Finance Bill

House of Commons

Session 2004 - 05
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Finance Bill

Finance Bill
Schedule 19 — Pension schemes etc.
293

(3)
The relevant proportion of the scheme sanction charge is—
where—
ASO is the amount subject to the order, that is the aggregate of
the market value of any property and the amount of any
money transferred, or the amount of the sum paid, towards a
5
registered pension scheme pursuant to the order under
section 19(4) or 21(2)(a) of the Pensions Act 2004 or Article
15(4) or 17(2)(a) of the Pensions (Northern Ireland) Order
2005 in respect of the unauthorised member payment, and
UMP is the amount of the unauthorised member payment.
10
(4)
But if ASO is greater than UMP, the relevant proportion of the
scheme sanction charge is the whole of it.”
Unauthorised member payments
5
In section 161(5) (payment made to person who is connected with member,
or was connected with member at his death, to be treated as made in respect
15
of member), after “scheme to” insert “or in respect of”.
Unauthorised payments: loans to person connected with member or sponsoring employer
6     (1)
Section 162 (meaning of “loan”) is amended as follows.
      (2)
In subsection (3) (guarantee of loan to or in respect of member or sponsoring
employer to be treated as loan), after “scheme” insert “, or to or in respect of
20
a person who is connected with a member or sponsoring employer of a
registered pension scheme but is not a member or sponsoring employer of
the pension scheme,”.
      (3)
In subsection (4) (debt of member or sponsoring employer not required to be
repaid at normal time to be treated as loan), after “registered pension
25
scheme” insert “or a person who is connected with a member or sponsoring
employer of a registered pension scheme but is not a member or sponsoring
employer of the pension scheme”.
      (4)
After subsection (5) insert—
“(6)
Section 839 of ICTA (connected persons) applies for the purposes of
30
this section.”
Abatement of public service pensions
7
In section 165(3) (when a person becomes entitled to a pension), insert at the
end (not as part of paragraph (b)) “and, for this purpose, the abatement of a
scheme pension under a public service pension scheme is not to be taken to
35
affect the right to receive it.”
8     (1)
Schedule 32 (benefit crystallisation events: supplementary) is amended as
follows.
      (2)
In paragraph 9 (benefit crystallisation event 2: meaning of “P”), after sub-

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Schedule 19 — Pension schemes etc.
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paragraph (1) insert—
   “(1A)
If the pension is under a public service pension scheme, any
abatement of the pension is to be left out of account in determining
the amount of the pension which will be payable for the purposes
of sub-paragraph (1).”
5
      (3)
After that paragraph insert—
“Benefit crystallisation event 3: disregarding abatement
9A
For the purposes of benefit crystallisation event 3, any abatement
of the scheme pension is to be left out of account in determining
for the purposes of column 1 —
10
(a)
the increased annual rate of the pension, and
(b)
the rate at which it was payable on the day on which the
individual became entitled to it.”
      (4)
In paragraph 11 (benefit crystallisation event 3: permitted margin in case of
post-5th April 2006 pension), after sub-paragraph (7) insert—
15
    “(8)
If the pension is under a public service pension scheme, any
abatement of the pension is to be left out of account in determining
for the purposes of this paragraph the annual amount of the
pension at the rate at which it was payable on the day on which the
individual became entitled to it.”
20
      (5)
In paragraph 12 (benefit crystallisation event 3: permitted margin in case of
pre-5th April 2006 pension), after sub-paragraph (3) insert—
    “(4)
If the pension is under a public service pension scheme, any
abatement of the pension is to be left out of account in determining
for the purposes of this paragraph the annual amount of the
25
pension at the rate at which it was payable on the day on which the
individual became entitled to it.”
      (6)
In paragraph 13 (benefit crystallisation event 3: meaning of “XP”), after sub-
paragraph (2) insert—
    “(3)
If the pension is under a public service pension scheme, any
30
abatement of the pension is to be left out of account in determining
for the purposes of sub-paragraph (1)—
(a)
the increased annual rate of the pension, and
(b)
the rate at which it was payable on the day on which the
individual became entitled to it.”
35
9
In section 279(1) (definitions), before the definition of “the Board of Inland
Revenue” insert—
““abatement”, in relation to a scheme pension under a public
service pension scheme, means the reduction of the pension
(including its reduction to nil) in accordance with the rules of
40
the pension scheme by reason of re-employment in public
service,”.
10
In the table in section 280(2) (index of defined expressions), insert at the

Finance Bill
Schedule 19 — Pension schemes etc.
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appropriate place—

“abatement
section 279(1)”.

Scheme pensions
11    (1)
Paragraph 2 of Schedule 28 (scheme pensions) is amended as follows.
      (2)
Omit sub-paragraph (1) (special provisions for pension scheme with fewer
5
than 50 members).
      (3)
In sub-paragraph (2) (pension scheme with 50 or more members), for “In the
case of a pension scheme with 50 or more members, a” substitute “A”.
      (4)
In sub-paragraph (3)(b) (no reduction in rate of pension)—
(a)
for “in respect of any” substitute “at any time during any”, and
10
(b)
for “in respect of the previous 12 month period” substitute “at the
relevant time”.
      (5)
After that sub-paragraph insert—
   “(3A)
“The relevant time” is—
(a)
in the case of the first relevant 12 month period, the day on
15
which the member becomes entitled to the pension, and
(b)
in the case of any other relevant 12 month period,
immediately before the beginning of that period.”
      (6)
In sub-paragraph (4) (things not preventing condition in sub-paragraph (3)
being satisfied), omit “or” at the end of paragraph (b) and insert at the end—
20
“(d)
the reduction of the pension in consequence of a pension
sharing order or provision,
(e)
forfeiture of entitlement to the pension in circumstances
prescribed by regulations made by the Board of Inland
Revenue,
25
(f)
the reduction of the pension in consequence of an order of
a court,
(g)
if the pension is under a public service pension scheme, its
reduction by abatement, or
(h)
the reduction of the pension in any other circumstances
30
prescribed by regulations made by the Board of Inland
Revenue.”
      (7)
After that sub-paragraph insert—
   “(4A)
In sub-paragraph (4) references to the reduction of a pension
include its ceasing to be payable (whether temporarily or
35
permanently).”
      (8)
After sub-paragraph (6) insert—
   “(6A)
The Board of Inland Revenue may by regulations provide that if—
(a)
a scheme pension payable by an insurance company
selected by the scheme administrator of a registered
40
pension scheme (“the original scheme pension”) ceases to
be payable, and

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Schedule 19 — Pension schemes etc.
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(b)
in consequence of the transfer of sums or assets (or both)
from the insurance company to another insurance
company in connection with the original scheme pension
ceasing to be payable, another scheme pension becomes
payable by the other insurance company (“the new scheme
5
pension”),

the new scheme pension is to be treated, to such extent as is
prescribed by the regulations and for such of the purposes of this
Part as are so prescribed, as if it were the original scheme
pension.”
10
      (9)
Insert at the end—
    “(8)
Regulations under sub-paragraph (4)(e) and (h) may include
provision having effect in relation to times before they are made.”
12
In Schedule 28 (authorised pensions), after paragraph 2 insert—
“2A   (1)
Where this paragraph applies in relation to a pension payable to
15
the member, the pension scheme is to be treated as making an
unauthorised payment to the member of the appropriate amount.
      (2)
This paragraph applies to a pension if it fails to satisfy the
condition in sub-paragraph (3) of paragraph 2—
(a)
by reason of not complying with paragraph (a) of that sub-
20
paragraph, or
(b)
by reason of not complying with paragraph (b) of that sub-
paragraph because a substantial reduction occurs in the
rate of the pension,

or if it is a pension the rate of which is reduced in accordance with
25
paragraph (b) of sub-paragraph (4) of paragraph 2 but the
reduction is part of avoidance arrangements.
      (3)
For the purposes of sub-paragraph (2)(b) a substantial reduction
occurs in the rate of a pension if the rate at which the pension is
payable at any time during any relevant 12 month period (within
30
the meaning of paragraph 2(7)) is less than 80% of the rate payable
when the member became entitled to the pension.
      (4)
For the purposes of sub-paragraph (2) “avoidance arrangements”
includes schemes, arrangements and understandings of any kind
(whether or not legally enforceable) the main purpose, or one of
35
the main purposes, of which is to increase the member’s
entitlement to a lump sum on which there is no liability to income
tax.
      (5)
“The appropriate amount”, in relation to the pension, is the
amount of any lump sum on which there is no liability to tax to
40
which the member became entitled in connection with the
pension.
      (6)
Once this paragraph has applied in relation to the pension, it does
not apply in relation to it again.
      (7)
The application of this paragraph in relation to the pension does
45
not prevent any payments of the pension themselves being
unauthorised member payments.”

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Annuities
13    (1)
Paragraph 3 of Schedule 28 (lifetime annuity) is amended as follows.
      (2)
For sub-paragraph (1)(d) (lifetime annuity to be level annuity, increasing
annuity or relevant linked annuity) substitute—
“(d)
its amount either cannot decrease or falls to be determined
5
in any manner prescribed by regulations made by the
Board of Inland Revenue.”
      (3)
After sub-paragraph (2) insert—
   “(2A)
An annuity does not fail to satisfy sub-paragraph (1)(d) by reason
of the operation of a pension sharing order or provision.
10
     (2B)
The Board of Inland Revenue may by regulations make provision
in relation to cases in which a lifetime annuity payable by an
insurance company (“the original lifetime annuity”) ceases to be
payable and in consequence of that—
(a)
sums or assets (or both) are transferred from the insurance
15
company to another insurance company and are applied
towards the provision of either another lifetime annuity (a
“new lifetime annuity”) or a scheme pension, short-term
annuity, dependants’ scheme pension, dependants’
annuity or dependants’ short-term annuity by the other
20
insurance company, or
(b)
sums or assets are transferred to the relevant registered
pension scheme.
     (2C)
The regulations may provide that—
(a)
in a case where a new lifetime annuity becomes payable,
25
the new lifetime annuity is to be treated, to such extent as
is prescribed by the regulations and for such of the
purposes of this Part as are so prescribed, as if it were the
original lifetime annuity, and
(b)
in any other case, the relevant registered pension scheme is
30
to be treated as making an unauthorised payment to the
member of an amount equal to the aggregate of the
amount of the sums, and the market value of the assets,
transferred.
     (2D)
For the purposes of sub-paragraphs (2B) and (2C) a registered
35
pension scheme is the relevant registered pension scheme if the
original lifetime annuity was acquired using sums or assets held
for the purposes of the pension scheme.”
      (4)
Omit sub-paragraphs (3) to (6) (which define level annuity, increasing
annuity and relevant linked annuity).
40
14    (1)
Paragraph 6 of Schedule 28 (short-term annuity) is amended as follows.
      (2)
In sub-paragraph (1) (meaning of “short-term annuity”), for “An” substitute
“For the purposes of this Part an”.
      (3)
For paragraph (e) of that sub-paragraph (short-term annuity to be level

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Schedule 19 — Pension schemes etc.
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annuity, increasing annuity or relevant linked annuity) substitute—
“(e)
its amount either cannot decrease or falls to be determined
in any manner prescribed by regulations made by the
Board of Inland Revenue.”
      (4)
After that sub-paragraph insert—
5
   “(1A)
An annuity does not fail to satisfy sub-paragraph (1)(e) by reason
of the operation of a pension sharing order or provision.
     (1B)
The Board of Inland Revenue may by regulations make provision
in relation to cases in which a short-term annuity payable by an
insurance company (“the original short-term annuity”) ceases to
10
be payable and in consequence of that—
(a)
sums or assets (or both) are transferred from the insurance
company to another insurance company and are applied
towards the provision of either another short-term annuity
(a “new short-term annuity”) or a scheme pension, lifetime
15
annuity, dependants’ scheme pension, dependants’
annuity or dependants’ short-term annuity by the other
insurance company, or
(b)
sums or assets are transferred to the relevant registered
pension scheme.
20
     (1C)
The regulations may provide that—
(a)
in a case where a new short-term annuity becomes
payable, the new short-term annuity is to be treated, to
such extent as is prescribed by the regulations and for such
of the purposes of this Part as are so prescribed, as if it were
25
the original short-term annuity, and
(b)
in any other case, the relevant registered pension scheme is
to be treated as making an unauthorised payment to the
member of an amount equal to the aggregate of the
amount of the sums, and the market value of the assets,
30
transferred.
     (1D)
For the purposes of sub-paragraphs (1B) and (1C) a registered
pension scheme is the relevant registered pension scheme if the
original short-term annuity was acquired using sums or assets
held for the purposes of the pension scheme.”
35
      (5)
Omit sub-paragraph (2) (which defines level annuity, increasing annuity
and relevant linked annuity).
15    (1)
Paragraph 17 of Schedule 28 (dependants’ annuity) is amended as follows.
      (2)
In sub-paragraph (1) (meaning of “dependants’ annuity”), for “An”
substitute “For the purposes of this Part an”.
40
      (3)
For paragraph (c) of that sub-paragraph (dependants’ annuity to be level
annuity, increasing annuity or relevant linked annuity) substitute—
“(c)
its amount either cannot decrease or falls to be determined
in any manner prescribed by regulations made by the
Board of Inland Revenue,”.
45
      (4)
For sub-paragraph (2) (which defines level annuity, increasing annuity and
relevant linked annuity) substitute—