" after "means" insert "(subject to section 638ZA)".

    (4) Insert the following definitions at the appropriate places in subsection (1)-

"(a) "approved converted scheme" means an approved personal pension scheme which is such a scheme by virtue of paragraph 3(2)(b) of Schedule 23ZA;";

"(b) "approved retirement benefits scheme" means a retirement benefits scheme approved under Chapter I of this Part;";

"(c) "the earnings threshold" for any year of assessment is £3,600;";

"(d) "higher level contributions", in the case of any year of assessment, means contributions in excess of the earnings threshold for the year;";

"(e) "the personal pension fund", in the case of any personal pension arrangement and an individual, means the accrued rights to which the individual is entitled conferring prospective entitlement to benefits under the arrangement;";

"(f) "retirement benefits scheme" has the same meaning as in Chapter I of this Part (see section 611);".

    (5) After subsection (1) insert-

    "(1A) The Treasury may by order amend the definition of "the earnings threshold" in subsection (1) above for any year of assessment by varying the amount there specified.".

    (6) In subsection (2) (annual amount of annuity which would have been purchasable)-

(a) in paragraph (a), for the words from "fund" to "him" substitute "personal pension fund"; and

(b) at the end add-

"Where a lump sum falls to be paid on the date in question, the reference is to the value of the personal pension fund after allowing for that payment.".

    (7) Omit subsection (3) (whose effect is reproduced by sub-paragraphs (4)(e) and (6)).

    (8) Paragraphs (c) and (d) of sub-paragraph (4) have effect for the year 2001-02 and subsequent years of assessment.

Approval of personal pension schemes

    6. - (1) Amend section 631 as follows.

    (2) In subsection (2) (discretion to grant or refuse approval, subject to restrictions in sections 632 to 638A) after "638A" add "(and, where applicable, Schedule 23ZA)".

    (3) After subsection (2) insert-

    "(2A) An application for approval of a personal pension scheme may, if the Board think fit, be granted subject to conditions.".

    (4) In subsection (3) (notice of grant or refusal of an application) after "and" insert-

"(a) in the case of a grant subject to conditions, the notice shall state that the grant is so subject and shall specify the conditions; and

(b) ".

    (5) Sub-paragraphs (3) and (4) have effect in relation to applications for approval granted on or after 6th April 2001.

Conversion of certain approved retirement benefits schemes

    7. After section 631 insert-

"Conversion of certain approved retirement benefits schemes.     631A. Schedule 23ZA to this Act (which makes provision for or in connection with the conversion of certain retirement benefits schemes approved under Chapter I of this Part into personal pension schemes approved under this Chapter) shall have effect.".

Eligibility to make contributions

    8. - (1) After section 632 insert-

"Eligibility to make contributions.     632A. - (1) The Board shall not approve a personal pension scheme if it permits, in relation to arrangements made by a member in accordance with the scheme, the acceptance of-

(a) contributions by the member, or

(b) contributions by an employer of the member,

at a time when the member is not eligible to make contributions.

    (2) The Board shall not approve a personal pension scheme unless it makes provision for ensuring, in relation to any such arrangements, that any contributions accepted at a time when the member is not eligible to make contributions are repaid-

(a) to the member, to the extent of his contributions; and

(b) as to the remainder, to his employer.

    (3) The following provisions of this section have effect for determining for the purposes of subsections (1) and (2) above the times at which a member is eligible to make contributions (and, for those purposes, a member is not eligible to make contributions at any other time).

    (4) A member is eligible to make contributions at any time during a year of assessment for which he has actual net relevant earnings.

    (5) A member who does not have actual net relevant earnings for a year of assessment ("the relevant year") is eligible to make contributions at any time during that year if-

(a) for at least some part of the year he does not hold an office or employment to which section 645 applies; and

(b) the condition in any of subsections (6) to (9) below is satisfied.

    (6) Condition A is that at some time in the relevant year the member is resident and ordinarily resident in the United Kingdom.

    (7) Condition B is that the member-

(a) at some time during the five years of assessment preceding the relevant year, has been resident and ordinarily resident in the United Kingdom; and

(b) was resident and ordinarily resident in the United Kingdom when he made the personal pension arrangements in question.

    (8) Condition C is that at some time in the relevant year the member is a person who performs duties which, by virtue of section 132(4)(a), are treated as being performed in the United Kingdom.

    (9) Condition D is that at some time in the relevant year the member is the spouse of a person who performs such duties as are mentioned in subsection (8) above.".

    (2) This paragraph has effect on and after 6th April 2001.

Insurance against risks relating to non-payment of contributions

    9. - (1) Amend section 633 (benefits allowed to be provided by approved schemes) as follows.

    (2) Omit subsection (2) (approval of schemes making provision for insurance against certain risks not to be prevented by subsection (1)).

    (3) This paragraph has effect in relation to insurance under a contract of insurance made on or after 6th April 2001.

Income withdrawals: the relevant date

    10. - (1) Amend section 634A as follows.

    (2) In subsection (4) (which, for each successive period of twelve months beginning with the member's pension date, imposes limits on income withdrawals by reference to the annual amount of the annuity purchasable on the relevant reference date)-

(a) for "beginning with his pension date" substitute "in each valuation period"; and

(b) for "on the relevant reference date" substitute-

"(a) in the case of the initial period, on the relevant reference date; and

(b) in the case of any subsequent valuation period, on a particular day in the period of sixty days ending with the relevant reference date".

    (3) For subsection (5) (the relevant reference date) substitute-

    "(5) For the purposes of this section, in the case of any arrangements the relevant reference date-

(a) for the period beginning with the member's pension date ("the initial period"), is that pension date; and

(b) for each succeeding period, is the first day of the period;

and, subject to subsection (5D) below, any period mentioned in paragraph (a) or (b) above (a "valuation period") is a period of three years.".

    (4) After subsection (5) insert-

    "(5A) Where-

(a) a member has made an election under subsection (1) above in respect of two or more personal pension arrangements under the same personal pension scheme, and

(b) in the case of one or more of those arrangements, the relevant reference date for any valuation period after the initial period would not, apart from this subsection, coincide with a date which is (or, but for the ending of the period of deferral, would be) the relevant reference date for a valuation period in the case of the arrangements with the earliest pension date,

the relevant reference date for any valuation period other than the initial period, and the valuation period to which that date relates, shall, if the scheme or the arrangements so require, be determined in the case of all those arrangements on the assumption that the pension date is in each case the same as in the case of the arrangements with the earliest pension date.

    (5B) In determining in accordance with subsection (5A) above the relevant reference date and the valuation period to which it relates, in the case of any arrangements ("the relevant arrangements"), there shall be left out of account any arrangements in whose case the period of deferral ended-

(a) before the actual pension date in the case of the relevant arrangements; or

(b) before the date on which the relevant arrangements first become subject to such a requirement as is mentioned in subsection (5A) above.

    (5C) But where, in the case of any arrangements,-

(a) the relevant reference date for any valuation period falls to be determined, in accordance with the assumption in subsection (5A) above, by reference to the pension date for any other arrangements, and

(b) the period of deferral in the case of those other arrangements comes to an end,

the same pension date shall continue to be assumed under that subsection for that and any subsequent valuation period, notwithstanding the coming to an end of the period of deferral in the case of those other arrangements (and references in subsection (5A) to the arrangements with the earliest pension date shall be construed accordingly).

    (5D) Where, in the case of any personal pension arrangements, in consequence of subsection (5A) above the relevant reference date for any valuation period ("the later date") falls less than three years after the relevant reference date for the previous valuation period ("the earlier date")-

(a) the valuation period beginning with the earlier date shall end with the day before the later date; and

(b) subsection (4) above shall apply in relation to any portion of the period which remains after the completion of any successive periods of twelve months as if it were a period of twelve months.".

    (5) Sub-paragraphs (2)(a) and (3) have effect on and after 1st October 2000.

    (6) Sub-paragraphs (2)(b) and (4) have effect in relation to personal pension arrangements-

(a) under any personal pension scheme to which approval under Chapter IV of Part XIV of the Taxes Act 1988 is given on or after 1st October 2000; or

(b) under any existing approved scheme amended on or after that date, with the approval of the Board under that Chapter, for the purpose of-

(i) conforming to the amendment made by sub-paragraph (2)(b), or

(ii) imposing such a requirement as is mentioned in the subsection (5A) inserted by sub-paragraph (4),

as the case may be.

    (7) In this paragraph "existing approved scheme" means a personal pension scheme approved under Chapter IV of Part XIV of the Taxes Act 1988 before 1st October 2000.

Income withdrawals: purchase of two or more annuities

    11. - (1) Amend section 634A as follows.

    (2) After subsection (1) insert-

    "(1A) The Board shall not refuse to approve a personal pension scheme by reason only that it makes provision for arrangements under the scheme which enable a member who makes such an election as is mentioned in subsection (1) above to apply different parts of the personal pension fund at different times in the purchase of different annuities satisfying the conditions in section 634 (whether commencing on the same day or on different days).".

    (3) In subsection (4) (which regulates income withdrawals by reference to the annual amount of the annuity purchasable on the relevant reference date etc) in paragraph (b) (which is inserted by paragraph 10(2)(b))-

(a) after "in the case of any subsequent valuation period," insert "(i)"; and

(b) at the end add ", or

(ii) immediately after the last qualifying annuitisation,

whichever is the later".

    (4) After subsection (4) insert-

    "(4A) For the purposes of subsection (4) above-

(a) "annuitisation" means the application of part of the personal pension fund in the purchase of an annuity satisfying the conditions in section 634; and

(b) an annuitisation is a "qualifying annuitisation", in relation to any such period of twelve months as is mentioned in subsection (4) above, if it has taken place-

(i) in an earlier such period, but

(ii) since the relevant reference date.".

    (5) In subsection (5D) (which is inserted by paragraph 10) in paragraph (b), for "subsection (4)" substitute "subsections (4) and (4A)".

    (6) This paragraph has effect on and after 6th April 2001.

Income withdrawals after death of member

    12. - (1) Amend section 636A as follows.

    (2) After subsection (1) insert-

    "(1A) The Board shall not refuse to approve a personal pension scheme by reason only that it makes provision for arrangements under the scheme which enable a person who makes such an election as is mentioned in subsection (1) above to apply different parts of the personal pension fund at different times in the purchase of different annuities satisfying the conditions in section 636 (whether commencing on the same day or on different days).".

    (3) In subsection (5) (which regulates income withdrawals by reference to the annual amount of the annuity purchasable on the relevant reference date) for "on the relevant reference date" substitute-

"(a) in the case of the first period of three years, on the relevant reference date; and

(b) in the case of any succeeding period of three years, on a particular day in the period of sixty days ending with the relevant reference date".

    (4) In subsection (5) (as so amended) in paragraph (b)-

(a) after "three years," insert "(i)"; and

(b) at the end add ", or

(ii) immediately after the last qualifying annuitisation,

whichever is the later".

    (5) After subsection (5) insert-

    "(5A) For the purposes of subsection (5) above-

(a) "annuitisation" means the application of part of the personal pension fund in the purchase of an annuity satisfying the conditions in section 636; and

(b) an annuitisation is a "qualifying annuitisation", in relation to any such period of twelve months as is mentioned in subsection (5) above, if it has taken place-

(i) in an earlier such period, but

(ii) since the relevant reference date.".

    (6) Sub-paragraph (3), and sub-paragraph (1) so far as relating to that sub-paragraph, have effect on and after 1st October 2000.

    (7) The other provisions of this paragraph have effect on and after 6th April 2001.

Other restrictions on approval

    13. - (1) Amend section 638 as follows.

    (2) In subsection (3)(a) (limit on aggregate contributions in any year) after "does not exceed" insert "the earnings threshold for that year or, if greater,"

    (3) In subsection (4) (the permitted maximum) omit-

(a) in the words preceding paragraph (a), "the aggregate of";

(b) paragraph (b) (which refers to relief by virtue of section 642, abolished by this Schedule); and

(c) the word "and" immediately preceding that paragraph.

    (4) After subsection (7A) (prohibition of contributions or transfer payments after pension date) insert-

    "(7B) Subsection (7A) above shall have effect subject to and in accordance with section 638ZA.".

    (5) After subsection (8) add-

    "(9) The Board may only approve a personal pension scheme if it prohibits the acceptance of contributions in any form other than-

(a) the payment of monetary sums; or

(b) the transfer, subject to the conditions in subsection (12) below, of eligible shares in a company;

and any reference in this Chapter to the payment of contributions includes a reference to the making of contributions in accordance with paragraph (b) above.

    (10) For the purposes of this Chapter, the amount of a contribution made by way of a transfer of shares shall be the aggregate market value of the shares at the date of the transfer.

    (11) For the purposes of subsection (9)(b) above, "eligible shares" means shares-

(a) which the member has exercised the right to acquire, or

(b) which have been appropriated to the member,

in accordance with the provisions of a savings-related share option scheme, an approved profit-sharing scheme or an employee share ownership plan.

    (12) The conditions mentioned in subsection (9)(b) above are-

(a) in relation to shares which the member has exercised his right to acquire in accordance with the provisions of a savings-related share option scheme, that the transfer of the shares as contributions under the personal pension scheme takes place before the expiry of the period of 90 days following the exercise of that right;

(b) in relation to shares appropriated to the member in accordance with the provisions of an approved profit-sharing scheme or an employee share ownership plan, that the transfer of the shares as contributions under the personal pension scheme takes place before the expiry of the period of 90 days following the date when the member directed the trustees of the approved profit-sharing scheme or employee share ownership plan to transfer the ownership of the shares to him or, if earlier, the release date in relation to the shares.

    (13) In this section-

"approved profit-sharing scheme" has the same meaning as in section 186;

"employee share ownership plan" has the same meaning as in Schedule 8 to the Finance Act 2000;

"market value" shall be construed in accordance with section 272 of the Taxation of Chargeable Gains Act 1992;

"savings-related share option scheme" has the same meaning as in Schedule 9 (see paragraph 1(1) of that Schedule).".

    (6) Sub-paragraph (2) has effect for the year 2001-02 and subsequent years of assessment.

    (7) Sub-paragraph (3) has effect in relation to contributions paid in the year 2001-02 or any subsequent year of assessment.

    (8) Sub-paragraph (5) has effect in relation to contributions in the year 2001-02 or any subsequent year of assessment.

Multiple pension dates etc

    14. - (1) After section 638 insert-

"Personal pension arrangements with more than one pension date etc.     638ZA. - (1) This section applies where a personal pension scheme makes provision for a personal pension arrangement under the scheme to make provision-

(a) for the payment of more than one annuity satisfying the conditions in section 634 or 636 (a "qualifying annuity") and for different such annuities to commence, or be capable of commencing, on different days;

(b) for elections such as are mentioned in section 634A(1) or 636A(1) ("elections for deferral") to be capable of being made at different times in relation to different portions of the personal pension fund; and

(c) for a qualifying lump sum to be payable in connection with-

(i) each qualifying annuity (other than one purchased pursuant to section 634A, 636 or 636A); and

(ii) each election for deferral such as is mentioned in section 634A(1).

    (2) The Board shall not refuse to approve a personal pension scheme by reason only that it makes such provision as is mentioned in subsection (1) above if they are satisfied that it makes provision in conformity with the provisions of this section.

    (3) In this section-

"income withdrawal fund" means a portion of the personal pension fund which is specified or described in an election for deferral as the portion of that fund to which the election relates;

"qualifying lump sum" means a lump sum satisfying the conditions of section 635 (as that section has effect by virtue of and in accordance with this section);

"the relevant date", in relation to any qualifying annuity or election for deferral, means the date determined in accordance with the arrangement on which-

(a) the qualifying annuity commences; or

(b) the member makes the election for deferral.

    (4) In the application of section 635 in relation to a qualifying lump sum, for the condition in subsection (3) there shall be substituted the conditions in subsections (5) and (6) below (as read with subsection (7) below).

    (5) The first condition is that the lump sum must not exceed one-third of-

(a) the difference between-

(i) the value of the portion of the personal pension fund applied in the provision of the qualifying annuity in connection with which the lump sum is paid, determined as at the date on which that portion is so applied, and

(ii) the value, determined as at that date, of so much of that portion as represents protected rights, or

(b) the value, as at the relevant date, of the income withdrawal fund which relates to the election for deferral in connection with it is paid,

as the case may be.

    (6) The second condition is that the lump sum must not represent any of the value, at the time when the lump sum is paid, of any protected rights.

    (7) In subsections (5) and (6) above, "protected rights" means any of the member's rights under the personal pension arrangement which are protected rights for the purposes of the Pension Schemes Act 1993 or the Pension Schemes (Northern Ireland) Act 1993.

    (8) Where a qualifying annuity commences, this Chapter and the personal pension scheme concerned shall have effect, as from the relevant date, as if there had been a separate personal pension arrangement and-

(a) the annuity, and any qualifying lump sum payable in connection with it, were benefits provided for by that separate arrangement (instead of by the personal pension arrangement by which it was actually provided (in this subsection referred to as "the relevant arrangement"));

(b) the portion of the personal pension fund applied in the provision of the annuity, together with the amount of any qualifying lump sum payable in connection with the annuity, had been the personal pension fund in the case of that separate arrangement (and were excluded from the personal pension fund in the case of the relevant arrangement);

(c) any election for the annuity, or for such a qualifying lump sum, had been made under that separate arrangement (instead of under the relevant arrangement); and

(d) except in the case of an annuity satisfying the conditions in section 636, the relevant date were the pension date in relation to that separate arrangement (and were not, by reference to that annuity, the pension date in relation to the relevant arrangement).

    (9) Where, in the case of any personal pension arrangement (in this subsection referred to as "the relevant arrangement"), an election for deferral is made, this Chapter and the personal pension scheme concerned shall have effect, as from the relevant date, as if there had been, and continued to be, a separate personal pension arrangement and-

(a) the income withdrawal fund which relates to the election, together with the amount of any qualifying lump sum payable in connection with the election, had been the personal pension fund in the case of that separate arrangement (and were excluded from the personal pension fund in the case of the relevant arrangement);

(b) the election for deferral, and any election for such a qualifying lump sum, had been made under that separate arrangement (instead of under the relevant arrangement);

(c) the election for deferral had been made in respect of the whole of the income withdrawal fund which relates to the election; and

(d) except in the case of an election such as is mentioned in section 636A(1), the relevant date were the pension date in relation to that separate arrangement (and were not, by reference to that election, the pension date in relation to the relevant arrangement).".

    (2) This paragraph has effect on and after 6th April 2001.

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Prepared 7 April 2000