Finance Bill

House of Commons

Session 2003 - 04
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Finance Bill

Finance Bill
Schedule 34 — Pension schemes etc: transitional provisions and savings
Part 1 — Pre-commencement pension schemes
462

“registered pension scheme
section 832(1) of

ICTA”.

Schedule 34
Sections 269

Pension schemes etc: transitional provisions and savings
Part 1
5
Pre-commencement pension schemes
Deemed registration of existing schemes
1     (1)
Any pension scheme which, immediately before 6th April 2006, is—
(a)
a retirement benefits scheme approved for the purposes of Chapter 1
of Part 14 of ICTA,
10
(b)
a former approved superannuation fund (see sub-paragraph (3)),
(c)
a relevant statutory scheme, as defined in section 611A of ICTA, or a
pension scheme treated by the Inland Revenue on that date as if it
were such a relevant statutory scheme,
(d)
an annuity contract by means of which benefits provided under a
15
pension scheme within paragraph (a), (b) or (c) have been secured
but which does not provide for the immediate payment of benefits,
(e)
a scheme or fund mentioned in section 613(4)(b) to (d) of ICTA
(Parliamentary pension schemes or funds),
(f)
an annuity contract or trust scheme approved under section 620 or
20
621 of ICTA or a substituted contract within the meaning of section
622(3) of ICTA, or
(g)
a personal pension scheme approved under Chapter 4 of Part 14 of
ICTA,

is to be treated as becoming a registered pension scheme on that date.
25
      (2)
Where immediately before 6th April 2006 a retirement benefits scheme is, in
accordance with section 611 of ICTA, treated as two or more separate
schemes, the reference in sub-paragraph (1)(a) to an approved retirement
benefits scheme is to such of the separate schemes as are approved (and not
to the whole retirement benefits scheme).
30
      (3)
For the purposes of sub-paragraph (1)(b) any fund which immediately
before 6th April 1980 was an approved superannuation fund for the
purposes of section 208 of ICTA 1970 is a former approved superannuation
fund unless since 5th April 1980—
(a)
the fund has been approved for the purposes of Chapter 1 of Part 14
35
of ICTA (retirement benefits schemes), or
(b)
any sum has been paid under the fund by way of contribution.
      (4)
Sub-paragraph (1)(a) or (g) applies in relation to a pension scheme approved
(for the purposes of Chapter 1, or under Chapter 4, of Part 14 of ICTA) on or
after 6th April 2006 if the approval has effect for a period ending with 5th
40
April 2006.
      (5)
This paragraph is subject to paragraph 2 (opt-out).

Finance Bill
Schedule 34 — Pension schemes etc: transitional provisions and savings
Part 1 — Pre-commencement pension schemes
463

Opting out of deemed registration
2     (1)
Paragraph 1(1) does not apply to a pension scheme if the relevant
administrator has, at any time before 6th April 2006, notified the Inland
Revenue that the pension scheme is not to become a registered pension
scheme on that date.
5
      (2)
If, by virtue of sub-paragraph (1) of this paragraph, sub-paragraph (1) of
paragraph 1 does not apply to a pension scheme within any of paragraphs
(a) to (d), (f) or (g) of that sub-paragraph, income tax is to be charged at the
rate of 40% on the relevant amount.
      (3)
The relevant amount is an amount equal to the aggregate of—
10
(a)
the amount of the sums held for the purposes of the pension scheme
immediately before 6th April 2006, and
(b)
the market value (at that time) of the assets held for the purposes of
the pension scheme at that time.
      (4)
The liability to income tax is a liability of the person who is the relevant
15
administrator on 5th April 2006 or, if more than one person is the relevant
administrator on that date, is a joint and several liability of those persons.
      (5)
Where tax is charged in accordance with sub-paragraph (2), for the purposes
of TCGA 1992 the assets which immediately before 6th April 2006 are held
for the purposes of the pension scheme—
20
(a)
are to be treated as having been acquired at that time for a
consideration equal to the amount on which tax is charged by virtue
of sub-paragraph (2) by the person who would be chargeable in
respect of a chargeable gain accruing on a disposal of the assets on
that date, and
25
(b)
are not to be treated as having been disposed of by any person at that
time.
      (6)
“Relevant administrator” means—
(a)
in the case of a pension scheme within paragraph 1(1)(a), (b) or (c),
the person who is, or the persons who are, the administrator of the
30
pension scheme under section 611AA of ICTA,
(b)
in the case of a pension scheme within paragraph 1(1)(d) or (f), the
trustee or trustees of the pension scheme, or the insurance company
which is a party to the contract in which the pension scheme is
comprised,
35
(c)
in the case of a pension scheme within paragraph 1(1)(e), the trustees
of the scheme or fund, and
(d)
in the case of a pension scheme within paragraph 1(1)(g), the person
who is referred to in section 638(1) of ICTA.
      (7)
If paragraph 1(1) does not apply to a pension scheme by virtue of sub-
40
paragraph (1), sections 431B(2) and 466(2B) of ICTA (meaning of pension
business: pension scheme ceasing to be a registered pension scheme) applies
as if the pension scheme had ceased to be a registered pension scheme at the
beginning of 6th April 2006.
Power to modify rules of existing schemes
45
3     (1)
The Board of Inland Revenue may by regulations make any modifications of
the rules of pension schemes to which paragraph 1(1) applies if the
modifications appear appropriate in consequence of, or in connection with,

Finance Bill
Schedule 34 — Pension schemes etc: transitional provisions and savings
Part 1 — Pre-commencement pension schemes
464

the provision made by this Part (or the repeals made by this Act in
consequence of the provision made by this Part).
      (2)
Any modifications of the rules of a pension scheme made by the regulations
have effect until the earlier of—
(a)
the first date after 5th April 2006 on which amendments of the rules
5
of the pension scheme take effect, and
(b)
the end of the tax year 2008-09.
      (3)
The modifications that may be made by the regulations include, in
particular—
(a)
modifications for relieving pension schemes of obligations to make
10
payments which, on and after 6th April 2006, would be unauthorised
payments, and
(b)
modifications of provisions (however expressed) referring to any
limit contained in, or relevant in relation to approval under or for the
purposes of, any provision of Part 14 of ICTA (pension schemes etc.)
15
as it has effect at any time before 6th April 2006.
Scheme administrator
4     (1)
Where under paragraph 1(1) a pension scheme is treated as becoming a
registered pension scheme on 6th April 2006, (despite anything in section
257) the following person is, or the following persons are, to be treated as
20
becoming the scheme administrator of the pension scheme on that date.
      (2)
If the pension scheme is within paragraph 1(1)(a), (b) or (c) immediately
before that date, the person who is, or the persons who are, the administrator
of the pension scheme under section 611AA of ICTA immediately before
that date is or are to be treated as becoming the scheme administrator.
25
      (3)
If the pension scheme is within paragraph 1(1)(d) or (f) immediately before
that date, the trustee or trustees of the pension scheme, or the insurance
company which is a party to the contract in which the pension scheme is
comprised, is or are to be treated as becoming the scheme administrator.
      (4)
If the pension scheme is within paragraph 1(1)(e) immediately before that
30
date, the trustees of the scheme or fund are to be treated as becoming the
scheme administrator.
      (5)
If the pension scheme is within paragraph 1(1)(g) immediately before that
date, the person who is referred to in section 638(1) of ICTA in relation to the
pension scheme immediately before that date is to be treated as becoming
35
the scheme administrator.
Post-commencement withdrawal of approval
5     (1)
The repeal by this Act of—
(a)
section 591B(1) of ICTA (withdrawal of approval of retirement
benefits scheme),
40
(b)
section 620(7) of ICTA (withdrawal of approval of retirement
annuity contract), and
(c)
section 650(1) of ICTA (withdrawal of approval of approved
personal pension arrangements),

does not prevent the withdrawal of an approval under any of those
45
provisions at any time after 5th April 2006 (from any earlier date until that
date).

Finance Bill
Schedule 34 — Pension schemes etc: transitional provisions and savings
Part 2 — Pre-commencement rights: lifetime allowance charge
465

      (2)
A withdrawal of approval made under any of those provisions by virtue of
sub-paragraph (1) has the same consequences as a withdrawal of approval
made under the provision concerned before 6th April 2006, so that (in
particular)—
(a)
sections 591C and 591D of ICTA (tax on cessation of approval of
5
retirement benefits scheme), or
(b)
sections 650A and 651 of ICTA (charge on cessation of approval of
personal pension arrangements and appeal against such withdrawal
of such approval),

apply where they would have applied had the approval been withdrawn
10
before that date.
Pre-commencement liabilities of scheme administrator
6
Any liabilities or obligations of—
(a)
the administrator of a retirement benefits scheme (within the
meaning of Chapter 1 of Part 14 of ICTA), or
15
(b)
the scheme administrator of a personal pension scheme (within the
meaning of Chapter 4 of Part 14 of ICTA),

incurred in relation to the scheme before 6th April 2006 or by virtue of
paragraph 4 are (on and after that date) to be treated as liabilities or
obligations of the scheme administrator of the scheme.
20
Part 2
Pre-commencement rights: lifetime allowance charge
“Primary protection”: pre-commencement funds above £1,500,000
7     (1)
This paragraph makes provision for the operation of a lifetime allowance
enhancement factor in relation to all benefit crystallisation events occurring
25
in relation to an individual where—
(a)
the amount of the relevant pre-commencement pension rights of the
individual exceeds £1,500,000 (the standard lifetime allowance for
the tax year 2006-07), and
(b)
notice of intention to rely on this paragraph is given to the Inland
30
Revenue in accordance with regulations made by the Board of Inland
Revenue.
      (2)
The lifetime allowance enhancement factor is the primary protection factor.
      (3)
The primary protection factor is—

where—
35
RR is the amount of the relevant pre-commencement pension rights of
the individual, and
SLA is £1,500,000 (the standard lifetime allowance for the tax year
2006-07).
      (4)
Sub-paragraph (3) is subject to paragraph 11 (pension debit on or after 6th
40
April 2006).
      (5)
The amount of the relevant pre-commencement pension rights of the
individual is the aggregate of—

Finance Bill
Schedule 34 — Pension schemes etc: transitional provisions and savings
Part 2 — Pre-commencement rights: lifetime allowance charge
466

(a)
the value of the individual’s relevant uncrystallised pension rights
on 5th April 2006 (calculated in accordance with paragraphs 8 and 9),
and
(b)
the value of the individual’s relevant crystallised pension rights on
that date (calculated in accordance with paragraph 10).
5
8     (1)
The value of the individual’s relevant uncrystallised pension rights on 5th
April 2006 is the aggregate value of the individual’s uncrystallised rights on
that date under each relevant pension arrangement relating to the
individual.
      (2)
An arrangement is a “relevant pension arrangement” if it is an arrangement
10
under a pension scheme within paragraph 1(1).
      (3)
For the purposes of this paragraph the individual’s rights are
“uncrystallised” if the individual has not, on 5th April 2006, become entitled
to the present payment of benefits in respect of the rights.
      (4)
And the individual is to be treated as entitled to the present payment of
15
benefits in respect of any accrued rights in relation to which the individual
has (under section 634A(1) of ICTA) made an election to defer the purchase
of an annuity.
      (5)
For the purposes of this paragraph the value of the individual’s
uncrystallised rights on 5th April 2006 under an arrangement is to be
20
calculated in accordance with section 201 (valuation of uncrystallised rights
for purposes of section 199), but subject to paragraph 9.
9     (1)
This paragraph applies if—
(a)
the arrangement is under a pension scheme within paragraph 1(1)(a)
to (d),
25
(b)
the arrangement is a money purchase arrangement other than a cash
balance arrangement, and
(c)
the value of the individual’s uncrystallised rights on 5th April 2006
under the arrangement, calculated in accordance with paragraph 8,
exceeds the amount arrived at in accordance with sub-paragraph (3).
30
      (2)
The value of the individual’s uncrystallised rights on 5th April 2006 under
the arrangement is to be treated as being the amount arrived at in
accordance with sub-paragraph (3).
      (3)
The amount arrived at in accordance with this sub-paragraph is—
      (4)
ARE is—
35
(a)
in a case in which benefits were accruing to the individual under the
arrangement on 5th April 2006, the annual rate of the earnings by
reference to which benefits under the arrangement would have been
calculated if the individual had on that date acquired an actual
(rather than a prospective) right to receive them, and
40
(b)
in a case in which benefits were no longer accruing to the individual
under the arrangement on 5th April 2006, the annual rate (adjusted
under sub-paragraph (5)) of the earnings by reference to which
benefits under the arrangement would have been calculated if the
individual had acquired an actual (rather than a prospective) right to
45
receive them when benefits ceased to accrue to the individual under
the arrangement.

Finance Bill
Schedule 34 — Pension schemes etc: transitional provisions and savings
Part 2 — Pre-commencement rights: lifetime allowance charge
467

      (5)
The annual rate referred to in paragraph (b) of the definition of ARE in sub-
paragraph (4) is to be increased by the percentage by which the retail prices
index for April 2006 is greater than that for the month in which benefits
ceased to accrue to the individual under the arrangement.
      (6)
Earnings taken into account in arriving at an amount under sub-paragraph
5
(4) in relation to an arrangement relating to the individual must be left out
of account in arriving at an amount under that sub-paragraph in relation to
any other arrangement so made.
      (7)
UPRE is the value of the individual’s uncrystallised pension rights on 5th
April 2006 under any arrangement which—
10
(a)
is not a money purchase arrangement that is not a cash balance
arrangement, and
(b)
relates to the same employment as the arrangement,

or, if there is more than one such arrangement so relating, the aggregate of
the values under each of those arrangements.
15
      (8)
For the purposes of sub-paragraph (7)—
(a)
the individual’s rights are “uncrystallised” if the individual has not,
on 5th April 2006, become entitled to the present payment of benefits
in respect of the rights (the individual being treated as entitled to the
present payment of benefits in respect of any accrued rights in
20
relation to which the individual has, under section 634A(1) of ICTA,
made an election to defer the purchase of an annuity), and
(b)
the value of the individual’s uncrystallised rights on 5th April 2006
under an arrangement is to be calculated in accordance with section
201 (valuation of uncrystallised rights for purposes of section 199).
25
      (9)
CPRE is what would be the value of the individual’s relevant crystallised
pension rights on 5th April 2006 (calculated in accordance with paragraph
10) if the only pensions which were relevant existing pensions for the
purposes of that paragraph were any under—
(a)
the arrangement, or
30
(b)
any other arrangement relating to the same employment as the
arrangement.
     (10)
For the purposes of sub-paragraph (9) an arrangement relating to an
individual relates to an employment if—
(a)
the earnings by reference to which benefits under the arrangement
35
are calculated are earnings from the employment, or
(b)
the person who is the employer in relation to the employment pays
contributions under the arrangement in respect of the individual.
10    (1)
The value of an individual’s relevant crystallised pension rights on 5th April
2006 is—
40

where ARP is an amount equal to the annual rate at which any relevant
existing pension is payable to the individual on 5th April 2006 or, if more
than one relevant existing pension is payable to the individual on that date,
to the aggregate of the annual rates at which each of the relevant existing
pensions is so payable.
45
      (2)
“Relevant existing pension” means—
(a)
a pension under a retirement benefits scheme approved for the
purposes of Chapter 1 of Part 14 of ICTA,

Finance Bill
Schedule 34 — Pension schemes etc: transitional provisions and savings
Part 2 — Pre-commencement rights: lifetime allowance charge
468

(b)
a pension under a former approved superannuation fund (defined as
for the purposes of paragraph 1(1)(b)),
(c)
a pension under a relevant statutory scheme, as defined in section
611A of ICTA, or a pension scheme treated by the Inland Revenue as
if it were such a relevant statutory scheme,
5
(d)
an annuity (or pension in the form of income drawdown) under an
annuity contract by means of which benefits provided under a
pension scheme within paragraph (a), (b) or (c) have been secured,
(e)
a pension under a scheme or fund mentioned in section 613(4)(b) to
(d) of ICTA (Parliamentary pension schemes or funds),
10
(f)
an annuity under an annuity contract or trust scheme approved
under section 620 or 621 of ICTA or a substituted contract within the
meaning of section 622(3) of ICTA,
(g)
an annuity acquired using funds held for the purposes of a personal
pension scheme approved under Chapter 4 of Part 14 of ICTA, or
15
(h)
a right to make income withdrawals under section 634A of ICTA.
      (3)
In the case of a pension within sub-paragraph (2) taking the form of income
drawdown, the annual rate at which the pension is payable on 5th April 2006
is the amount which, on that date, is the maximum annual amount that may
be drawn down by the individual as income in accordance with the pension
20
scheme or contract concerned.
      (4)
In the case of a right which is relevant existing pension by virtue of sub-
paragraph (2)(h), the annual rate at which the pension is payable on 5th
April 2006 is the maximum amount of income withdrawals that may be
made by the individual in the period of 12 months referred to in section
25
634A(4) of ICTA during which 5th April 2006 falls.
11    (1)
This paragraph applies where—
(a)
paragraph 7 makes provision for the operation of a lifetime
allowance enhancement factor in relation to an individual, and
(b)
on or after 6th April 2006, the rights of the individual under a
30
relevant pension arrangement (see paragraph 8(2)) relating to the
individual are reduced by becoming subject to a pension debit.
      (2)
The primary protection factor (see paragraph 7(2)) is to be recalculated.
      (3)
The recalculation involves reducing RR (see paragraph 7(2)) by the amount
by which the individual’s rights are reduced and arriving at a revised
35
primary protection factor.
      (4)
The revised primary protection factor operates in relation to any benefit
crystallisation event occurring in relation to the individual after the time
when the individual’s rights are reduced by becoming subject to the pension
debit.
40
“Enhanced protection”: no relevant benefit accrual post-commencement
12    (1)
This paragraph applies on and after 6th April 2006 in the case of an
individual who has one or more relevant existing arrangements
immediately before that date but only for so long as—
(a)
no relevant benefit accrual occurs under the arrangement, or any of
45
those arrangements (see paragraph 13), and
(b)
no arrangements relating to the individual are made under a
registered pension scheme, apart from permitted transfer
arrangements.