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

451

 

(a)   

the member becomes entitled to it in connection with the member

becoming entitled to a relevant pension,

(b)   

it is paid when all or part of the member’s lifetime allowance is

available,

(c)   

it is paid within the period of three months beginning with the day

5

on which the member becomes entitled to it,

(d)   

it is paid when the member has reached normal minimum pension

age (or the ill-health condition is satisfied),

(e)   

it is paid when the member has not reached the age of 75, and

(f)   

it is not an excluded lump sum (see sub-paragraph (4)).

10

      (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 a relevant pension if—

(a)   

it is income withdrawal, a lifetime annuity or a scheme pension, and

(b)   

the member becomes entitled to it under the arrangement under

15

which the member becomes entitled to the lump sum.

      (4)  

A lump sum is an excluded lump sum if—

(a)   

the pension in connection with which the member becomes entitled

to it is a scheme pension the rate of which is to reduce (or which is to

cease to be payable) in accordance with paragraph 2(4)(c) of

20

Schedule 28 when the member becomes entitled to state retirement

pension, and

(b)   

the sole or main purpose of making provision for the pension to be

such a pension was to increase the member’s entitlement to a lump

sum on which there is no liability to income tax.

25

      (5)  

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

arrangement under which the member becomes entitled to the relevant

pension are attributable to a disqualifying pension credit.

30

      (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

arrangement.

      (4)  

The relevant arrangement is the arrangement to which the pension sharing

35

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

of—

(a)   

the available portion of the member’s lump sum allowance, and

40

(b)   

the applicable amount, calculated in accordance with paragraph 3.

      (6)  

The available portion of the member’s lump sum allowance is—equation: over[plus[times[char[C],char[S],char[L],char[A]],minus[times[char[(*n*)A],char[A],

char[C]]]],num[4.00000000,"4"]]

           

where—

CSLA is the current standard lifetime allowance, and

AAC is the aggregate of the amounts crystallised by each benefit

45

crystallisation event which has occurred in relation to the member

 

 

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

452

 

before the member becomes entitled to the lump sum, as adjusted

under sub-paragraph (7) (and if no such benefit crystallisation

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

5

of the amount by—equation: over[times[char[C],char[S],char[L],char[A]],times[char[P],char[S],char[L],char[A]]]

           

where—

CSLA is the current standard lifetime allowance, and

PSLA is the standard lifetime allowance at the time of the previous

benefit crystallisation event.

10

      (8)  

If the amount given by sub-paragraph (6) is negative, no portion of the

member’s lump sum allowance is available.

3     (1)  

Where the member becomes entitled to income withdrawal, the applicable

amount is one third of the aggregate of—

(a)   

the amount of the sums designated as available for the payment of

15

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

to a disqualifying pension credit are to be disregarded.

20

      (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

scheme, and

25

(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).

      (5)  

Any of the sums and assets applied in (or in connection with) the purchase

30

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

credit,

35

           

are to be disregarded.

      (6)  

Where the member becomes entitled to a scheme pension, the applicable

amount is—equation: over[(*n*)plus[(*n*)times[(*n*)char[(*n*)L],char[(*n*)S]],times[(*n*)char[(*n*)A],

char[(*n*)C]]],num[(*n*)4.00000000,"4"]]

           

but subject to sub-paragraph (8).

      (7)  

In sub-paragraph (6)—

40

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 212).

 

 

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

453

 

      (8)  

There is to be deducted from the aggregate of the amount of the lump sum

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

5

and the market value of those assets, and

(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

10

4     (1)  

For the purposes of this Part a lump sum is a serious ill-health lump sum if—

(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 member’s lifetime allowance is

15

available,

(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.

20

      (2)  

An uncrystallised arrangement is an arrangement in respect of which there

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—

25

(a)   

the pension scheme is an occupational pension scheme,

(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),

30

(c)   

there has been no previous benefit crystallisation event in relation to

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.

35

      (2)  

But if a lump sum falling within sub-paragraph (1) exceeds an amount equal

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 (see section

40

181(1) of that Act).

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

45

 

 

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

454

 

(b)   

it is paid before the end of the period of six years beginning with the

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.

5

      (3)  

The excess contributions condition is met in respect of a member and a tax

year if the amount of relievable pension contributions (see section 184(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 186 (annual limit for relief).

10

      (4)  

If no refund of excess contributions lump sum has been paid to the member

in respect of a tax year (by any registered pension scheme), the available

excess contributions allowance for that tax year is—equation: plus[times[char[R],char[P],char[C]],minus[times[char[M],char[A],char[R]]]]

      (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

15

allowance for that tax year is—equation: times[plus[(*n*)times[char[R],char[P],char[C]],minus[times[char[M],char[A],char[

R]]]],minus[(*n*)times[(*n*)char[(*n*)A],char[L],char[S]]]]

           

or, if the amount resulting from that calculation is negative, is nil.

      (6)  

In this paragraph—

RPC is the amount of the relievable pension contributions paid in

respect of the member in the tax year,

20

MAR is the maximum amount of relief to which the member is

entitled for the tax year under section 186, and

ALS is the aggregate of the refund of excess contributions lump sums

previously paid to the member in respect of the tax year.

Trivial commutation lump sum

25

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

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

30

commutation period,

(b)   

on the nominated date, the value of the member’s pension rights

does not exceed the commutation limit,

(c)   

it is paid when all or part of the member’s lifetime allowance is

available,

35

(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

reached the age of 75.

      (2)  

The commutation period is the period beginning with the day on which a

40

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

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).

45

 

 

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

455

 

      (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

aggregate of—

(a)   

the value of the member’s relevant crystallised pension rights on that

5

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).

8     (1)  

The value of the member’s relevant crystallised pension rights on the

nominated date is the aggregate of—

10

(a)   

the value of the member’s relevant crystallised pension rights on 5th

April 2006, calculated in accordance with paragraph 10 of Schedule

34 (as if the member were the individual mentioned there), as

adjusted under sub-paragraph (2), and

(b)   

the aggregate of the amounts crystallised on benefit crystallisation

15

events in the period beginning with 6th April 2006 and ending with

the nominated date, as adjusted under sub-paragraph (3).

      (2)  

The adjustment referred to in sub-paragraph (1)(a) is the multiplication of

the value of the member’s relevant crystallised pension rights on 5th April

2006 by—equation: over[times[char[S],char[L],char[A],char[N]],times[char[F],char[S],char[L],char[A]]]

20

           

where—

SLAN is the standard lifetime allowance on the nominated date, and

FSLA is £1,500,000 (the standard lifetime allowance for the tax year

2006-7).

      (3)  

The adjustment referred to in sub-paragraph (1)(b) is the multiplication of

25

the amount crystallised by a previous benefit crystallisation event by—equation: over[times[char[S],char[L],char[A],char[N]],times[char[P],char[S],char[L],char[A]]]

           

where—

SLAN is the standard lifetime allowance on the nominated date, and

PSLA is the standard lifetime allowance when the previous benefit

crystallisation event occurred.

30

9     (1)  

The value of the member’s uncrystallised rights on the nominated date is the

aggregate value of the member’s uncrystallised rights on that date under

each arrangement relating to the member under a registered pension

scheme.

      (2)  

The value on the nominated date of the member’s uncrystallised rights

35

under such an arrangement is to be calculated in accordance with section 208

(valuation of uncrystallised rights for purposes of section 206).

Winding-up lump sum

10    (1)  

A lump sum is a winding-up lump sum if—

(a)   

the pension scheme is an occupational pension scheme,

40

(b)   

the pension scheme is being wound-up,

(c)   

the member’s employer meets the conditions in sub-paragraph (3),

 

 

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

456

 

(d)   

it is paid when all or part of the member’s lifetime allowance is

available,

(e)   

it extinguishes the member’s entitlement to benefits under the

pension scheme, and

(f)   

it is paid when the member has not reached the age of 75.

5

      (2)  

But if a lump sum falling within sub-paragraph (1) exceeds 1% of the

standard lifetime allowance when the lump sum is paid, the excess is not a

winding-up lump sum.

      (3)  

The conditions are that the employer—

(a)   

has made contributions under the pension scheme in respect of the

10

member,

(b)   

is not making contributions under any other registered pension

scheme in respect of the member, and

(c)   

undertakes to the Inland Revenue not to make such contributions

during the period of one year beginning with the day on which the

15

lump sum is paid.

Lifetime allowance excess lump sum

11         

For the purposes of this Part a lump sum is a lifetime allowance excess lump

sum if—

(a)   

it is paid when none of the member’s lifetime allowance is available,

20

(b)   

it is not a short service refund lump sum or a refund of excess

contributions lump sum,

(c)   

it does not reduce the rate of payment of any pension to which the

member has become (actually) entitled, or extinguish the member’s

entitlement to payment of any such pension,

25

(d)   

it is paid when the member has reached normal minimum pension

age (or the ill-health condition is met), and

(e)   

it is paid when the member has not reached the age of 75.

Interpretation of Part 1

12    (1)  

Expressions used in this Part of this Schedule and in Schedule 28 have the

30

same meaning in this Part of this Schedule as in Schedule 28.

      (2)  

Where all or part of the member’s lifetime allowance is available

immediately before a lump sum is paid, sub-paragraph (3) applies to the

lump sum if—

(a)   

its amount exceeds the member’s available lifetime allowance, and

35

(b)   

but for that fact, it would satisfy all the requirements of paragraph

1(1), 4(1), 7(1) or 10(1).

      (3)  

For the purposes of this Schedule, the whole of the lump sum (and not only

so much of it as does not exceed the member’s available lifetime allowance)

is to be treated as paid when all or part of the member’s lifetime allowance

40

is available.

      (4)  

But sub-paragraph (3) does not apply—

(a)   

in the case of a lump sum that would satisfy all the requirements of

paragraph 1(1), to so much of it as would be prevented from being a

pension commencement lump sum by paragraph 1(2), and

45

 

 

Finance Bill
Schedule 29 — Registered pension schemes: authorised lump sums—supplementary
Part 2 — Lump sum death benefit rule

457

 

(b)   

in the case of a lump sum that would satisfy all the requirements of

paragraph 10(1), to so much of it as would be prevented from being

a winding-up lump sum by paragraph 10(2).

      (5)  

Where by virtue of paragraph 1(2), 5(2), 6(2) or 10(2) an excess is not an

authorised lump sum of one description, that does not prevent the excess

5

being an authorised lump sum of another description.

      (6)  

“Authorised lump sum” means a lump sum authorised to be paid by the

lump sum rule.

Part 2

Lump sum death benefit rule

10

Defined benefits arrangements

Defined benefits lump sum death benefit

13         

For the purposes of this Part a lump sum death benefit is a defined benefits

lump sum death benefit if—

(a)   

the member had not reached the age of 75 at the date of the member’s

15

death,

(b)   

it is paid in respect of a defined benefits arrangement,

(c)   

it is paid before the end of the period of two years beginning with the

day on which the member died, and

(d)   

it is not a pension protection lump sum death benefit, trivial

20

commutation lump sum death benefit or winding-up lump sum

death benefit.

Pension protection lump sum death benefit

14    (1)  

For the purposes of this Part a lump sum death benefit is a pension

protection lump sum death benefit if—

25

(a)   

the member had not reached the age of 75 at the date of the member’s

death,

(b)   

it is paid in respect of a defined benefits arrangement,

(c)   

it is paid in respect of a scheme pension to which the member was

entitled at the date of the member’s death, and

30

(d)   

the member has specified that it is to be treated as a pension

protection lump sum death benefit (instead of a defined benefits

lump sum death benefit).

      (2)  

But if the amount of a lump sum falling within sub-paragraph (1) exceeds

the pension protection limit, the excess is not a pension protection lump sum

35

death benefit.

      (3)  

The pension protection limit is—equation: plus[times[char[A],char[C]],minus[times[char[A],char[P]]],minus[times[char[T],char[

P],char[L],char[S]]]]

           

where—

AC is the amount crystallised by reason of the member becoming

entitled to the pension (see section 212),

40

AP is the amount of the pension paid in respect of the period between

the member becoming entitled to the pension and the member’s

death, and

 

 

 
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