Finance Bill

House of Commons

Session 2003 - 04
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Finance Bill

Finance Bill
Part 4 — Pension schemes etc
Chapter 3 — Payments by registered pension schemes
138

(2)
“Loan” does not include the purchase of or subscription to debentures,
debenture stock, loan stock, bonds, certificates of deposit or other instruments
creating or acknowledging indebtedness which are—
(a)
listed or dealt in on a recognised stock exchange (within the meaning of
section 841 of ICTA), or
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(b)
offered to the public.
(3)
A guarantee of a loan made to or in respect of a member or sponsoring
employer of a registered pension scheme is to be treated as a loan to or in
respect of the member or sponsoring employer of an amount equal to the
amount guaranteed.
10
(4)
If a member or sponsoring employer of a registered pension scheme—
(a)
is liable to pay a debt, the right to payment of which constitutes an asset
held for the purposes of the pension scheme, but
(b)
is not required to pay it by the relevant date,

the debt is to be treated as a loan made by the pension scheme to the member
15
or sponsoring employer on that date.
(5)
The relevant date is the date by which a person at arm’s length from the
pension scheme might be expected to be required to pay the debt.
153
Meaning of “borrowing” etc
(1)
This section applies for the interpretation of this Chapter.
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(2)
Borrowing is borrowing by a registered pension scheme if the amount
borrowed is to be repaid from sums or assets held for the purposes of the
pension scheme.
(3)
A liability is a liability of a registered pension scheme if the liability is to be met
from sums or assets held for the purposes of the pension scheme.
25
(4)
Borrowing by a registered pension scheme is in respect of an arrangement if it
is properly attributable to the arrangement in accordance with the provisions
of the pension scheme and any just and reasonable apportionment.
Authorised member payments
154
Authorised member payments
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The only payments a registered pension scheme is authorised to make to or in
respect of a member of the pension scheme are—
(a)
pensions permitted by the pension rules or the pension death benefit
rules (see sections 155 and 157),
(b)
lump sums permitted by the lump sum rule or the lump sum death
35
benefit rule (see sections 156 and 158),
(c)
recognised transfers (see section 159),
(d)
scheme administration member payments (see section 160),
(e)
payments pursuant to a pension sharing order or provision, and
(f)
payments of a description prescribed by regulations made by the Board
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of Inland Revenue.

Finance Bill
Part 4 — Pension schemes etc
Chapter 3 — Payments by registered pension schemes
139

155
Pension rules
(1)
These are the rules relating to the payment of pensions by a registered pension
scheme to a member of the pension scheme (“the pension rules”).

Pension rule 1
5
No payment of pension may be made before the day on which the member
reaches normal minimum pension age, unless the ill-health condition was met
immediately before the member became entitled to a pension under the
pension scheme.
Pension rule 2
10
If the member dies before the end of the period of ten years beginning with the
day on which the member became entitled to a scheme pension, an annuity or
alternatively secured pension, payment of the scheme pension, annuity or
alternatively secured pension may continue to be made (to any person) until
the end of that period.
15
But no other payment of the member’s pension may be made after the
member’s death.
Pension rule 3
No payment of pension other than a scheme pension may be made in respect
of a defined benefits arrangement.
20
Pension rule 4
If the member has not reached the age of 75, no payment of pension other
than—
(a)
a scheme pension,
(b)
a lifetime annuity, or
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(c)
unsecured pension,
may be made in respect of a money purchase arrangement; but a scheme
pension may only be paid if the member had an opportunity to select a lifetime
annuity instead.
Pension rule 5
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The total amount of unsecured pension paid in each unsecured pension year in
respect of a money purchase arrangement must not exceed 120% of the basis
amount for the unsecured pension year.
Pension rule 6
If the member has reached the age of 75, no payment of pension other than—
35
(a)
a scheme pension,
(b)
a lifetime annuity, or
(c)
alternatively secured pension,
may be made in respect of a money purchase arrangement; but a scheme
pension may only be paid if the member had an opportunity to select a lifetime
40
annuity instead.
Pension rule 7
The total amount of alternatively secured pension paid in each alternatively
secured pension year in respect of a money purchase arrangement must not
exceed 70% of the basis amount for the alternatively secured pension year.
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(2)
In this Part “pension”, in relation to a registered pension scheme, includes—
(a)
an annuity, and
(b)
income withdrawal.

Finance Bill
Part 4 — Pension schemes etc
Chapter 3 — Payments by registered pension schemes
140

(3)
For the purposes of this Part, a person becomes entitled to a pension under a
registered pension scheme—
(a)
in the case of income withdrawal under the pension scheme, whenever
sums or assets held for the purposes of an arrangement under the
pension scheme are designated as available for the payment of
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unsecured pension, and
(b)
in any other case, when the person acquires an actual (rather than a
prospective) right to receive the pension.
(4)
Part 1 of Schedule 28 gives the meaning of expressions used in the pension
rules.
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156
Lump sum rule
(1)
This is the rule relating to the payment of lump sums by a registered pension
scheme to a member of the pension scheme (“the lump sum rule”).


Lump sum rule
15

No lump sum may be paid other than—
(a)
a pension commencement lump sum,
(b)
a serious ill-health lump sum,
(c)
a short service refund lump sum,
(d)
a refund of excess contributions lump sum,
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(e)
a trivial commutation lump sum,
(f)
a winding-up lump sum, or
(g)
a lifetime allowance excess lump sum.
(2)
For the purposes of this Part, a person becomes entitled to a lump sum under
a registered pension scheme—
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(a)
in the case of a pension commencement lump sum, immediately before
the person becomes entitled to the pension in connection with which it
is paid, and
(b)
in any other case, when the person acquires an actual (rather than a
prospective) right to receive the lump sum.
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(3)
Part 1 of Schedule 29 gives the meaning of expressions used in the lump sum
rule.
(4)
Schedule 34 contains (in Part 3) transitional provisions about lump sums.
157
Pension death benefit rules
(1)
These are the rules relating to the payment of pension death benefits by a
35
registered pension scheme in respect of a member of the pension scheme (“the
pension death benefit rules”).


Pension death benefit rule 1

No payment of pension death benefit may be made otherwise than to a
40
dependant of the member.

Pension death benefit rule 2

No payment of pension death benefit other than a dependants’ scheme
pension may be made in respect of a defined benefits arrangement.

Pension death benefit rule 3
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Finance Bill
Part 4 — Pension schemes etc
Chapter 3 — Payments by registered pension schemes
141


If a dependant has not reached the age of 75, no payment of pension death
benefit to the dependant other than—
(a)
a dependants’ scheme pension,
(b)
a dependants’ annuity, or
(c)
dependants’ unsecured pension,
5

may be made to the dependant in respect of a money purchase arrangement;
but a dependants’ scheme pension may only be paid if the member or
dependant had an opportunity to select a dependants’ annuity instead.

Pension death benefit rule 4

The total amount of dependants’ unsecured pension paid to a dependant in
10
each unsecured pension year in respect of a money purchase arrangement
must not exceed 120% of the basis amount for the unsecured pension year.

Pension death benefit rule 5

If a dependant has reached the age of 75, no payment of pension other than—
(a)
a dependants’ scheme pension,
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(b)
a dependants’ annuity, or
(c)
dependants’ alternatively secured pension,

may be made to the dependant in respect of a money purchase arrangement;
but a dependants’ scheme pension may only be paid if the member or
dependant had an opportunity to select a dependants’ annuity instead.
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Pension death benefit rule 6

The total amount of dependants’ alternatively secured pension paid to a
dependant in each alternatively secured pension year in respect of a money
purchase arrangement must not exceed 70% of the basis amount for the
alternatively secured pension year.
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(2)
“Pension death benefit” means a pension payable on the death of the member
(other than a member’s pension payable after the member’s death under
pension rule 2: see section 155).
(3)
Part 2 of Schedule 28 gives the meaning of expressions used in the pension
death benefit rules.
30
158
Lump sum death benefit rule
(1)
This is the rule relating to the payment of lump sum death benefits by a
registered pension scheme in respect of a member of the pension scheme (“the
lump sum death benefit rule”).

35

Lump sum death benefit rule

No lump sum death benefit may be paid other than—
(a)
a defined benefits lump sum death benefit,
(b)
a pension protection lump sum death benefit,
(c)
an uncrystallised funds lump sum death benefit,
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(d)
an annuity protection lump sum death benefit,
(e)
an unsecured pension fund lump sum death benefit,
(f)
a charity lump sum death benefit,
(g)
a transfer lump sum death benefit,
(h)
a trivial commutation lump sum death benefit, or
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(i)
a winding-up lump sum death benefit.

Finance Bill
Part 4 — Pension schemes etc
Chapter 3 — Payments by registered pension schemes
142

(2)
In this Part “lump sum death benefit” means a lump sum payable on the death
of the member.
(3)
Part 2 of Schedule 29 gives the meaning of expressions used in the lump sum
death benefit rule.
(4)
Schedule 34 contains (in Part 3) transitional provision about lump sum death
5
benefits.
159
Recognised transfers
A “recognised transfer” is a transfer of sums or assets held for the purposes of,
or representing accrued rights under, a registered pension scheme so as to
become held for the purposes of, or to represent rights under—
10
(a)
another registered pension scheme, or
(b)
a recognised overseas pension scheme which is not a registered
pension scheme,
in connection with a member of that pension scheme.
160
Scheme administration member payments
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(1)
A “scheme administration member payment” is a payment by a registered
pension scheme to or in respect of a member of the pension scheme which is
made for the purposes of the administration or management of the pension
scheme.
(2)
But if a payment falling within subsection (1) exceeds the amount which might
20
be expected to be paid to a person who was at arm’s length, the excess is not a
scheme administration member payment.
(3)
Scheme administration member payments include in particular—
(a)
the payment of wages, salaries or fees to persons engaged in
administering the pension scheme, and
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(b)
payments made for the purchase of assets to be held for the purposes
of the pension scheme.
(4)
A loan to or in respect of a member of the pension scheme is not a scheme
administration member payment.
(5)
Regulations made by the Board of Inland Revenue may provide that payments
30
of a description specified in the regulations are, or are not, scheme
administration member payments.
Unauthorised member payments
161
Assignment
(1)
Subsection (2) applies if a member of a registered pension scheme (or the
35
member’s personal representatives) assigns or agrees to assign any benefit,
other than an excluded pension, to which the member has an actual or
prospective entitlement under the pension scheme.
(2)
Unless the assignment or agreement is pursuant to a pension sharing order or
provision, the pension scheme is to be treated as making unauthorised
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payment to the member (or the member’s personal representatives).

Finance Bill
Part 4 — Pension schemes etc
Chapter 3 — Payments by registered pension schemes
143

(3)
Subsection (4) applies if a person (or a person’s personal representatives)
assigns or agrees to assign any benefit, other than an excluded pension, to
which the person has an actual or prospective entitlement under a registered
pension scheme in respect of a member of the pension scheme.
(4)
Unless the assignment or agreement is pursuant to a pension sharing order or
5
provision, the pension scheme is to be treated as making an unauthorised
member payment to the person (or the person’s personal representatives) in
respect of the member.
(5)
The amount of the unauthorised payment is the greater of—
(a)
the consideration received in respect of the assignment or agreement,
10
and
(b)
the consideration which might be expected to be received in respect of
the assignment or agreement if the parties to the transaction were at
arm’s length.
(6)
Where a pension scheme is treated by this section as having made an
15
unauthorised payment in relation to an assignment (or an agreement to
assign), payments by the pension scheme of the benefit assigned (or agreed to
be assigned) are not unauthorised payments.
(7)
An excluded pension is a pension which under pension rule 2 may continue to
be paid after the member’s death (see section 155).
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(8)
“Assignment” includes assignation and related expressions are to be read
accordingly.
162
Benefits
(1)
A registered pension scheme is to be treated as having made an unauthorised
payment to a member of the pension scheme if an asset held for the purposes
25
of the pension scheme is used to provide a benefit (other than a payment) to—
(a)
the member, or
(b)
a member of the member’s family or household.
(2)
If the benefit is received by reason of an employment which is not an excluded
employment, subsection (1) does not apply.
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(3)
If the benefit is received by reason of an excluded employment, subsection (1)
only applies if—
(a)
it is a benefit to which Chapter 6 or 10 of the benefits code (cars and
vans, and benefits not dealt with elsewhere in benefits code) would
apply if the employment were not an excluded employment,
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(b)
the pension scheme is an occupational pension scheme, and
(c)
the member, or a member of the member’s family or household, is a
director of, and has a material interest in, the sponsoring employer.
(4)
The amount of the unauthorised payment—
(a)
in relation to such benefits, and in such circumstances, as may be
40
prescribed by regulations made by the Board of Inland Revenue, is an
amount determined in accordance with the regulations, and
(b)
otherwise, is the amount which would be the cash equivalent of the
benefit under the benefits code if the benefit were received by reason of
an employment and the benefits code applied to it.
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Finance Bill
Part 4 — Pension schemes etc
Chapter 3 — Payments by registered pension schemes
144

(5)
For the purposes of subsection (4)—
(a)
references in the benefits code to the employee are to be read as
references to the member, and
(b)
references in the benefits code to the employer are to be read as
references to the pension scheme.
5
(6)
In this section—

“the benefits code” has the meaning given by section 63(1) of ITEPA 2003,

“director” has the meaning given by section 67 of that Act,

“excluded employment” has the meaning given by section 63(4) of that
Act, and
10

“material interest” has the meaning given by section 68 of that Act.
(7)
Section 721 of ITEPA 2003 applies for the purposes of determining the
members of a person’s family or household.
163
Value shifting
(1)
A registered pension scheme is to be treated as having made an unauthorised
15
payment to a member of the pension scheme if, in connection with any of the
events mentioned in subsection (2) or a change in the value of a currency—
(a)
the value of an asset held for the purposes of the pension scheme is
reduced or a liability of the pension scheme is increased, and
(b)
the value of an asset held by or for the benefit of the member is
20
increased, a liability of the member is reduced, or a liability of another
person is reduced for the benefit of the member.
(2)
The events are—
(a)
the creation, alteration, release or extinction of any power, right, option
or liability relating to assets held for the purposes of the pension
25
scheme (whether or not provided for in the terms on which the asset is
acquired or held),
(b)
the creation, alteration, release or extinction of any power, right or
option relating to a liability of the pension scheme (whether or not
provided for in the terms on which the liability is incurred),
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(c)
the exercise of, or failure to exercise, any power, right or option in
relation to assets held for the purposes of the pension scheme or a
liability of the pension scheme, or
(d)
the exercise of, or failure to exercise, any power, right or option which
constitutes an asset held for the purposes of the pension scheme,
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in a way which differs from that which might be expected if the parties to the
transaction were at arm’s length.
(3)
The amount of the unauthorised payment is the amount by which the
reduction in value of the asset held for the purposes of the pension scheme, or
the increase in the liability of the pension scheme, exceeds that which might be
40
expected if the parties to the transaction were at arm’s length.
(4)
Regulations made by the Board of Inland Revenue may make provision as to
how the excess is to be calculated in relation to events of a description specified
in the regulations (including provision as to the times at which the asset or
liability is to be valued).
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