Finance Bill

House of Commons

Session 2003 - 04
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Finance Bill

Finance Bill
Schedule 28 — Registered pension schemes: authorised pensions—supplementary
Part 1 — Pension rules
420

Schedule 28
Sections 155 and 157

Registered pension schemes: authorised pensions—supplementary
Part 1
Pension rules
Defined benefits and money purchase arrangements
5
Ill-health condition
1
For the purposes of this Part the ill-health condition is met if—
(a)
the scheme administrator has received evidence from a registered
medical practitioner that the member is (and will continue to be)
incapable of carrying on the member’s occupation because of
10
physical or mental impairment, and
(b)
the member has in fact ceased to carry on the member’s occupation.
Scheme pension
2     (1)
In the case of a pension scheme with fewer than 50 members, a pension
payable to the member is a scheme pension for the purposes of this Part if—
15
(a)
it is payable by an insurance company selected by the scheme
administrator or, where the scheme administrator is an insurance
company, by the scheme administrator, and
(b)
it satisfies the condition in sub-paragraph (3).
      (2)
In the case of a pension scheme with 50 or more members, a pension payable
20
to the member is a scheme pension for the purposes of this Part if—
(a)
it is payable by the scheme administrator or by an insurance
company selected by the scheme administrator, and
(b)
it satisfies the condition in sub-paragraph (3).
      (3)
The condition is that—
25
(a)
the pension is payable (at least annually) until the member’s death or
until the later of the member’s death and the end of a term certain not
exceeding ten years, and
(b)
the rate of pension payable in respect of any relevant 12 month
period is (except in excluded circumstances) not less than the rate
30
payable in respect of the previous 12 month period.
      (4)
But if the ill-health condition is met when the member becomes entitled to
the pension, the pension may cease to be payable on the scheme
administrator’s receiving evidence from a registered medical practitioner
that the member is again capable of carrying on the member’s occupation.
35
      (5)
A pension is payable until the end of a term certain even if it may, after the
death of the member during the term, end on the pensioner—
(a)
marrying,
(b)
reaching the age of 18, or
(c)
ceasing to be in full-time education.
40
      (6)
A relevant 12 month period is any 12 month period which—
(a)
begins on or after the first anniversary of the day on which the
member becomes entitled to the pension, and

Finance Bill
Schedule 28 — Registered pension schemes: authorised pensions—supplementary
Part 1 — Pension rules
421

(b)
ends before the day on which the pension ceases to be payable.
      (7)
“Excluded circumstances” means that the reduced rate applies to all the
scheme pensions being paid to or in respect of members of the pension
scheme.
Money purchase arrangements
5
Lifetime annuity
3     (1)
For the purposes of this Part an annuity payable to the member is a lifetime
annuity if—
(a)
it is payable by an insurance company,
(b)
the member had an opportunity to select the insurance company,
10
(c)
it is payable until the member’s death or until the later of the
member’s death and the end of a term certain not exceeding ten
years, and
(d)
it is a level annuity, an increasing annuity or a relevant linked
annuity.
15
      (2)
An annuity is payable until the end of a term certain even if it may, after the
death of the member during the term, end on the annuitant—
(a)
marrying,
(b)
reaching the age of 18, or
(c)
ceasing to be in full-time education.
20
      (3)
An annuity is a level annuity if its amount does not vary from year to year.
      (4)
An annuity is an increasing annuity if its amount increases from year to year.
      (5)
An annuity is a relevant linked annuity if its amount varies from year to year
but only in line with changes in (or by an amount which does not exceed the
amount by which it would vary if it varied in line with changes in)—
25
(a)
the retail prices index,
(b)
the market value of freely marketable assets, or
(c)
an index reflecting the market value of freely marketable assets.
      (6)
“Freely marketable assets” means assets which are sold on the open market
at a price not determined by the member.
30
Unsecured pension and alternatively secured pension
4
“Unsecured pension” means—
(a)
a short-term annuity, or
(b)
income withdrawal.
5
“Alternatively secured pension” means income withdrawal.
35
Short-term annuity
6     (1)
An annuity payable to the member is a short-term annuity if—
(a)
it is purchased by the application of sums or assets representing the
whole or any part of the member’s unsecured pension fund in
respect of an arrangement,
40
(b)
it is payable by an insurance company,
(c)
the member had an opportunity to select the insurance company,

Finance Bill
Schedule 28 — Registered pension schemes: authorised pensions—supplementary
Part 1 — Pension rules
422

(d)
it is payable for a term which does not exceed five years and ends
before the member reaches the age of 75, and
(e)
it is either a level annuity, an increasing annuity or a relevant linked
annuity.
      (2)
“Level annuity”, “increasing annuity” and “relevant linked annuity” have
5
the same meaning as in paragraph 3.
Income withdrawal
7
“Income withdrawal” means—
(a)
if the member has not reached the age of 75, an amount (other than a
payment of an annuity) which the member is entitled to be paid from
10
the member’s unsecured pension fund in respect of an arrangement,
and
(b)
if the member has reached the age of 75, an amount which the
member is entitled to be paid from the member’s alternatively
secured pension fund in respect of an arrangement.
15
Member’s unsecured pension fund
8     (1)
For the purposes of this Part the member’s unsecured pension fund in
respect of an arrangement consists of such of the sums or assets held for the
purposes of the arrangement—
(a)
as have at any time been designated under the arrangement as
20
available for the payment of unsecured pension, and
(b)
have not been applied for purchasing a scheme pension, a lifetime
annuity or a short-term annuity or paid as income withdrawal.
      (2)
When the member reaches the age of 75, any relevant uncrystallised funds
are to be treated as having been designated under the arrangement as
25
available for the payment of unsecured pension immediately before the
member reached that age.
      (3)
“Relevant uncrystallised funds” means the sums and assets held for the
purposes of the arrangement which—
(a)
have not been applied for purchasing a scheme pension, a lifetime
30
annuity, a dependants’ scheme pension or a dependants’ annuity,
and
(b)
have not previously been designated under the arrangement as
available for the payment of unsecured pension.
Unsecured pension year and basis amount for unsecured pension year
35
9     (1)
“Unsecured pension year” means—
(a)
the period of 12 months beginning with the day on which the
member first becomes entitled to unsecured pension in respect of the
arrangement, and
(b)
each succeeding period of 12 months.
40
      (2)
But when the member reaches the age of 75 or dies before reaching that age,
the current unsecured pension year is the last unsecured pension year and
ends immediately before the member’s death or 75th birthday.
10    (1)
The period of five unsecured pension years beginning with the first
unsecured pension year, and each succeeding period of five unsecured
45

Finance Bill
Schedule 28 — Registered pension schemes: authorised pensions—supplementary
Part 1 — Pension rules
423

pension years, is a “reference period”; and the first day of each reference
period is, in relation to that period, “the reference date”.
      (2)
For the first unsecured pension year falling within a reference period, the
basis amount is the annual amount of the relevant annuity which could have
been purchased by the application of the sums and assets representing the
5
member’s unsecured pension fund on the nominated date (but subject to
sub-paragraph (5)).
      (3)
“The nominated date”—
(a)
in relation to the first reference period, is the reference date, and
(b)
in relation to any subsequent reference period, is such day, within
10
the period of 60 days ending with the reference date, as is nominated
by the scheme administrator (or, if no day is nominated by the
scheme administrator, is the reference date).
      (4)
For each other unsecured pension year falling within a reference period, the
basis amount is the annual amount of the relevant annuity which could have
15
been purchased by the application of the sums and assets representing the
member’s unsecured pension fund—
(a)
if there has been no recent annuity purchase or recent additional
fund designation, on the nominated date, and
(b)
otherwise, immediately after the last annuity purchase or additional
20
fund designation,

(but subject to sub-paragraph (5)).
      (5)
On the occasion of each additional fund designation during an unsecured
pension year, the basis amount for that unsecured pension year is to be
recalculated in accordance with sub-paragraph (6).
25
      (6)
The basis amount for the unsecured pension year is the annual amount of
the relevant annuity which could have been purchased by the application of
the sums and assets representing the member’s unsecured pension fund
immediately after the additional fund designation.
      (7)
“Annuity purchase” means the purchase of a scheme pension or a lifetime
30
annuity by the application of sums or assets representing the whole or part
of the member’s unsecured pension fund.
      (8)
“Additional fund designation” means the designation under the
arrangement of further sums or assets held for the purposes of the
arrangement as available for the payment of unsecured pension.
35
      (9)
An annuity purchase or additional fund designation is “recent” if it took
place during the period—
(a)
beginning with the reference date, and
(b)
ending with the last day of the immediately preceding unsecured
pension year.
40
     (10)
Paragraph 14 defines “relevant annuity”.
Member’s alternatively secured pension fund
11    (1)
For the purposes of this Part the member’s alternatively secured pension
fund in respect of an arrangement consists of such of the sums and assets
held for the purposes of the arrangement as—
45
(a)
meet condition A or condition B, and
(b)
have not been subsequently applied for purchasing a scheme
pension or a lifetime annuity or paid as income withdrawal.

Finance Bill
Schedule 28 — Registered pension schemes: authorised pensions—supplementary
Part 1 — Pension rules
424

      (2)
Condition A is that the sums and assets were part of the member’s
unsecured pension fund in respect of the arrangement when the member
reached the age of 75.
      (3)
Condition B is that the sums and assets—
(a)
became held for the purposes of the arrangement after the member
5
reached the age of 75, or
(b)
if the arrangement is a relevant arrangement, have at any time since
the member reached that age been designated as available for the
payment of alternatively secured pension to the member.
      (4)
A relevant arrangement is an arrangement which became a money purchase
10
arrangement after the member reached the age of 75 (having previously
been a hybrid arrangement under which, in certain circumstances, defined
benefits were payable).
Alternatively secured pension year and basis amount for alternatively secured pension year
12    (1)
“Alternatively secured pension year” means—
15
(a)
the period of 12 months beginning with the day on which the
member first becomes entitled to alternatively secured pension in
respect of the arrangement, and
(b)
each succeeding period of 12 months.
      (2)
When the member dies, the current alternatively secured pension year is the
20
last alternatively secured pension year and ends immediately before the
member’s death.
      (3)
But if by virtue of pension rule 2 alternatively secured income is to be paid
to a person after the member’s death, sub-paragraph (4) applies instead of
sub-paragraph (2).
25
      (4)
The last alternatively secured pension year is the earlier of—
(a)
the tenth alternatively secured pension year, and
(b)
the last alternatively secured pension year in which, under the
arrangement, alternatively secured pension is to be paid.
13    (1)
For the first alternatively secured pension year, the basis amount is the
30
annual amount of the relevant annuity which could have been purchased by
the application of the sums and assets representing the member’s
alternatively secured pension fund on the date on which the member first
became entitled to alternatively secured pension in respect of the
arrangement.
35
      (2)
For each other alternatively secured pension year, the basis amount is the
annual amount of the relevant annuity which could have been purchased by
the application of the sums and assets representing the member’s
alternatively secured pension fund on the nominated date.
      (3)
“The nominated date” is such day within the period of 60 days ending with
40
the first day of the alternatively secured pension year as is nominated by the
scheme administrator (or, if no day is nominated by the scheme
administrator, is the first day of the alternatively secured pension year).
      (4)
Paragraph 14 defines “relevant annuity”.

Finance Bill
Schedule 28 — Registered pension schemes: authorised pensions—supplementary
Part 2 — Pension death benefit rules
425

Relevant annuity
14    (1)
A “relevant annuity” is an annuity of a description prescribed by regulations
made by the Board of Inland Revenue.
      (2)
The annual amount of a relevant annuity is to be ascertained in accordance
with regulations made by the Board of Inland Revenue.
5
      (3)
The regulations may in particular provide for the annual amount to be
ascertained by reference to—
(a)
comparative annuity tables published by the Financial Services
Authority, or
(b)
material published by any other person.
10
Part 2
Pension death benefit rules
Defined benefits and money purchase arrangements
Meaning of “dependant”
15    (1)
A person who was married to the member at the date of the member’s death
15
is a dependant of the member.
      (2)
A child of the member is a dependant of the member if the child—
(a)
has not reached the age of 23, or
(b)
has reached that age and, in the opinion of the scheme administrator,
was at the date of the member’s death dependant on the member
20
because of physical or mental impairment.
      (3)
A person who was not married to the member at the date of the member’s
death and is not a child of the member is a dependant of the member if, in
the opinion of the scheme administrator, at the date of the member’s death—
(a)
the person was financially dependant on the member,
25
(b)
the person’s financial relationship with the member was one of
mutual dependence, or
(c)
the person was dependant on the member because of physical or
mental impairment.
Dependants’ scheme pension
30
16    (1)
In the case of a pension scheme with fewer than 50 members, a pension
payable to a dependant is a dependants’ scheme pension for the purposes of
this Part if—
(a)
it is payable by an insurance company selected by the scheme
administrator or, where the scheme administrator is an insurance
35
company, by the scheme administrator, and
(b)
it satisfies the condition in sub-paragraph (3).
      (2)
In the case of a pension scheme with 50 or more members, a pension payable
to a dependant is a dependants’ scheme pension if—
(a)
it is payable by the scheme administrator or by an insurance
40
company selected by the scheme administrator, and
(b)
it satisfies the condition in sub-paragraph (3).
      (3)
The condition is that—

Finance Bill
Schedule 28 — Registered pension schemes: authorised pensions—supplementary
Part 2 — Pension death benefit rules
426

(a)
if the dependant is not the member’s child, the pension is payable
until the dependant’s death or until the earlier of the dependant’s
marrying or dying,
(b)
if the dependant is the member’s child, the pension is payable until
the earlier of the dependant’s ceasing to be a dependant or dying, or
5
until the earlier of the dependant’s marrying, ceasing to be a
dependant or dying, and
(c)
the rate of pension payable in respect of any relevant 12 month
period is (except in excluded circumstances) not less than the rate
payable in respect of the previous 12 month period.
10
      (4)
A relevant 12 month period is any 12 month period which—
(a)
begins on or after the first anniversary of the member’s death, and
(b)
ends before the day on which the pension ceases to be payable.
      (5)
“Excluded circumstances” means that the reduced rate applies to all the
dependants’ scheme pensions being paid in respect of members of the
15
pension scheme.
Money purchase arrangements
Dependants’ annuity
17    (1)
An annuity payable to a dependant is a dependants’ annuity if—
(a)
it is payable by an insurance company,
20
(b)
the member or dependant had an opportunity to select the insurance
company,
(c)
it is a level annuity, an increasing annuity or a relevant linked
annuity,
(d)
where the dependant is not the member’s child, it is payable until the
25
dependant’s death or until the earlier of the dependant’s marrying
or dying, and
(e)
where the dependant is the member’s child, it is payable until the
earlier of the dependant’s ceasing to be a dependant or dying, or
until the earlier of the dependant’s marrying, ceasing to be a
30
dependant or dying.
      (2)
“Level annuity”, “increasing annuity” and “relevant linked annuity” have
the same meaning as in paragraph 3.
Dependants’ unsecured pension and dependants’ alternatively secured pension
18
“Dependants’ unsecured pension” means—
35
(a)
a dependants’ short-term annuity, or
(b)
dependants’ income withdrawal.
19
“Dependants’ alternatively secured pension” means dependants’ income
withdrawal.
Dependants’ short-term annuity
40
20    (1)
An annuity payable to a dependant is a dependants’ short-term annuity if—
(a)
it is purchased by the application of sums or assets representing the
whole or any part of the dependant’s unsecured pension fund in
respect of an arrangement,