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 2 — Pension death benefit rules
427

(b)
it is payable by an insurance company,
(c)
the dependant had an opportunity to select the insurance company,
(d)
it is payable for a term which does not exceed five years and ends
before the dependant reaches the age of 75 or dies, and
(e)
it is either a level annuity, an increasing annuity or a relevant linked
5
annuity.
      (2)
“Level annuity”, “increasing annuity” and “relevant linked annuity” have
the same meaning as in paragraph 3.
Dependants’ income withdrawal
21
Dependants’ income withdrawal means—
10
(a)
if the dependant has not reached the age of 75, an amount (other than
an annuity) which the dependant is entitled to be paid from the
dependant’s unsecured pension fund in respect of an arrangement,
and
(b)
if the dependant has reached the age of 75, an amount which the
15
dependant is entitled to be paid from the dependant’s alternatively
secured pension fund in respect of an arrangement.
Dependant’s unsecured pension fund
22    (1)
For the purposes of this Part a dependant’s unsecured pension fund in
respect of an arrangement consists of such of the sums and assets held for
20
the purposes of the arrangement—
(a)
as have at any time been designated under the arrangement as
available for the payment of dependants’ unsecured pension to the
dependant, and
(b)
have not been applied for purchasing a dependants’ scheme
25
pension, a dependants’ annuity or a dependants’ short-term annuity
or paid as dependants’ income withdrawal.
Unsecured pension year and basis amount for unsecured pension year
23    (1)
“Unsecured pension year” means—
(a)
the period of 12 months beginning with the day on which the
30
dependant first becomes entitled to dependants’ unsecured pension
in respect of the arrangement, and
(b)
each succeeding period of 12 months.
      (2)
But when the dependant reaches the age of 75 or dies before reaching that
age, the current unsecured pension year is the last unsecured pension year
35
and ends immediately before the dependant’s death or 75th birthday.
24    (1)
The period of five unsecured pension years beginning with the first
unsecured pension year, and each succeeding period of five unsecured
pension years, is a “reference period”; and the first day of each reference
period is, in relation to that period, “the reference date”.
40
      (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
dependant’s unsecured pension fund on the nominated date (but subject to
sub-paragraph (5)).
45

Finance Bill
Schedule 28 — Registered pension schemes: authorised pensions—supplementary
Part 2 — Pension death benefit rules
428

      (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
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
5
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
been purchased by the application of the sums and assets representing the
dependant’s unsecured pension fund—
10
(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
fund designation,

(but subject to sub-paragraph (5)).
15
      (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).
      (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
20
the sums and assets representing the dependant’s unsecured pension fund
immediately after the additional fund designation.
      (7)
“Annuity purchase” means the purchase of a dependants’ scheme pension
or dependants’ annuity by the application of sums or assets representing the
whole or part of the dependant’s unsecured pension fund.
25
      (8)
“Additional fund designation” means the designation under the
arrangement of further sums and assets held for the purposes of the
arrangement as available for the payment of unsecured dependants’
pension to the dependant.
      (9)
An annuity purchase or additional fund designation is “recent” if it took
30
place during the period—
(a)
beginning with the reference date, and
(b)
ending with the last day of the immediately preceding unsecured
pension year.
     (10)
Paragraph 14 defines “relevant annuity”.
35
Dependant’s alternatively secured pension fund
25    (1)
For the purposes of this Part a dependant’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—
(a)
meet condition A or B, and
40
(b)
have not been subsequently applied for purchasing a dependants’
scheme pension or a dependants’ annuity or paid as dependants’
income withdrawal.
      (2)
Condition A is that the sums and assets were part of the dependant’s
unsecured pension fund in respect of the arrangement when the dependant
45
reached the age of 75.

Finance Bill
Schedule 29 — Registered pension schemes: authorised lump sums—supplementary
Part 1 — Lump sum rule
429

      (3)
Condition B is that the sums and assets have at any time since the dependant
reached that age been designated as available for the payment of
alternatively secured dependants’ pension to the dependant.
Alternatively secured pension year and basis amount for alternatively secured pension year
26    (1)
“Alternatively secured pension year” means—
5
(a)
the period of 12 months beginning with the day on which the
dependant first becomes entitled to alternatively secured pension in
respect of the arrangement, and
(b)
each succeeding period of 12 months.
      (2)
When the dependant dies, the current alternatively secured pension year is
10
the last alternatively secured pension year and ends immediately before the
dependant’s death.
27    (1)
For the first 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 dependant’s
15
alternatively secured pension fund on the date on which the dependant first
became entitled to dependants’ alternatively secured pension in respect of
the arrangement.
      (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
20
the application of the sums and assets representing the dependant’s
alternatively secured pension fund on the nominated date.
      (3)
“The nominated date” is such day within the period of 60 days ending with
the first day of the alternatively secured pension year as is nominated by the
scheme administrator (but if no day is nominated by the scheme
25
administrator, is the first day of the alternatively secured pension year).
      (4)
Paragraph 14 defines “relevant annuity”.
Schedule 29
Sections 156 and 158

Registered pension schemes: authorised lump sums—supplementary
Part 1
30
Lump sum rule
Pension commencement lump sum
1     (1)
For the purposes of this Part a lump sum is a pension commencement lump
sum if—
(a)
the member becomes entitled to it in connection with the member
35
becoming entitled to a relevant pension,
(b)
it is paid when all or part of the amount which is the individual’s
lifetime allowance in relation to the member is available,
(c)
it is paid within the period of three months beginning with the day
on which the member becomes entitled to it,
40
(d)
it is paid when the member has reached normal minimum pension
age (or the ill-health condition is satisfied), and

Finance Bill
Schedule 29 — Registered pension schemes: authorised lump sums—supplementary
Part 1 — Lump sum rule
430

(e)
it is paid when the member has not reached the age of 75.
      (2)
But if a lump sum falling within sub-paragraph (1) exceeds the permitted
maximum, the excess is not a pension commencement lump sum.
      (3)
A pension is relevant pension if—
(a)
it is income withdrawal, a lifetime annuity or a scheme pension, and
5
(b)
the member becomes entitled to it under the arrangement under
which the member becomes entitled to the lump sum.
      (4)
Paragraph 2 defines the permitted maximum.
2     (1)
If sub-paragraph (2) applies, the permitted maximum is nil.
      (2)
This sub-paragraph applies if all the member’s rights under the
10
arrangement under which the member becomes entitled to the relevant
pension are attributable to a disqualifying pension credit.
      (3)
A pension credit is disqualifying if, when the member becomes entitled to it,
the person subject to the corresponding pension debit has an actual (rather
than a prospective) right to payment of a pension under the relevant
15
arrangement.
      (4)
The relevant arrangement is the arrangement to which the pension sharing
order or provision, by virtue of which the member becomes entitled to the
pension credit, relates.
      (5)
If sub-paragraph (2) does not apply, the permitted maximum is the lower
20
of—
(a)
the available portion of the member’s lump sum allowance, and
(b)
the applicable amount, calculated in accordance with paragraph 3.
      (6)
The available portion of the member’s lump sum allowance is—

where—
25
CSLA is the current standard lifetime allowance, and
AAC is the aggregate of the amounts crystallised by each benefit
crystallisation event which has occurred in relation to the member
before the member becomes entitled to the lump sum, as adjusted
under sub-paragraph (7) (and if no such benefit crystallisation
30
event has occurred, is nil).
      (7)
The adjustment of an amount crystallised by a previous benefit
crystallisation event referred to in the definition of AAC is the multiplication
of the amount by—

where—
35
CSLA is the current standard lifetime allowance, and
PSLA is the standard lifetime allowance at the time of the previous
benefit crystallisation event.
      (8)
If the amount given by sub-paragraph (6) is negative, no portion of the
member’s lump sum allowance is available.
40
3     (1)
Where the member becomes entitled to income withdrawal, the applicable
amount is one third of the aggregate of—

Finance Bill
Schedule 29 — Registered pension schemes: authorised lump sums—supplementary
Part 1 — Lump sum rule
431

(a)
the amount of the sums designated as available for the payment of
unsecured pension on that occasion, and
(b)
the market value of the assets so designated,

but subject to sub-paragraph (2).
      (2)
Any of the sums and assets so designated which represent rights attributable
5
to a disqualifying pension credit are to be disregarded.
      (3)
Where the member becomes entitled to a lifetime annuity, the applicable
amount is one third of the annuity purchase price.
      (4)
“The annuity purchase price” is the aggregate of—
(a)
the amount of such of the sums held for the purposes of the pension
10
scheme, and
(b)
the market value of such of the assets held for the purposes of the
pension scheme,

as are applied in (or in connection with) the purchase of the annuity, but
subject to sub-paragraph (5).
15
      (5)
Any of the sums and assets applied in (or in connection with) the purchase
of the annuity which—
(a)
have been designated as available for the payment of unsecured
income, or
(b)
represent rights which are attributable to a disqualifying pension
20
credit,

are to be disregarded.
      (6)
Where the member becomes entitled to a scheme pension, the applicable
amount is—

but subject to sub-paragraph (8).
25
      (7)
In sub-paragraph (6)—
LS is the amount of the lump sum, and
AC is the amount crystallised by reason of the member becoming
entitled to the pension (see section 205).
      (8)
There is to be deducted from the aggregate of the amount of the lump sum
30
and the amount crystallised—
(a)
if the scheme pension is funded (in whole or in part) by the surrender
of sums or assets representing the whole or part of the member’s
unsecured pension fund, the aggregate of the amount of those sums
and the market value of those assets, and
35
(b)
in any case, so much (if any) of the aggregate of the lump sum and
the amount crystallised as represents rights which are attributable to
a disqualifying pension credit.
Serious ill-health lump sum
4     (1)
For the purposes of this Part a lump sum is a serious ill-health lump sum if—
40
(a)
before it is paid the scheme administrator has received evidence
from a registered medical practitioner that the member is expected to
live for less than one year,
(b)
it is paid when all or part of the amount which is the individual’s
lifetime allowance in relation to the member is available,
45

Finance Bill
Schedule 29 — Registered pension schemes: authorised lump sums—supplementary
Part 1 — Lump sum rule
432

(c)
it is paid in respect of an uncrystallised arrangement,
(d)
it extinguishes the member’s entitlement to benefits under the
arrangement, and
(e)
it is paid when the member has not reached the age of 75.
      (2)
An uncrystallised arrangement is an arrangement in respect of which there
5
has been no previous benefit crystallisation event.
Short service refund lump sum
5     (1)
For the purposes of this Part a lump sum is a short service refund lump sum
if—
(a)
the pension scheme is an occupational pension scheme,
10
(b)
the member’s pensionable service was terminated before normal
pension age but the member is not entitled to short service benefit by
virtue of section 71 of the Pension Schemes Act 1993 (c. 48) (basic
principle as to short service benefit),
(c)
there has been no previous benefit crystallisation event in relation to
15
the member and the pension scheme,
(d)
it extinguishes the member’s entitlement to benefits under the
pension scheme, and
(e)
it is paid when the member has not reached the age of 75.
      (2)
But if a lump sum falling within sub-paragraph (1) exceeds an amount equal
20
to the aggregate of the member’s contributions under the pension scheme,
the excess is not a short service refund lump sum.
      (3)
“Pensionable service”, “normal pension age” and “short service benefit”
have the same meaning as in the Pension Schemes Act 1993 (c. 48) (see
section 181(1) of that Act).
25
Refund of excess contributions lump sum
6     (1)
A lump sum is a refund of excess contributions lump sum if—
(a)
it is paid in respect of a tax year in which the excess contributions
condition is met in respect of the member, and
(b)
it is paid before the end of the period of six years beginning with the
30
last day of the tax year in respect of which it is paid.
      (2)
But if a lump sum falling within sub-paragraph (1) exceeds the member’s
available excess contributions allowance for the tax year in respect of which
it is paid, the excess is not a refund of excess contributions lump sum.
      (3)
The excess contributions condition is met in respect of a member and a tax
35
year if the amount of relievable pension contributions (see section 177(2) and
(3)) paid in respect of the member in the tax year exceeds the maximum
amount of relief to which the member is entitled for the tax year under
section 179 (annual limit for relief).
      (4)
If no refund of excess contributions lump sum has been paid to the member
40
in respect of a tax year (by any registered pension scheme), the available
excess contributions allowance for that tax year is—

Finance Bill
Schedule 29 — Registered pension schemes: authorised lump sums—supplementary
Part 1 — Lump sum rule
433

      (5)
If one or more refund of excess contributions lump sums have been paid to
the member in respect of a tax year, the available excess contributions
allowance for that tax year is—

or, if the amount resulting from that calculation is negative, is nil.
      (6)
In this paragraph—
5
RPC is the amount of the relievable pension contributions paid in
respect of the member in the tax year,
MAR is the maximum amount of relief to which the member is
entitled for the tax year under section 179, and
ALS is the aggregate of the refund of excess contributions lump sums
10
previously paid to the member in respect of the tax year.
Trivial commutation lump sum
7     (1)
For the purposes of this Part a lump sum is a trivial commutation lump sum
if—
(a)
it is paid when no trivial commutation lump sum has previously
15
been paid to the member (by any registered pension scheme) or, if
such a lump sum has previously been paid, before the end of the
commutation period,
(b)
on the nominated date, the value of the member’s pension rights
does not exceed the commutation limit,
20
(c)
it is paid when all or part of the amount which is the individual’s
lifetime allowance in relation to the member is available,
(d)
it extinguishes the member’s entitlement to benefits under the
pension scheme, and
(e)
it is paid when the member has reached the age of 60 but has not
25
reached the age of 75.
      (2)
The commutation period is the period beginning with the day on which a
trivial commutation lump sum is first paid to the member and ending 12
months after that day.
      (3)
The nominated date is the day within the period of three months ending
30
with the first day of the commutation period nominated by the member (or,
if no date is nominated, is the first day of the commutation period).
      (4)
The commutation limit is 1% of the standard lifetime allowance on the
nominated date.
      (5)
The value of the member’s pension rights on the nominated date is the
35
aggregate of—
(a)
the value of the member’s relevant crystallised pension rights on that
date (calculated in accordance with paragraph 8), and
(b)
the value of the member’s uncrystallised rights on that date
(calculated in accordance with paragraph 9).
40
8     (1)
The value of the member’s relevant crystallised rights on the nominated
date is the aggregate of—
(a)
the value of the member’s crystallised pre-commencement pension
rights on 5th April 2006, calculated in accordance with paragraph 10
of Schedule 34 (as if the member were the individual mentioned
45
there), as adjusted under sub-paragraph (2), and