Finance Bill

House of Commons

Session 2002 - 03
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Finance Bill

Finance Bill
Part 4 — Pension schemes etc
Chapter 3 — Payments by registered pension schemes
150

Authorised member payments
161
Authorised member payments
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
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rules (see sections 162 and 164),
(b)
lump sums permitted by the lump sum rule or the lump sum death
benefit rule (see sections 163 and 165),
(c)
recognised transfers (see section 166),
(d)
scheme administration member payments (see section 167),
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(e)
payments pursuant to a pension sharing order or provision, and
(f)
payments of a description prescribed by regulations made by the Board
of Inland Revenue.
162
Pension rules
(1)
These are the rules relating to the payment of pensions by a registered pension
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scheme to a member of the pension scheme (“the pension rules”).
Pension rule 1
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
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pension scheme.
Pension rule 2
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
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alternatively secured pension may continue to be made (to any person) until
the end of that period.
But no other payment of the member’s pension may be made after the
member’s death.
Pension rule 3
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No payment of pension other than a scheme pension may be made in respect
of a defined benefits arrangement.
Pension rule 4
If the member has not reached the age of 75, no payment of pension other
than—
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(a)
a scheme pension,
(b)
a lifetime annuity, or
(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
40
annuity instead.

Finance Bill
Part 4 — Pension schemes etc
Chapter 3 — Payments by registered pension schemes
151

Pension rule 5
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
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If the member has reached the age of 75, no payment of pension other than—
(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
10
pension may only be paid if the member had an opportunity to select a lifetime
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
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exceed 70% of the basis amount for the alternatively secured pension year.
(2)
In this Part “pension”, in relation to a registered pension scheme, includes—
(a)
an annuity, and
(b)
income withdrawal.
(3)
For the purposes of this Part, a person becomes entitled to a pension under a
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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
unsecured pension, and
25
(b)
in any other case, when the person first 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.
163
Lump sum rule
30
(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

No lump sum may be paid other than—
35
(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,
(e)
a trivial commutation lump sum,
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(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—

Finance Bill
Part 4 — Pension schemes etc
Chapter 3 — Payments by registered pension schemes
152

(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.
164
Pension death benefit rules
(1)
These are the rules relating to the payment of pension death benefits by a
10
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
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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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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,
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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
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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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Finance Bill
Part 4 — Pension schemes etc
Chapter 3 — Payments by registered pension schemes
153

(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 162).
(3)
Part 2 of Schedule 28 gives the meaning of expressions used in the pension
death benefit rules.
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165
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”).

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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.
(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.
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(4)
Schedule 34 contains (in Part 3) transitional provision about lump sum death
benefits.
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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
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become held for the purposes of, or to represent rights under—
(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.
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167
Scheme administration member payments
(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.
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(2)
But if a payment falling within subsection (1) exceeds the amount which might
be expected to be paid to a person who was at arm’s length, the excess is not a
scheme administration member payment.

Finance Bill
Part 4 — Pension schemes etc
Chapter 3 — Payments by registered pension schemes
154

(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
(b)
payments made for the purchase of assets to be held for the purposes
of the pension scheme.
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(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
of a description specified in the regulations are, or are not, scheme
administration member payments.
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Unauthorised member payments
168
Assignment
(1)
Subsection (2) applies if a member of a registered pension scheme (or the
member’s personal representatives) assigns or agrees to assign any benefit,
other than an excluded pension, to which the member has an actual or
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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 an unauthorised
payment to the member (or to the member’s personal representatives in
respect of the member).
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(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
25
provision, the pension scheme is to be treated as making an unauthorised
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,
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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
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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 162).
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(8)
“Assignment” includes assignation and related expressions are to be read
accordingly.