Finance Bill

House of Commons

Session 2004 - 05
Internet Publications
Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 19 — Pension schemes etc.
306

(c)
5% of the aggregate of the amounts of the lump sums on
which there is no liability to income tax to which the
member has become entitled in connection with scheme
pensions under the pension scheme before his death.
      (4)
But if the member became (actually) entitled to a scheme pension
5
under the pension scheme during the pre-death year, sub-
paragraph (3)(a) has effect as if the amount of that scheme pension
which was payable to the member under the pension scheme in
the pre-death year were the amount which would have been
payable to him in the period of 12 months beginning with the date
10
on which he became entitled to it had he not died.
      (5)
The “appropriate portion” of the initial member pension limit, in
relation to any pension payable under the pension scheme to a
dependant of the member in the post-death year, is—

where—
15
P is the amount of that pension payable in the post-death
year, and
AP is the aggregate of the amounts of each of the pensions
payable under the pension scheme to dependants of the
member in the post-death year.
20
16C   (1)
Where a pension is payable under the pension scheme to a
dependant of the member, otherwise than in excepted
circumstances, in—
(a)
the period of 12 months beginning with the end of the post-
death year, or
25
(b)
any succeeding period of 12 months,

(“the 12 months in question”), so much of the pension as exceeds
the current member pension limit is not a dependants’ scheme
pension.
      (2)
But if—
30
(a)
more than one pension is so payable to one of the
dependants in the 12 months in question, or
(b)
pensions are so payable to more than one dependant of the
member in the 12 months in question,

(or both), so much of any of the pensions as exceeds the
35
appropriate portion of the current member pension limit is not a
dependants’ scheme pension.
      (3)
“Excepted circumstances” means—
(a)
that at the beginning of the period of 12 months in question
there are at least 50 pensioner members of the pension
40
scheme, and
(b)
that the condition in subsection (4) is met.
      (4)
The condition in this subsection is met if —
(a)
the difference between CYP and PYP in the case of each
relevant existing pension is the same amount,
45

Finance Bill
Schedule 19 — Pension schemes etc.
307

(b)
the difference between CYP and PYP in the case of each
relevant existing pension is the same percentage of PYP, or
(c)
in the case of each relevant existing pension the difference
between CYP and PYP is the aggregate of a percentage of
PYP and an amount which are both the same as those the
5
aggregate of which make up the difference between CYP
and PYP in the case of each other relevant existing pension.
      (5)
In this section—
“relevant existing pension” means a pension payable to any
dependant of any member under the pension scheme
10
throughout the 12 months in question and the immediately
preceding period of 12 months,
CYP, in relation to a relevant existing pension, is the current
year pension, that is the amount of the pension payable in
the 12 months in question, and
15
PYP, in relation to a relevant existing pension, is the previous
year pension, that is the amount of the pension payable in
the immediately preceding period of 12 months.
      (6)
The “current member pension limit”, in relation to the 12 month
period in question, is the initial member pension limit increased
20
by the aggregate of—
(a)
the permitted margin, and
(b)
the excepted circumstances amount.
      (7)
The “permitted margin” is the amount by which the initial
member pension limit would be greater if it had been increased by
25
whichever of calculation A and calculation B gives the greater
amount.
      (8)
Calculation A involves increasing the initial member pension limit
by the relevant annual percentage rate for the whole of the
period—
30
(a)
beginning with the first month beginning after the end of
the post-death year (“the opening month”), and
(b)
ending with the first month of the 12 months in question
(“the closing month”).
      (9)
The relevant annual percentage rate is—
35
(a)
if the relevant valuation factor in relation to the pension
scheme is a number greater than 20, the annual rate agreed
by the Inland Revenue and the scheme administrator, and
(b)
otherwise, 5% per annum.
     (10)
Calculation B involves increasing the initial member pension limit
40
by the relevant indexation percentage.
     (11)
If the retail prices index for the closing month is higher than it was
for the opening month, the relevant indexation percentage is the
percentage increase in the retail prices index.
     (12)
If it is not, the relevant indexation percentage is 0%.
45
     (13)
The “excepted circumstances amount” is the aggregate of the
amounts of the relevant increases in pensions which were payable

Finance Bill
Schedule 19 — Pension schemes etc.
308

under the pension scheme to dependants of the member in
excepted circumstances in any period or periods within
subsection (1)(a) or (b).
     (14)
The relevant increase in the case of any pension payable in relation
to any 12 month period under the pension scheme to a dependant
5
of the member is the difference between CYP and PYP (for this
purpose reading the references in subsection (5) to the 12 months
in question as references to the 12 month period).
     (15)
The “appropriate portion” of the current member pension limit, in
relation to any pension payable under the pension scheme to a
10
dependant of the member in the 12 months in question, is—

where—
P is the amount of that pension payable in the 12 months in
question, and
AP is the aggregate of the amounts of each of the pensions
15
payable under the pension scheme to one or more
dependants of the member in the 12 months in question.”
Lifetime annuities and dependants’ annuities purchased together
29    (1)
Paragraph 17 of Schedule 28 (dependants’ annuity) is amended as follows.
      (2)
In sub-paragraph (1) (meaning of “dependants’ annuity), before paragraph
20
(a) insert—
“(za)
it is purchased either together with a lifetime annuity
payable to the member or after the member’s death,”.
      (3)
After that sub-paragraph insert—
   “(1A)
For the purposes of sub-paragraph (1)(za) a dependants’ annuity
25
is purchased together with a lifetime annuity if the dependant’s
annuity is related to the lifetime annuity.”
30    (1)
Paragraph 3 of Schedule 29 (pension commencement lump sum: applicable
amount) is amended as follows.
      (2)
In sub-paragraph (4) (applicable amount where member entitled to lifetime
30
annuity to be one third of purchase price), for “of the annuity” substitute “of
the lifetime annuity and any related dependants’ annuity”.
      (3)
After that sub-paragraph insert—
   “(4A)
For the purposes of this Part a dependants’ annuity is related to a
lifetime annuity payable to a member of a registered pension
35
scheme—
(a)
if they are purchased either in the form of a joint life
annuity or separately in circumstances in which the day on
which the one is purchased is no earlier than seven days
before, and no later than seven days after, the day on
40
which the other is purchased, and
(b)
the dependant’s annuity will be payable to a dependant of
the member.”

Finance Bill
Schedule 19 — Pension schemes etc.
309

31
In the table in section 216(1) (benefit crystallisation events and amounts
crystallised), in benefit crystallisation event 4 (becoming entitled to lifetime
annuity), in column 2 (amount crystallised), insert at the end “and any
related dependants’ annuity”.
32
In paragraph 4(1) of Schedule 32 (benefit crystallisation events 4: lifetime
5
annuity purchased from unsecured pension fund), for “is” substitute “or a
related dependants’ annuity is, or both the lifetime annuity and a related
dependants’ annuity are,”.
33
In the table in section 280(2) (index of defined expressions), insert at the
appropriate place—
10

“related dependants’ annuity
paragraph 3(4A) of Schedule 29”.

Pension commencement lump sums
34    (1)
Paragraph 1 of Schedule 29 (meaning of “pension commencement lump
sum”) is amended as follows.
      (2)
In sub-paragraph (3)(b) (member must become entitled to lump sum in
15
connection with becoming entitled to relevant pension: lump sum and
pension to be under same arrangement), for “under the arrangement”
substitute “, otherwise than by virtue of the operation of paragraph 8(2) of
Schedule 28, under the pension scheme”.
      (3)
After sub-paragraph (5) insert—
20
    “(6)
The Board of Inland Revenue may by regulations provide that,
where incorrect income tax has been paid by the scheme
administrator in relation to the member by way of the lifetime
allowance charge in circumstances prescribed by the regulations,
a lump sum subsequently paid to the member in circumstances so
25
prescribed is to be treated as a pension commencement lump sum
even though either or both of the conditions in sub-paragraph
(1)(c) and (e) are not met.”
35    (1)
Paragraph 3 of Schedule 29 (applicable amount limit) is amended as follows.
      (2)
For sub-paragraph (5) (annuity purchase price: sums and assets to be
30
disregarded) substitute—
    “(5)
There is to be deducted from that aggregate—
(a)
if the sums or assets applied in (or in connection with) the
purchase of the annuity or any related dependants’
annuity consist of or include sums or assets representing
35
the whole or part of the member’s unsecured pension
fund, the aggregate of the amount of those sums and the
market value of those assets, and
(b)
in any case, so much (if any) of the sums or assets applied
in (or in connection with) the purchase of the annuity or
40
any related dependants’ annuity as represents rights
which are attributable to a disqualifying pension credit.”
      (3)
In sub-paragraph (7) (scheme pensions), in the definition of AC, insert at the
end “(disregarding paragraph 3 of Schedule 32).”

Finance Bill
Schedule 19 — Pension schemes etc.
310

Recognised transfers
36
In section 169 (recognised transfers), after subsection (1) insert—
“(1A)
A transfer of sums or assets held for the purposes of, or representing
accrued rights under, a registered pension scheme to an insurance
company is to be treated as a recognised transfer if the sums or assets
5
had been applied by the pension scheme towards the provision of a
scheme pension or a dependants’ scheme pension (but subject to
regulations under subsections (1B) and (1C)).
(1B)
The Board of Inland Revenue may by regulations provide that,
where any of the sums or assets transferred represent rights in
10
respect of a scheme pension to which a member of a registered
pension scheme has become entitled (“the original scheme
pension”)—
(a)
the transfer is not a recognised transfer unless those sums
and assets are, after the transfer, applied towards the
15
provision of a scheme pension (a “new scheme pension”),
and
(b)
if they are so applied, 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
20
it were the original scheme pension.
(1C)
The Board of Inland Revenue may by regulations provide that,
where any of the sums or assets transferred represent rights in
respect of a dependants’ scheme pension to which a dependant of a
member of a registered pension scheme has become entitled in
25
respect of the member (“the original dependants’ scheme
pension”)—
(a)
the transfer is not a recognised transfer unless those sums
and assets are, after the transfer, applied towards the
provision of a dependants’ scheme pension (a “new
30
dependants’ scheme pension”), and
(b)
if they are so applied, the new dependants’ 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 dependants’ scheme
35
pension.
(1D)
The Board of Inland Revenue may by regulations provide that,
where any of the sums or assets transferred represent—
(a)
a person’s unsecured pension fund or dependant’s
unsecured pension fund, or
40
(b)
a person’s alternatively secured pension fund or dependant’s
alternatively secured pension fund,

under an arrangement (“the old arrangement”), the transfer is not a
recognised transfer unless all of those sums and assets become held
under an arrangement under which no other sums or assets are held
45
(“the new arrangement”).
(1E)
If regulations so provide they may make in relation to cases in which
the sums and assets become so held provision as to the treatment for
the purposes of any provision of this Part of—

Finance Bill
Schedule 19 — Pension schemes etc.
311

(a)
the sums and assets transferred, and
(b)
the new arrangement,

including provision for treating the sums and assets transferred as
remaining, to such extent as is prescribed by the regulations and for
such of the purposes of this Part as are so prescribed, sums and assets
5
held under the old arrangement.”
Assignment
37    (1)
Section 172 (assignment of benefit to which member has actual or
prospective entitlement to constitute unauthorised payment) is amended as
follows.
10
      (2)
In subsection (1) (members), for the words after “agrees to assign”
substitute—
“(a)
any benefit, other than an excluded pension, to which the
member (or any dependant of the member) has an actual or
prospective entitlement under the pension scheme, or
15
(b)
any right in respect of any sums or assets held for the
purposes of any arrangement under the pension scheme.”
      (3)
In subsection (3) (other persons), for the words after “agrees to assign”
substitute—
“(a)
any benefit, other than an excluded pension, to which the
20
person has an actual or prospective entitlement under the
pension scheme in respect of a member of the pension
scheme, or
(b)
any right in respect of any sums or assets held for the
purposes of any arrangement relating to the member under
25
the pension scheme.”
      (4)
In subsection (5)(b) (amount of unauthorised payment), insert at the end
“and any power to reduce the entitlement to the benefit or right did not
exist.”
      (5)
In subsection (6) (payments of benefits assigned not unauthorised
30
payments), after “benefit” insert “or right”.
      (6)
For subsection (7) substitute—
“(7)
An excluded pension is so much of any pension which under
pension rule 2 may continue to be paid after the member’s death as
may be so paid.”
35
Surrender and allocation of rights etc.
38
After section 172 insert—
“172A
Surrender
(1)
Subsection (2) applies if a member of a registered pension scheme
surrenders or agrees to surrender—
40
(a)
any benefit, other than an excluded pension, to which the
member (or any dependant of the member) has a prospective
entitlement under an arrangement under the pension
scheme, or

Finance Bill
Schedule 19 — Pension schemes etc.
312

(b)
any right in respect of any sums or assets held for the
purposes of any arrangement under the pension scheme.
(2)
The pension scheme is to be treated as making an unauthorised
payment to the member.
(3)
Subsection (4) applies if a person surrenders or agrees to surrender—
5
(a)
any benefit, other than an excluded pension, to which the
person has a prospective entitlement under an arrangement
under the pension scheme relating to a member of a pension
scheme, or
(b)
any right in respect of any sums or assets held for the
10
purposes of any arrangement relating to a member of the
pension scheme under the pension scheme.
(4)
The pension scheme is to be treated as making an unauthorised
payment to the person in respect of the member.
(5)
Subsections (2) and (4) do not apply to—
15
(a)
a surrender pursuant to a pension sharing order or provision,
(b)
a surrender (or agreement to surrender) by the member in
return for the conferring on a dependant of an entitlement to
benefits after the member’s death,
(c)
a transfer of (or agreement to transfer) benefits or rights so as
20
to become benefits or rights under another arrangement
under the pension scheme relating to the member or
dependant,
(d)
a surrender of (or agreement to surrender) benefits or rights
in order to fund the making of an authorised surplus
25
payment,
(e)
a surrender (or agreement to surrender) which constitutes an
assignment (or agreement to assign) within section 172, or
(f)
any surrender (or agreement to surrender) of a description
prescribed by regulations made by the Board of Inland
30
Revenue.
(6)
Regulations under subsection (5)(f) may include provision having
effect in relation to times before they are made.
(7)
Subsections (2) and (4) do not apply to the surrender of a benefit to
which the member (or a dependant of the member) has a prospective
35
entitlement, or to which the person has a prospective entitlement in
respect of a member, under an arrangement that is a defined benefits
arrangement or cash balance arrangement unless—
(a)
in consequence of the surrender, the actual or prospective
entitlement of another member (or dependant of another
40
member) of the pension scheme, or of another person in
respect of another member, to benefits under the scheme is
increased, and
(b)
the two members are or have been connected persons.
(8)
The amount of the unauthorised payment is the consideration that
45
might be expected to be received if what is surrendered were
assigned by a transaction between parties at arm’s length and any
power to reduce the entitlement to the benefit or right did not exist.