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
504

(a)
which relates to a particular employment, and
(b)
in relation to which the excess rights condition is met (see sub-
paragraph (5) or (6)),

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
5
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)
If no other arrangement relating to the individual under a relevant pension
scheme relates to the employment to which the arrangement relates, the
10
excess rights condition is met in relation to the arrangement if—
(a)
the value of the individual’s uncrystallised rights under the
arrangement calculated in accordance with paragraph 8(5), exceeds
(b)
the amount arrived at in relation to the arrangement in accordance
with paragraph 9(3).
15
      (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
employment to which the arrangement relates, the excess rights condition is
met in relation to the arrangement if—
(a)
the aggregate of the values of the individual’s uncrystallised rights
20
under the arrangement and the other arrangement or arrangements,
calculated in accordance with paragraph 8(5), exceeds
(b)
the amount arrived at in relation to those arrangements in
accordance with paragraph 9(3);

and the amount by which the aggregate of those values exceeds that amount
25
is the “rights excess”.
      (7)
Where the excess rights condition is met by virtue of sub-paragraph (5), the
value of the individual’s uncrystallised rights under the arrangement is the
amount arrived at in accordance with paragraph 9(3).
      (8)
Where the excess rights condition is met by virtue of sub-paragraph (6), the
30
value of the individual’s uncrystallised rights under the arrangement is the
value of those rights calculated in accordance with paragraph 8(5), less the
appropriate proportion of the rights excess.
      (9)
The appropriate proportion of the rights excess is—

where—
35
V is the value of the individual’s uncrystallised rights under the
arrangement, calculated in accordance with paragraph 8(5), and
AV is the aggregate of the values of the individual’s uncrystallised
rights under the arrangement and the other arrangement or
arrangements, calculated in accordance with paragraph 8(5).
40
34    (1)
If the pension condition is met on the first occasion after 5th April 2006 on
which the individual becomes entitled under the pension scheme to a lump
sum falling within paragraph 1(1) of Schedule 29 (pension commencement
lump sums), paragraph 35 (which modifies that Schedule in relation to
pension commencement lump sums) applies in relation to the individual
45
and the pension scheme.

Finance Bill
Schedule 34 — Pension schemes etc: transitional provisions and savings
Part 3 — Pre-commencement benefit rights
505

      (2)
The pension condition is that the individual becomes entitled to all the
pensions payable to the individual under arrangements under the scheme
(and to which the individual did not have an actual entitlement on or before
5th April 2006) on the same date.
35    (1)
Schedule 29 applies with the following modifications.
5
      (2)
Paragraph 2 applies as if the reference in sub-paragraph (2) to the
arrangement under which the member becomes entitled to the relevant
pension were to the pension scheme and for sub-paragraphs (5) to (8) there
were substituted—
     “(5)
If paragraph 2(2) does not apply and relevant benefit accrual has
10
occurred under the pension scheme in relation to the individual
after 5th April 2006, the permitted maximum is—
      (6)
If paragraph 2(2) does not apply and relevant benefit accrual has
not occurred under the pension scheme in relation to the
individual after 5th April 2006, the permitted maximum is—
15
      (7)
In this paragraph—
VULSR is the value of the individual’s uncrystallised lump
sum rights under the pension scheme on 5th April 2006,
calculated in accordance with paragraph 32 of Schedule
34,
20
CSLA is the current standard lifetime allowance,
FSLA is £1,500,000 (the standard lifetime allowance for the
tax year 2006-07), and
ALSA is the additional lump sum amount.
     (7A)
The additional lump sum amount is—
25

where—
LS is the lump sum paid (but this is subject to sub-
paragraph (7B)),
AC is the amount crystallised on the individual becoming
entitled to the pension in connection with which the lump
30
sum is paid (see section 212) (but this is subject to sub-
paragraph (7B)), 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 of Schedule 34.
35
     (7B)
Any part of the lump sum and the amount crystallised which
represents rights attributable to a disqualifying pension credit is to
be disregarded.
     (7C)
Paragraph 13 of Schedule 34 specifies when relevant benefit
accrual occurs in relation to an individual.”
40

Finance Bill
Schedule 34 — Pension schemes etc: transitional provisions and savings
Part 3 — Pre-commencement benefit rights
506

      (3)
Omit paragraph 3 (applicable amount for pension commencement lump
sums).
36    (1)
In paragraphs 34 and 35 references to the pension scheme include a
registered pension scheme to which there has been a block transfer from the
pension scheme on or after 6th April 2006.
5
      (2)
A block transfer is a recognised transfer, in a single transaction, of sums or
assets representing all the accrued rights under the pension scheme of the
individual and at least one other member of the pension scheme.
Winding-up lump sums paid by former approved superannuation funds
37    (1)
For the tax year 2006-07, Schedule 29 (authorised lump sums) applies in
10
relation to former approved superannuation funds with the modifications
specified in sub-paragraphs (2) and (3).
      (2)
Paragraph 10 (winding-up lump sums) applies as if the following were
omitted—
(a)
sub-paragraph (1)(c) and (d),
15
(b)
sub-paragraph (2), and
(c)
sub-paragraph (3).
      (3)
Paragraph 11 (lifetime allowance excess lump sums) applies as if at the end
of paragraph (b) there were inserted “or a winding-up lump sum”.
      (4)
Section 636B of ITEPA 2003 (taxation of trivial commutation and winding-
20
up lump sums) applies in relation to a winding-up lump sum paid by a
former approved superannuation fund in the tax year 2006-07 as if—
(a)
in subsection (2), after “equal to” there were inserted “75% of”, and
(b)
subsection (3) were omitted.
      (5)
“Former approved superannuation fund” has the meaning given by
25
paragraph 1(3).
Right to payment of lump sum death benefit
38    (1)
This paragraph applies to a member of a registered pension scheme if on 5th
April 2006—
(a)
the pension scheme is within any of paragraphs (a) to (e) of
30
paragraph 1(1),
(b)
the member has an actual (rather than a prospective) right to a
pension under an arrangement under the pension scheme, and
(c)
under the arrangement a lump sum death benefit is payable if the
member dies within the guarantee period.
35
      (2)
The guarantee period is the period of five years beginning with the day on
which the member became entitled to the pension or, if later, the day on
which the pension was first paid.
      (3)
If the member dies after having reached the age of 75 and before the end of
the guarantee period—
40
(a)
paragraph 14 of Schedule 29 (pension protection lump sum death
benefit),
(b)
paragraph 16 of that Schedule (annuity protection lump sum death
benefit), and
(c)
paragraph 17 of that Schedule (unsecured pension fund lump sum
45
death benefit),

Finance Bill
Schedule 34 — Pension schemes etc: transitional provisions and savings
Part 4 — Other provisions
507


apply in relation to the member and the arrangement with the following
modifications.
      (4)
Each of those paragraphs applies as if sub-paragraph (1)(a) were omitted.
      (5)
Paragraph 14(1) applies as if paragraph (d) were omitted.
      (6)
Paragraph 14(2) applies as if the reference to the pension protection limit
5
were to the transitional protection limit.
      (7)
Paragraph 16(2) applies as if the reference to the annuity protection limit
were to the transitional protection limit.
      (8)
Paragraph 17(3) applies in relation to a lump sum falling within paragraph
17(1) as if the reference to the permitted maximum were to the transitional
10
protection limit.
      (9)
Section 202(1) (special lump sum death benefits charge) does not apply to
any pension protection lump sum death benefit, annuity protection lump
sum death benefit or unsecured pension fund lump sum death benefit paid
by virtue of sub-paragraphs (3) to (8).
15
     (10)
If the member dies before having reached the age of 75 and before the end of
the guarantee period—
(a)
section 202(1) does not apply to so much of any pension protection
lump sum death benefit, annuity protection lump sum death benefit
or unsecured pension fund lump sum death benefit paid under the
20
arrangement as does not exceed the transitional protection limit, and
(b)
if the arrangement is a defined benefits arrangement, paragraph
14(1)(d) of Schedule 29 is to be treated as satisfied in relation to so
much of the lump sum death benefit paid under the arrangement as
does not exceed the transitional protection limit.
25
     (11)
The transitional protection limit is—

where—
P is the amount of pension to which (had the member lived) the
member would have been entitled under the arrangement in
respect of the period beginning with the day of the member’s death
30
and ending with the last day of the guarantee period, and
TPLS is the amount of any pension protection lump sum death
benefit, annuity protection lump sum death benefit or unsecured
pension fund lump sum death benefit previously paid in respect of
the pension.
35
Part 4
Other provisions
Pre-commencement ill-health insurance contracts
39    (1)
Payments under protected ill-health insurance contracts are not
unauthorised member payments.
40
      (2)
Ill-health insurance contracts are contracts providing insurance against a
risk relating to non-payment by a member of a pension scheme of
contributions under the pension scheme.
      (3)
An ill-health insurance contract is protected if it was made before 6th April
2006 under—
45

Finance Bill
Schedule 34 — Pension schemes etc: transitional provisions and savings
Part 4 — Other provisions
508

(a)
a personal pension scheme approved under Chapter 4 of Part 14 of
ICTA before 6th April 2001, or
(b)
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.
5
Pre-commencement loans to sponsoring employers
40    (1)
This paragraph applies to a loan if—
(a)
the loan was made before 6th April 2006 by an occupational pension
scheme which becomes a registered pension scheme on that date,
(b)
had this Part had been in force and had the pension scheme been a
10
registered pension scheme at the time when the loan was made, it
would have been a loan to a sponsoring employer, and
(c)
the date by which the total amount owing (including interest) must
be paid is on or after 6th April 2006.
      (2)
If on or after 6th April 2006 there is no alteration in the repayment terms,
15
section 175 (authorised employer loan) does not apply in relation to the loan.
      (3)
If on or after 6th April 2006 there is an alteration in the repayment terms,
section 175 applies as if, on the date of the alteration, the pension scheme
made a loan to the sponsoring employer of an amount equal to the amount
owing (including interest) on that date.
20
      (4)
The postponement of the date by which the total amount owing (including
interest) must be paid is not an alteration in the repayment terms if—
(a)
an amount is outstanding on the date by which the total amount
owing should have been paid,
(b)
the postponement is for a period not exceeding five years, and
25
(c)
there has been no previous postponement on or after 6th April 2006.
Retirement annuity contracts: carry-back of pre-commencement contributions
41
The repeal by this Act of section 619(4) of ICTA (election on or before 31st
January following tax year in which retirement annuity contract premium is
paid to treat premium as paid in earlier tax year) does not prevent the
30
making of an election under that provision (in relation to a premium paid in
the tax year 2005-06) at any time on or before 31st January 2007.
Members’ contributions to pre-commencement retirement annuity contracts
42    (1)
Relief in respect of contributions made by a member under pre-
commencement retirement annuity arrangements is not required to be given
35
in accordance with section 188 (relief at source).
      (2)
If relief in respect of contributions made by a member under pre-
commencement retirement annuity arrangements is not given in accordance
with section 188, relief in respect of the contributions is to be given in
accordance with section 190 (relief on making of claim).
40
      (3)
“Pre-commencement retirement annuity arrangements” means—
(a)
an annuity contract or trust scheme approved under section 620 or
621 of ICTA, or
(b)
a substituted contract within the meaning of section 622(3) of ICTA.

Finance Bill
Schedule 34 — Pension schemes etc: transitional provisions and savings
Part 4 — Other provisions
509

Employers’ contributions relieved before 6th April 2006
43
To the extent that any contribution paid by an employer under a registered
pension scheme was—
(a)
allowed to be deducted for the purposes of Case I or II of Schedule D,
(b)
deductible under section 75 of ICTA (expenses of management:
5
companies with investment business), or
(c)
brought into account at Step 1 in section 76(7) of ICTA (expenses of
insurance companies),

for a period beginning before 6th April 2006, it is not allowed to be so
deducted, so deductible, or available to be so brought into account for that
10
or any other period in accordance with section 192 (relief for employers in
respect of contributions paid).
Spreading of employer’s contributions
44
The power of the Board of Inland Revenue under section 592(6) of ICTA to
direct that a sum paid under an exempt approved scheme otherwise than by
15
way of ordinary annual contribution be treated as an expense to be spread
over such period of years as the Board think fit continues to apply in relation
to sums paid before 6th April 2006.
Taxation of annuities paid under pre-commencement retirement annuity contracts
45    (1)
Chapter 9 of Part 9 of ITEPA 2003 (taxation of annuities paid under pre-
20
commencement retirement annuity contracts) continues to have effect until
such date as the Treasury may by order appoint.
      (2)
Chapter 5A of that Part (as inserted by Schedule 31) does not have effect in
relation to any annuity to which Chapter 9 applies by virtue of sub-
paragraph (1).
25
      (3)
Section 683 of ITEPA 2003 (PAYE income) has effect accordingly.
      (4)
An order under sub-paragraph (1) may include any appropriate transitional
provision.
Taxation of pensions accruing (but not taxed) pre-commencement and paid or received post-
commencement
30
46    (1)
If an amount which accrued but was not paid before 6th April 2006 would
have constituted taxable pension income under Chapter 7 of Part 9 of ITEPA
2003 (former approved superannuation fund annuities) had it been paid
before that date, it is to be treated for the purposes of Chapter 5A of Part 9 of
ITEPA 2003 (as inserted by Schedule 31) as if it accrues when it is paid.
35
      (2)
If an amount which accrued but was not received before 6th April 2006
would have constituted taxable pension income under section 596 of ITEPA
2003 (personal pension annuities) had it been received before that date, it is
to be treated for the purposes of Chapter 5A of Part 9 of ITEPA 2003 (as
inserted by Schedule 31) as if it accrues when it is received.
40
Pensions taxed pre-commencement but accruing post-commencement
47    (1)
If an amount which was paid but had not accrued before 6th April 2006
constituted taxable pension income under Chapter 7 of Part 9 of ITEPA 2003
(former approved superannuation fund annuities), it does not also

Finance Bill
Schedule 34 — Pension schemes etc: transitional provisions and savings
Part 4 — Other provisions
510

constitute taxable pension income under Chapter 5A of Part 9 of ITEPA 2003
(as inserted by Schedule 31) when it accrues.
      (2)
If an amount which was received but had not accrued before 6th April 2006
constituted taxable pension income under section 596 of ITEPA 2003
(personal pension annuities), it does not also constitute taxable pension
5
income under Chapter 5A of Part 9 of ITEPA 2003 (as inserted by Schedule
31) when it accrues.
Application of PAYE to certain annuities in payment at commencement
48    (1)
Taxable pension income for the tax year 2006-07 or any subsequent tax year
determined in accordance with section 612 of ITEPA 2003 for an annuity to
10
which this paragraph applies is to be treated as being PAYE pension income
for the tax year by virtue of section 683(3) of that Act (PAYE income).
      (2)
This paragraph applies to an annuity in payment on 5th April 2006 which—
(a)
would be within paragraph 1(1) but for paragraph 2, or
(b)
would be within paragraph 1(1)(d) if the annuity did not provide for
15
the immediate payment of benefits.
Authorised surplus payments charge: pre-19th March 1986 winding-up
49
Section 203 (authorised surplus payments charge) does not apply to any
payment made in pursuance of the winding-up of a pension scheme if the
winding-up commenced before 19th March 1986.
20
Annual allowance charge: post-commencement contributions to discharge pre-commencement
unfunded promises
50    (1)
This paragraph applies where, during the period beginning with 6th April
2006 and ending with 7th July 2006, an employer of an individual makes a
relevant consolidation contribution in respect of the individual under an
25
arrangement under a registered pension scheme relating to the individual.
      (2)
The pension input amount in respect of the arrangement during the pension
input period of the arrangement ending in the tax year 2006-07 is to be
reduced by the amount of the contribution.
      (3)
“Relevant consolidation contribution” means a contribution made by way of
30
discharge of any liability incurred by the employer before 6th April 2006 to
pay any pension or lump sum to or in respect of the individual.
Annual allowance charge: enhanced protection
51    (1)
This paragraph applies if notice of intention to rely on paragraph 12
(enhanced protection) is given to the Inland Revenue in accordance with
35
regulations under that paragraph in the case of an individual.
      (2)
Sections 223 to 234 (annual allowance charge) do not apply in relation to the
individual for any tax year if that paragraph applies in relation to the
individual throughout the tax year.
Saving of sections 605 and 651A of ICTA
40
52
The repeal by this Act of sections 605 and 651A of ICTA (information
powers) does not affect the operation of those sections, or regulations under
them, in relation to times before 6th April 2006.