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
155

169
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
of the pension scheme is used to provide a benefit (other than a payment) to—
(a)
the member, or
5
(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.
(3)
If the benefit is received by reason of an excluded employment, subsection (1)
only applies if—
10
(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,
(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
15
director of, and has a material interest in, a sponsoring employer.
(4)
A registered pension scheme is to be treated as having made an unauthorised
payment in respect of a member of the pension scheme if, after the member’s
death, an asset held for the purposes of the pension scheme is used to provide
a benefit (other than a payment) to a person who, at the date of the member’s
20
death, was a member of the member’s family or household.
(5)
The person who receives the benefit is to be treated as having received the
unauthorised payment.
(6)
If the benefit is received by reason of an employment which is not an excluded
employment, subsections (4) and (5) do not apply.
25
(7)
If the benefit is received by reason of an excluded employment, subsections (4)
and (5) only apply if—
(a)
paragraphs (a) and (b) of subsection (3) apply, and
(b)
at the date of the member’s death the member, or a member of the
member’s family or household, was a director of, and had a material
30
interest in, a sponsoring employer.
(8)
The amount of an unauthorised payment treated as having been made by this
section—
(a)
in relation to such benefits, and in such circumstances, as may be
prescribed by regulations made by the Board of Inland Revenue, is an
35
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.
(9)
For the purposes of subsection (8)—
40
(a)
references in the benefits code to the employee are to be treated as
references to the member, and
(b)
references in the benefits code to the employer are to be treated as
references to the pension scheme.
(10)
In this section—
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“the benefits code” has the meaning given by section 63(1) of ITEPA 2003,

Finance Bill
Part 4 — Pension schemes etc
Chapter 3 — Payments by registered pension schemes
156


“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

“material interest” has the meaning given by section 68 of that Act.
(11)
Section 721 of ITEPA 2003 applies for the purposes of determining the
5
members of a person’s family or household.
170
Value shifting
(1)
A registered pension scheme is to be treated as having made an unauthorised
payment to a member of the pension scheme if, in connection with any of the
events mentioned in subsection (3) or a change in the value of a currency—
10
(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
increased, a liability of the member is reduced, or a liability of another
person is reduced for the benefit of the member.
15
(2)
But if the event or the change in the value of the currency occurs after the
member’s death—
(a)
the pension scheme is to be treated as having made an unauthorised
payment in respect of the member (rather than to the member), and
(b)
the person who holds the asset or is subject to the liability in relation to
20
which subsection (1)(b) is satisfied is to be treated as having received
the unauthorised payment.
(3)
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),
30
(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,
35

in a way which differs from that which might be expected if the parties to the
transaction were at arm’s length.
(4)
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.
(5)
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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Finance Bill
Part 4 — Pension schemes etc
Chapter 3 — Payments by registered pension schemes
157

Authorised employer payments
171
Authorised employer payments
The only payments which a registered pension scheme that is an occupational
pension scheme is authorised to make to or in respect of a sponsoring employer
are—
5
(a)
public service scheme payments (see section 172),
(b)
authorised surplus payments (see section 173),
(c)
compensation payments (see section 174),
(d)
authorised employer loans (see section 175),
(e)
scheme administration employer payments (see section 176), and
10
(f)
payments of a description prescribed by regulations made by the Board
of Inland Revenue.
172
Public service scheme payment
A payment is a public service scheme payment if—
(a)
it is made by a public service pension scheme, and
15
(b)
it is not of a description prescribed by regulations made by the Board of
Inland Revenue.
173
Authorised surplus payment
For the purposes of this Part a payment is an authorised surplus payment if it
is of a description prescribed by regulations made by the Board of Inland
20
Revenue.
174
Compensation payments
A payment is a compensation payment if it is made in respect of a member’s
liability to a sponsoring employer in respect of a criminal, fraudulent or
negligent act or omission by the member.
25
175
Authorised employer loan
(1)
A loan made to or in respect of a sponsoring employer is an authorised
employer loan if—
(a)
the amount loaned does not exceed an amount equal to 50% of the
aggregate of the amount of the sums, and the market value of the assets,
30
held for the purposes of the pension scheme immediately before the
loan is made,
(b)
the loan is secured by a charge which is of adequate value, and
(c)
the repayment terms comply with subsection (2).
(2)
The repayment terms comply with this subsection if—
35
(a)
the rate of interest payable on the loan is not less than the rate
prescribed by regulations made by the Board of Inland Revenue,
(b)
the loan repayment date is before the end of the period of five years
beginning with the date on which the loan is made, or has been
postponed to a date after the end of that period under subsection (3),
40
and

Finance Bill
Part 4 — Pension schemes etc
Chapter 3 — Payments by registered pension schemes
158

(c)
the amount payable in each period beginning with the date on which
the loan is made, and ending with the last day of a loan year, is not less
than the required amount.
(3)
If on a standard loan repayment date any amount (including interest) is owing,
the loan repayment date may be postponed to a date before the end of the
5
period of five years beginning with the standard loan repayment date.
(4)
The loan repayment date may be postponed under subsection (3) only once.
(5)
If the amount of a loan to or in respect of a sponsoring employer is increased,
the amount of the increase is to be treated as a loan made on the date of the
increase.
10
(6)
Schedule 30 gives the meaning of expressions used in this section and explains
how to calculate the amount of the unauthorised payment when a loan to or in
respect of a sponsoring employer does not comply with subsection (1).
(7)
In this section and that Schedule “charge” includes a right in security or an
agreement to create a right in security; and any reference to assets subject to a
15
charge or assets charged includes a reference to the property over which such
a right is granted.
(8)
Schedule 34 contains (in Part 4) transitional provision about loans to
sponsoring employers.
176
Scheme administration employer payments
20
(1)
A “scheme administration employer payment” is a payment made—
(a)
by a registered pension scheme that is an occupational pension scheme,
and
(b)
to or in respect of a sponsoring employer,

for the purposes of the administration or management of the pension scheme.
25
(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 employer payment.
(3)
Scheme administration employer payments include in particular—
(a)
the payment of wages, salaries or fees to persons engaged in
30
administering the pension scheme, and
(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 sponsoring employer is not a scheme administration
employer payment.
35
(5)
Payments made to acquire shares in a sponsoring employer are not scheme
administration employer payments if, when the payment is made—
(a)
the market value of shares in the sponsoring employer held for the
purposes of the pension scheme is equal to or greater than 5% of the
aggregate of the amount of the sums, and the market value of the assets,
40
held for the purposes of the pension scheme, or
(b)
the total market value of shares in sponsoring employers held for the
purposes of the pension scheme is equal to or greater than 20% of the
aggregate of the amount of the sums, and the market value of the assets,
held for the purposes of the pension scheme.
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Finance Bill
Part 4 — Pension schemes etc
Chapter 3 — Payments by registered pension schemes
159

(6)
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 employer payments.
Unauthorised employer payments
177
Value shifting
5
(1)
A registered pension scheme that is an occupational pension scheme is to be
treated as having made an unauthorised payment to a sponsoring employer 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
10
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 sponsoring
employer is increased, a liability of the sponsoring employer is
reduced, or a liability of another person is reduced for the benefit of the
sponsoring employer.
15
(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
scheme (whether or not provided for in the terms on which the asset is
acquired or held),
20
(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),
(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
25
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,

in a way which differs from that which might be expected if the parties to the
transaction were at arm’s length.
30
(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
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
35
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).
Borrowing
178
Unauthorised borrowing: money purchase arrangements
40
(1)
A registered pension scheme is not authorised to borrow an amount in respect
of a money purchase arrangement unless the arrangement borrowing
condition is met.

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Chapter 3 — Payments by registered pension schemes
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(2)
The arrangement borrowing condition is met if—

where—

APB is the aggregate of the amounts previously borrowed in respect of the
arrangement (excluding any amounts which have been repaid),

PB is the amount proposed to be borrowed in respect of the arrangement,
5
and

VA is the value of the arrangement.
(3)
The value of the arrangement is the aggregate of—
(a)
the amount of such of the sums and the market value of such of the
assets as represent the member’s unsecured pension fund or
10
alternatively secured pension fund in respect of the arrangement (if
any),
(b)
the amount of such of the sums and the market value of such of the
assets as represent dependants’ unsecured pension funds or
alternatively secured pension funds in respect of the arrangement (if
15
any),
(c)
the aggregate of the value of each scheme pension or dependants’
scheme pension payable in respect of the arrangement, and
(d)
the value of the uncrystallised rights under the arrangement.
(4)
The value of a scheme pension or dependants’ scheme pension payable in
20
respect of the arrangement is—

where—

RVF is the relevant valuation factor (see section 270), and

ARP is the annual rate at which the pension is payable.
(5)
Rights are uncrystallised if no-one has become entitled to the present payment
25
of benefits in respect of the rights; and a person is to be treated as entitled to
the present payment of benefits in respect of the sums and assets representing
the person’s unsecured pension fund or alternatively secured pension fund.
(6)
If the arrangement is a cash balance arrangement, the value of the
uncrystallised rights under the arrangement is the amount which would, on
30
the valuation assumptions (see section 271), be available for the provision of
benefits in respect of those rights if a person became entitled to benefits in
respect of those rights.
(7)
If the arrangement is a money purchase arrangement other than a cash balance
arrangement, the value of the uncrystallised rights under the arrangement is
35
the aggregate of the amount of such of the sums, and the market value of such
of the assets, held for the purposes of the arrangement as represent those
rights.
(8)
If the arrangement is a hybrid arrangement under which either cash balance
benefits or other money purchase benefits (but not defined benefits) may be
40
provided, the value of the uncrystallised rights under the arrangement is the
greater of—
(a)
their value calculated under subsection (6) (on the assumption that cash
balance benefits are provided), and

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(b)
their value calculated under subsection (7) (on the assumption that
other money purchase benefits are provided).
179
Effect of unauthorised borrowing: money purchase arrangements
(1)
Subsection (2) applies if a registered pension scheme borrows in respect of a
money purchase arrangement an amount which it is not authorised to borrow
5
under section 178.
(2)
The pension scheme is to be treated as having made a scheme chargeable
payment—
(a)
if subsection (3) applies, of an amount calculated in accordance with
subsection (4), and
10
(b)
otherwise, of the amount borrowed.
(3)
This subsection applies if, immediately before the amount is borrowed—
(4)
If subsection (3) applies, the amount of the scheme chargeable payment is—
(5)
In subsections (3) and (4)—

APB is the aggregate of the amounts previously borrowed in respect of the
15
arrangement (excluding any amounts which have been repaid),

AB is the amount borrowed, and

VA is the value of the arrangement, calculated in accordance with section
178(3), immediately before the amount is borrowed.
180
Unauthorised borrowing: other arrangements
20
(1)
A registered pension scheme is not authorised to borrow an amount in respect
of any arrangement which is not a money purchase arrangement unless the
scheme borrowing condition is met.
(2)
The scheme borrowing condition is met if—

where—
25

APB is the aggregate of the amounts previously borrowed by the pension
scheme in respect of arrangements which are not money purchase
arrangements (excluding any amounts which have been repaid),

PB is the amount proposed to be borrowed by the pension scheme, and

AARA is the aggregate amount of the relevant sums and assets.
30
(3)
The aggregate amount of the relevant sums and assets is the aggregate of—
(a)
the amount of the sums held for the purposes of such of the
arrangements under the pension scheme as are not money purchase
arrangements, and
(b)
the market value of the assets held for the purposes of such of the
35
arrangements under the pension scheme as are not money purchase
arrangements.