Finance Bill

House of Commons

Session 2002 - 03
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Finance Bill

Finance Bill
Schedule 34 — Pension schemes etc: transitional provisions and savings
Part 3 — Pre-commencement benefit rights
497

      (2)
Paragraphs 22(4) and 23(4) define the member’s protected pension age.
22    (1)
This paragraph applies in relation to a registered pension scheme and a
member of the pension scheme if—
(a)
on 5th April 2006 the pension scheme was within any of paragraphs
(a) to (e) of paragraph 1(1), and
5
(b)
the entitlement condition (in sub-paragraph (2)) and the retirement
condition (in sub-paragraph (3)) are met.
      (2)
The entitlement condition is that—
(a)
on 5th April 2006 the member had an actual or prospective right
under the pension scheme to a pension from an age of less than 55,
10
(b)
the rules of the pension scheme on 10th December 2003 included
provision conferring such a right on some or all of the persons who
were then members of the pension scheme, and
(c)
such a right either was then conferred on the member or would have
been had the member been a member of the scheme on that date.
15
      (3)
The retirement condition is that —
(a)
there is only one occasion on which the member becomes entitled to
a pension under the pension scheme, and
(b)
the member is not employed by a sponsoring employer after
becoming entitled to a pension under the pension scheme.
20
      (4)
The member’s protected pension age is the age from which the member had
an actual or prospective right to a pension under the pension scheme.
      (5)
But this paragraph does not have effect so as to give the member a protected
pension age of more than 50 at any time before 6th April 2010.
23    (1)
This paragraph applies in relation to a registered pension scheme and a
25
member of the pension scheme if—
(a)
on 5th April 2006 the pension scheme was a personal pension scheme
approved under Chapter 4 of Part 14 of ICTA, 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,
30
and
(b)
the entitlement condition (in sub-paragraph (2)) and the retirement
condition (in sub-paragraph (3)) are met.
      (2)
The entitlement condition is that—
(a)
on 5th April 2006 the member had an actual or prospective right
35
under the pension scheme to a pension from an age of less than 50,
and
(b)
the member’s occupation was on that date (or had been) one
prescribed by regulations made by the Board of Inland Revenue.
      (3)
The retirement condition is that there is only one occasion on which the
40
member becomes entitled to a pension under the pension scheme.
      (4)
The member’s protected pension age is the age from which the member had
an actual or prospective right to a pension under the pension scheme.
Lump sum rights exceeding £375,000: primary and enhanced protection
24    (1)
If the lump sum condition and the registration condition are met in relation
45
to an individual—

Finance Bill
Schedule 34 — Pension schemes etc: transitional provisions and savings
Part 3 — Pre-commencement benefit rights
498

(a)
paragraphs 27 to 29 (which modify Schedule 29 in relation to pension
commencement lump sums), and
(b)
paragraph 30 (which makes provision about scheme chargeable
payments),

apply in relation to the individual.
5
      (2)
The lump sum condition is met if on 5th April 2006 the amount of an
individual’s total lump sum rights exceeds £375,000 (25% of the standard
lifetime allowance for the tax year 2006-07).
      (3)
Paragraph 25 defines the amount of an individual’s total lump sum rights on
that date.
10
      (4)
The registration condition is met if either or both of the notice requirements
is met.
      (5)
The first notice requirement is met if notice of intention to rely on paragraph
7 (primary protection) is given to the Inland Revenue in accordance with
regulations under that paragraph in relation to the individual.
15
      (6)
The second notice requirement is met if notice of intention to rely on
paragraph 12 (enhanced protection) is given to the Inland Revenue in
accordance with regulations under that paragraph in relation to the
individual.
25    (1)
The amount of an individual’s total lump sum rights on 5th April 2006 is—
20

where—
VCPR is the value of the individual’s relevant crystallised pension
rights on 5th April 2006, calculated in accordance with paragraph
10, and
VULSR is the value of the individual’s relevant uncrystallised lump
25
sum rights on that date.
      (2)
The value of the individual’s relevant uncrystallised lump sum rights on 5th
April 2006 is the aggregate value of the individual’s uncrystallised lump
sum rights on that date under each relevant pension arrangement relating to
the individual.
30
      (3)
An uncrystallised lump sum right is a right to a lump sum which on 5th
April 2006 is prospective (rather than actual).
      (4)
An arrangement is a “relevant pension arrangement” if it is an arrangement
under a pension scheme within paragraph 1(1).
      (5)
The value of the individual’s uncrystallised lump sum rights under an
35
arrangement on 5th April 2006—
(a)
in the case of an arrangement under a pension scheme falling within
paragraph 1(1)(f), is 25% of the value of the funds held for the
purposes of the arrangement on that date, and
(b)
in the case of any other arrangement, is an amount calculated in
40
accordance with sub-paragraph (6).
      (6)
The amount is the amount of any lump sum to which the individual would
have been entitled under the arrangement on 5th April 2006 on the
assumption that the individual became entitled to the present payment of a
lump sum under the arrangement on that date.
45

Finance Bill
Schedule 34 — Pension schemes etc: transitional provisions and savings
Part 3 — Pre-commencement benefit rights
499

      (7)
In calculating an amount in accordance with sub-paragraph (6) the valuation
assumptions apply but as if the reference to such age (if any) as must have
been reached to avoid any reduction in benefits on account of age in
paragraph (a) of section 271 were to the relevant age; and for this purpose
“the relevant age” is—
5
(a)
if on 10th December 2003 the terms of the arrangement made
provision for a reduction in the amount of benefits payable in respect
of rights under the arrangement on account of the holder of the rights
being below a particular age, that age, and
(b)
otherwise, 60.
10
26    (1)
This paragraph applies if any of the individual’s uncrystallised lump sum
rights on 5th April 2006 are rights under one or more arrangements under a
pension scheme or schemes within paragraph 1(1)(a) to (d).
      (2)
The value of the individual’s uncrystallised lump sum rights on 5th April
2006 under the arrangement, or the aggregate of the values of the
15
individual’s uncrystallised lump sum rights on 5th April 2006 under such of
the arrangements as relate to a particular employment, is the lower of—
(a)
the value, or the aggregate of the values, calculated under paragraph
25, and
(b)
the maximum permitted lump sum.
20
      (3)
“The maximum permitted lump sum” means the maximum lump sum that
could be paid to the individual on 5th April 2006 under the arrangement or
arrangements if it or they were made under a pension scheme within
paragraph 1(1)(a) without giving the Board of Inland Revenue grounds for
withdrawing approval of the pension scheme under section 591B of ICTA.
25
      (4)
For the purposes of sub-paragraph (3) it is to be assumed—
(a)
if the individual was in the employment to which the arrangement
or arrangements relates or relate on 5th April 2006, that the
individual left the employment on that date, and
(b)
if the individual had not reached the lowest age at which a lump sum
30
may be paid under a pension scheme within paragraph 1(1)(a) to a
person in good health without giving the Board of Inland Revenue
grounds for withdrawing the approval of the pension scheme, that
that fact would not give the Board such grounds.
      (5)
Whether an arrangement relating to an individual relates to an employment
35
is to be determined in accordance with paragraph 9(6).
27    (1)
If (and for so long as) paragraph 12 (enhanced protection) applies in relation
to the individual, paragraph 2 of Schedule 29 applies in relation to the
individual with the following modifications.
      (2)
If the value of the individual’s relevant uncrystallised lump sum rights on
40
5th April 2006 (calculated in accordance with paragraphs 25 and 26) was nil,
the permitted maximum under paragraph 2 is nil.
      (3)
Otherwise, paragraph 2 applies as if for sub-paragraphs (5) to (8) there were
substituted—
     “(5)
If sub-paragraph (2) does not apply, the permitted maximum is
45
the applicable amount, calculated in accordance with paragraph
3.”
28    (1)
If paragraph 12 (enhanced protection: no relevant benefit accrual post-
commencement) does not apply in relation to the individual, paragraph 2 of

Finance Bill
Schedule 34 — Pension schemes etc: transitional provisions and savings
Part 3 — Pre-commencement benefit rights
500

Schedule 29 applies in relation to the individual with the following
modifications.
      (2)
If the value of the individual’s relevant uncrystallised lump sum rights on
5th April 2006 (calculated in accordance with paragraphs 25 and 26) was nil,
the permitted maximum under paragraph 2 is nil.
5
      (3)
Otherwise, paragraph 2 applies as if for sub-paragraphs (5) to (7) there were
substituted—
    “(5)
If sub-paragraph (2) does not apply, the permitted maximum is
the available portion of the member’s lump sum allowance.
      (6)
The available portion of the member’s lump sum allowance is—
10

where—
VULSR is the value of the individual’s relevant
uncrystallised lump sum rights on 5th April 2006
(calculated in accordance with paragraphs 25 and 26 of
Schedule 34), as adjusted under sub-paragraph (6A), and
15
APCLS is the aggregate of the amounts of each pension
commencement lump sum to which the individual has
previously become entitled, as adjusted under sub-
paragraph (7) (or, if the individual has not previously
become entitled to a pension commencement lump sum,
20
is nil).
     (6A)
The adjustment referred to in the definition of VULSR is the
multiplication of the value of the individual’s relevant
uncrystallised lump sum rights on 5th April 2006 by—

where—
25
CSLA is the current standard lifetime allowance, and
FSLA is £1,500,000 (the standard lifetime allowance for the
tax year 2006-07).
      (7)
The adjustment of the amount of a pension commencement lump
sum to which the individual has previously become entitled
30
referred to in the definition of APCLS is the multiplication of the
amount by—

where—
CSLA is the current standard lifetime allowance, and
PSLA is the standard lifetime allowance at the time the
35
individual became entitled to the lump sum.”
29    (1)
If (and for so long as) paragraph 12 (enhanced protection) applies in relation
to the individual, paragraph 3 of Schedule 29 (applicable amount) applies
with the following modifications.
      (2)
Paragraph 3 applies as if for sub-paragraphs (1) to (3) there were
40

Finance Bill
Schedule 34 — Pension schemes etc: transitional provisions and savings
Part 3 — Pre-commencement benefit rights
501

substituted—
     “(1)
Where the member becomes entitled to income withdrawal, the
applicable amount is—

where—
VULSR is the value of the individual’s relevant
5
uncrystallised lump sum rights on 5th April 2006,
calculated in accordance with paragraphs 25 and 26 of
Schedule 34,
VUR is the value of the individual’s uncrystallised pension
rights on 5th April 2006, calculated in accordance with
10
paragraphs 8 and 9 of that Schedule,
LS is the lump sum paid, and
AD is the aggregate of the amount of the sums, and the
market value of the assets, designated as available for the
payment of unsecured pension on that occasion.
15
      (2)
For the purposes of sub-paragraph (1) there is to be deducted from
the aggregate of the lump sum and the amount of the sums and the
market value of the assets designated as available for the payment
of unsecured pension so much (if any) of that amount as
represents rights which are attributable to a disqualifying pension
20
credit.
      (3)
Where the member becomes entitled to a lifetime annuity, the
applicable amount is—

where—
VULSR, VUR and LS have the same meaning as in sub-
25
paragraph (1), and
APP is the annuity purchase price.”
      (3)
Paragraph 3 applies as if for sub-paragraphs (5) to (7) there were
substituted—
“(5)
There is to be deducted from the aggregate of the amount of the
30
lump sum and the annuity purchase price—
(a)
if the annuity is purchased (in whole or in part) by the
application 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
35
value of those assets, and
(b)
in any case, so much (if any) of the aggregate of the lump
sum and the annuity purchase price as represents rights
which are attributable to a disqualifying pension credit.
(6)
Where the member becomes entitled to a scheme pension, the
40
applicable amount is—

but subject to sub-paragraph (8).
(7)
In sub-paragraph (6)—

Finance Bill
Schedule 34 — Pension schemes etc: transitional provisions and savings
Part 3 — Pre-commencement benefit rights
502

VULSR, VUR and LS have the same meaning as in sub-
paragraph (1), and
AC is the amount crystallised by reason of the member
becoming entitled to the pension (see section 212).”
30    (1)
Any part of a lump sum falling within paragraph 1(1) of Schedule 29
5
which—
(a)
under paragraph 1(2) of that Schedule is not a pension
commencement lump sum (because the lump sum exceeds the
permitted maximum), and
(b)
is an unauthorised payment,
10

is to be treated as exempt from being scheme chargeable (under section
237(2)) if the condition in sub-paragraph (2) is met.
      (2)
The condition is that it would not have been an unauthorised payment if—
(a)
paragraphs 27 and 29 (in the case of an individual in relation to
whom paragraph 12 applies), or
15
(b)
paragraph 28 (in the case of an individual in relation to whom
paragraph 12 does not apply),

had not applied.
Entitlement to lump sums exceeding 25% of uncrystallised rights
31    (1)
Paragraph 34 applies if on 5th April 2006 the lump sum percentage of an
20
individual’s uncrystallised rights under a relevant pension scheme exceeds
25% (but subject to sub-paragraph (2)).
      (2)
Paragraph 34 does not apply if the lump sum condition and registration
condition in paragraph 24 are met.
      (3)
A pension scheme is a relevant pension scheme if it is within paragraph
25
1(1)(a) to (e).
      (4)
The lump sum percentage of an individual’s uncrystallised pension rights
under a relevant pension scheme is—

where—
VULSR is the value of the individual’s uncrystallised lump sum rights
30
under the pension scheme on 5th April 2006, calculated in
accordance with paragraph 32, and
VUR is the value of the individual’s uncrystallised rights under the
pension scheme on 5th April 2006, calculated in accordance with
paragraph 33.
35
32    (1)
Subject to sub-paragraph (2), the value of the individual’s uncrystallised
lump sum rights under the pension scheme on 5th April 2006 is the
aggregate of the value of the individual’s uncrystallised lump sum rights
under each arrangement in respect of the individual under the pension
scheme, calculated in accordance with paragraph 25(5), on that date.
40
      (2)
If the pension scheme is a relevant pension scheme, the value of the
individual’s uncrystallised lump sum rights on 5th April 2006 under an
arrangement—
(a)
which relates to a particular employment, and
(b)
in relation to which the excess lump sum condition is met (see sub-
45
paragraph (5) or (6)),

Finance Bill
Schedule 34 — Pension schemes etc: transitional provisions and savings
Part 3 — Pre-commencement benefit rights
503


is the amount arrived at in accordance with sub-paragraph (7) or (8).
      (3)
A pension scheme is a relevant pension scheme if it falls within paragraph
1(1)(a) to (d).
      (4)
Whether an arrangement relating to the individual relates to a particular
employment is to be determined in accordance with paragraph 9(6).
5
      (5)
If no other arrangement relating to the individual under a relevant pension
scheme relates to the employment to which the arrangement relates, the
excess lump sum condition is met in relation to the arrangement if—
(a)
the value of the individual’s uncrystallised lump sum rights under
the arrangement calculated in accordance with paragraph 25(5),
10
exceeds
(b)
the amount arrived at in relation to the arrangement in accordance
with paragraph 26.
      (6)
If one or more other arrangements relating to the individual under a relevant
pension scheme or relevant pension schemes relates or relate to the
15
employment to which the arrangement relates, the excess lump sum
condition is met in relation to the arrangement if—
(a)
the aggregate of the values of the individual’s uncrystallised lump
sum rights under the arrangement and the other arrangement or
arrangements, calculated in accordance with paragraph 25(5),
20
exceeds
(b)
the amount arrived at in relation to those arrangements in
accordance with paragraph 26;

and the amount by which the aggregate of those values exceeds that amount
is the “lump sum excess”.
25
      (7)
Where the excess lump sum condition is met by virtue of sub-paragraph (5),
the value of the individual’s uncrystallised lump sum rights under the
arrangement is the amount arrived at in accordance with paragraph 26.
      (8)
Where the excess lump sum condition is met by virtue of sub-paragraph (6),
the value of the individual’s uncrystallised lump sum rights under the
30
arrangement is the value of those rights calculated in accordance with
paragraph 25(5), less the appropriate proportion of the lump sum excess.
      (9)
The appropriate proportion of the lump sum excess is—

where—
V is the value of the individual’s uncrystallised lump sum rights
35
under the arrangement, calculated in accordance with paragraph
25(5), and
AV is the aggregate of the values of the individual’s uncrystallised
lump sum rights under the arrangement and the other arrangement
or arrangements, calculated in accordance with paragraph 25(5).
40
33    (1)
Subject to sub-paragraph (2), the value of the individual’s uncrystallised
rights under the pension scheme on 5th April 2006 is the aggregate of the
value of the individual’s uncrystallised rights under each arrangement in
respect of the individual under the pension scheme, calculated in
accordance with paragraph 8(5).
45
      (2)
If the pension scheme is a relevant pension scheme, the value of the
individual’s uncrystallised rights on 5th April 2006 under an arrangement—