Finance Bill

House of Commons

Session 2004 - 05
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Finance Bill

Finance Bill
Schedule 19 — Pension schemes etc.
313

(9)
In this section “surrender”, in relation to any benefit or right of a
member (or dependant of a member) of a pension scheme or other
person, includes any schemes, arrangements or understandings of
any kind (whether or not legally enforceable) the main purpose, or
one of the main purposes, of which is to reduce the member’s (or
5
dependant’s), or person’s, entitlement to the benefit or right.
(10)
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.
(11)
Section 839 of ICTA (connected persons) applies for the purposes of
10
this section.
172B
Increase in rights of connected person on death
(1)
This section applies if—
(a)
at any time after the death of a relevant member of a
registered pension scheme, there is an increase in the pension
15
rights of another member of the pension scheme which is
attributable to the death, and
(b)
the dead member and other member were connected persons
immediately before the death.
(2)
A member of a registered pension scheme is a relevant member if,
20
immediately before his death, any of his rights under the pension
scheme are—
(a)
rights to benefit to which the member (or any dependant of
the member) has a prospective entitlement under an
arrangement under the pension scheme, or
25
(b)
rights representing the member’s unsecured pension fund,
alternatively secured pension fund, dependant’s unsecured
pension fund or dependant’s alternatively secured pension
fund in respect of an arrangement under the pension scheme.
(3)
There is at any time an increase in the pension rights of the other
30
member of the pension scheme which is attributable to the death if—
(a)
the consideration which might be expected to be received in
respect of an assignment (or assignation) of the benefits to
which he is actually or prospectively entitled under the
pension scheme at that time, exceeds
35
(b)
the consideration which might be expected to be received in
respect of such an assignment (or assignation) immediately
before that time,

in consequence of the death (ignoring for the purposes of paragraphs
(a) and (b) any power to reduce the entitlement to the benefits).
40
(4)
The pension scheme is to be treated as making an unauthorised
payment to the other member (or to the other member’s personal
representatives) of an amount equal to the excess (but subject to
subsection (6)).
(5)
The amount which would (apart from this subsection) constitute the
45
unauthorised payment is to be reduced by so much of the excess as
arises—

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Schedule 19 — Pension schemes etc.
314

(a)
from the payment of any transfer lump sum death benefit in
respect of the dead member so as to become held for the
purposes of, or to represent accrued rights under, an
arrangement relating to the other member,
(b)
from the other member becoming entitled to pension death
5
benefits or lump sum death benefits in respect of the dead
member, or
(c)
in any manner prescribed by regulations made by the Board
of Inland Revenue.
(6)
Regulations under subsection (5)(c) may include provision having
10
effect in relation to times before they are made.
(7)
This section does not apply if—
(a)
at the time of the increase mentioned in subsection (1)(a)
there at least 20 members of the pension scheme, and
(b)
the benefits to which each of them is actually or prospectively
15
entitled under the pension scheme are increased at the same
rate in consequence of the death.
(8)
This section does not apply if the increase in the pension rights of the
other member is brought about by an assignment (or agreement to
assign) within section 172.
20
(9)
Section 839 of ICTA (connected persons) applies for the purposes of
this section.
172C
Allocation of unallocated employer contributions
(1)
This section applies if—
(a)
contributions are paid under a registered pension scheme by
25
an employer otherwise than in respect of any individual,
(b)
in any tax year any of the contributions become held for the
purposes of the provision of benefits to or in respect of a
member of the pension scheme under any relevant
arrangement or arrangements (“the allocated contributions”),
30
(c)
the amount of the allocated contributions exceeds the
permitted maximum, and
(d)
the member and the employer, or the member and any
person connected with the employer at any time during the
tax year, are connected persons at any time during the tax
35
year.
(2)
An arrangement is a relevant arrangement if it is—
(a)
a money purchase arrangement that is not a cash balance
arrangement, or
(b)
a hybrid arrangement under which the benefits that may be
40
provided to or in respect of the member are, or include,
money purchase benefits other than cash balance benefits.
(3)
“The permitted maximum” is—
(a)
the maximum amount of relief to which the member is
entitled under section 188 (relief for contributions) in respect
45
of relievable pension contributions paid during the tax year
(see section 190), less

Finance Bill
Schedule 19 — Pension schemes etc.
315

(b)
the amount of any contributions paid by employers under
any registered pension scheme in respect of the member in
the tax year.
(4)
But if the member is a also a member of one or more other registered
pension schemes, the permitted maximum in relation to each of the
5
registered pension schemes of which he is a member is—

where—
PM is the amount arrived at under subsection (3), and
N is the number of registered pension schemes of which he is a
member.
10
(5)
The pension scheme is to be treated as making an unauthorised
payment to the member (or to the member’s personal
representatives).
(6)
The amount of the unauthorised payment is the amount by which
the amount of the allocated contributions exceeds the permitted
15
maximum.
(7)
Section 839 of ICTA (connected persons) applies for the purposes of
this section.
172D
Limit on increase in benefits
(1)
This section applies where, at any time during any pension input
20
period in respect of a relevant arrangement relating to a member of
an occupational pension scheme that is a registered pension scheme,
the member and—
(a)
a sponsoring employer, or
(b)
a person connected with a sponsoring employer.
25

are connected persons.
(2)
If—
(a)
the pension input amount for the pension input period in
respect of the relevant arrangement, exceeds
(b)
the notional unconnected person input amount for the
30
pension input period in respect of the relevant arrangement,

the pension scheme is to be treated as making an unauthorised
payment to the member (or to the member’s personal
representatives) of an amount equal to the excess.
(3)
A relevant arrangement is an arrangement under the pension
35
scheme that is—
(a)
a defined benefits arrangement,
(b)
a cash balance arrangement, or
(c)
a hybrid arrangement under which the benefits that may be
provided to or in respect of the member are, or include,
40
defined benefits or cash balance benefits.
(4)
The pension input amount for a pension input period in respect of
the relevant arrangement is to be determined in accordance with—

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Schedule 19 — Pension schemes etc.
316

(a)
sections 230 to 232 if the relevant arrangement is a cash
balance arrangement,
(b)
sections 234 to 236 if it is a defined benefits arrangement, and
(c)
section 237 if it is a hybrid arrangement,

treating references in those sections to the individual as to the
5
member and treating section 237 as if the references to input amount
B were omitted.
(5)
The notional unconnected person input amount for the pension
input period in respect of the relevant arrangement is what the
pension input amount, as so determined, would have been if the
10
member were connected with—
(a)
a sponsoring employer, or
(b)
a person connected with a sponsoring employer,

at no time during the pension input period.
(6)
Section 839 of ICTA (connected persons) applies for the purposes of
15
this section.”
Restriction of employers’ relief in respect of contributions
39
After section 196 insert—
“196A
Power to restrict relief
(1)
The Board of Inland Revenue may make regulations for restricting
20
the extent to which contributions paid by an employer under a
registered pension scheme in respect of an individual are subject to
relief in circumstances in which subsection (2) or (3) applies (or both
do).
(2)
This subsection applies where any of the benefits which will or may
25
be payable to or in respect of the individual under the registered
pension scheme will be payable only if relevant benefits expected to
be so paid under an employer-financed retirement benefits scheme
are not so paid.
(3)
This subsection applies where, because relevant benefits are or may
30
be payable to or in respect of the individual under an employer-
financed retirement benefits scheme, the aggregate of the amount of
any sums and the market value of any assets—
(a)
held for the purposes of, or
(b)
representing accrued rights under,
35

the registered pension scheme which may be transferred by way of a
recognised transfer in respect of the individual will or may be less
than it otherwise would be.
(4)
The reference in subsection (1) to contributions paid by an employer
being subject to relief is to—
40
(a)
their being deductible in computing the amount of the profits
of the employer for the purposes of Part 2 of ITTOIA 2005
(trading income) or Case I or II of Schedule D,
(b)
their being expenses of management of the employer for the
purposes of section 75 of ICTA (expenses of management:
45
companies with investment business), or

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Schedule 19 — Pension schemes etc.
317

(c)
their being brought into account at Step 1 in section 76(7) of
ICTA (expenses of insurance companies) in respect of the
employer,

(depending on which is appropriate in relation to the employer).
(5)
In this section—
5
“employer-financed retirement benefits scheme”, and
“relevant benefits”,

have the same meaning as in Chapter 2 of Part 6 of ITEPA 2003 (see
sections 393A and 393B of that Act).”
40
After section 246 insert—
10
“246A
Case where no relief for provision by an employer
(1)
An employer’s expenses of providing relevant benefits to or in
respect of a present or former employee (“the employee”) under an
employer-financed retirement benefits scheme (whether or not by
the making of contributions under the scheme) are not subject to
15
relief if subsection (2) applies.
(2)
This subsection applies where—
(a)
the provision of the relevant benefits results in a reduction in
the benefits payable to or in respect of the employee under a
registered pension scheme, or
20
(b)
a reduction in the benefits payable to or in respect of the
employee under a registered pension scheme results in the
provision of the relevant benefits.
(3)
But if the extent to which contributions paid by the employer under
the registered pension scheme in respect of the employee are subject
25
to relief has been restricted in accordance with regulations under
section 196A, the employer’s expenses of providing the relevant
benefits are not prevented from being subject to relief to the extent
that is just and reasonable.
(4)
The references in this section to expenses of an employer being
30
subject to relief are to—
(a)
their being deductible in computing the amount of the profits
of the employer for the purposes of Part 2 of ITTOIA 2005
(trading income) or Case I or II of Schedule D,
(b)
their being expenses of management of the employer for the
35
purposes of section 75 of ICTA (expenses of management:
companies with investment business), or
(c)
their being brought into account at Step 1 in section 76(7) of
ICTA (expenses of insurance companies) in respect of the
employer,
40

(depending on which is appropriate in relation to the employer).
(5)
In this section—
“employer-financed retirement benefits scheme”, and
“relevant benefits”,

have the same meaning as in Chapter 2 of Part 6 of ITEPA 2003 (see
45
sections 393A and 393B of that Act).”

Finance Bill
Schedule 19 — Pension schemes etc.
318

Lifetime allowance: reduction of rights in respect of tax paid
41
In section 215 (amount of lifetime allowance charge), omit—
(a)
in subsection (9), paragraph (b) (tax covered by scheme funded
payment if rights not reduced so as fully to reflect amount of
payment of tax) and the word “and” before it, and
5
(b)
subsection (10) (whether rights reduced so as fully to reflect amount
of payment of tax).
42
In the table in section 216(1) (benefit crystallisation events and amounts
crystallised), in the entry relating to benefit crystallisation event 6
(entitlement to relevant lump sum), in the second column (amount
10
crystallised), after “sum” insert “paid to the individual”.
43    (1)
Schedule 32 (benefit crystallisation events: supplementary) is amended as
follows.
      (2)
In paragraph 9 (benefit crystallisation event 2: meaning of “P”) is amended
as follows.
15
      (3)
In sub-paragraph (2) (amount to be net of tax under section 215 paid by
scheme administrator)—
(a)
for “will or may be” substitute “is”, and
(b)
omit “which will be payable”.
      (4)
After that sub-paragraph insert—
20
    “(3)
And if the reduction is such that, in accordance with normal
actuarial practice, it would be taken fully to reflect the amount of
the tax, the tax is not to be treated as tax paid by the scheme
administrator for the purposes of section 215(9).”
      (5)
In paragraph 13 (benefit crystallisation event 3: meaning of “XP”), after sub-
25
paragraph (3) (inserted by paragraph 8(6)) insert—
    “(4)
If the rate at which the pension is payable is reduced so as to reflect
the amount of any tax under section 215 to be paid by the scheme
administrator, that reduction is to be left out of account in
determining the rate at which the pension is payable for the
30
purposes of sub-paragraph (1)(a).
      (5)
And if the reduction is such that, in accordance with normal
actuarial practice, it would be taken fully to reflect the amount of
the tax, the tax is not to be treated as tax paid by the scheme
administrator for the purposes of section 215(9).”
35
      (6)
Paragraph 14 (benefit crystallisation event 5: meaning of “DP” and “DSLS”)
is amended as follows.
      (7)
After sub-paragraph (1) insert—
   “(1A)
If the rate at which the scheme pension would be payable would
be reduced so as to reflect the amount of any tax under section 215
40
to be paid by the scheme administrator, that reduction is to be left
out of account in determining the rate at which the pension would
be payable for the purposes of sub-paragraph (1).
     (1B)
And if the reduction is such that, in accordance with normal
actuarial practice, it would be taken fully to reflect the amount of
45

Finance Bill
Schedule 19 — Pension schemes etc.
319

the tax, the tax is not to be treated as tax paid by the scheme
administrator for the purposes of section 215(9).”
      (8)
In sub-paragraph (2) (“DSLS”)—
(a)
for “the amount” substitute “so much”, and
(b)
after “pension)” insert “as would be paid to the individual”.
5
Lifetime allowance: minor amendment
44
In paragraph 10(b) of Schedule 32 (benefit crystallisation event 3: “excepted
circumstances”), at the beginning of paragraph (b) insert “that”.
Lifetime allowance: pension credits
45    (1)
Section 220 (lifetime allowance enhancement factor in case of pension credits
10
from previously crystallised rights) is amended as follows.
      (2)
In subsection (4) (pension credit factor), in the definition of APC, after “APC
is” insert “the post-commencement pension in payment portion of”.
      (3)
After that subsection insert—
“(4A)
The post-commencement pension in payment portion of the
15
appropriate amount referred to in the definition of APC—
(a)
in a case where the appropriate amount is arrived at under
section 29(2) or (3)(b) of WRPA 1999 or Article 26(2) or (3)(b)
of WRP(NI)O 1999, is so much of that amount as is
attributable to rights to a post-commencement pension in
20
payment, and
(b)
in a case where the appropriate amount is arrived at under
section 29(3)(a) of WRPA 1999 or Article 26(3)(a) of
WRP(NI)O 1999, is so much of that amount as is just and
reasonable.”
25
Migrant member relief
46
In paragraph 4(c) of Schedule 33 (meaning of “relevant migrant member”:
requirement that person be entitled to contributions tax relief in foreign
country before taking up residence in United Kingdom)—
(a)
at the beginning insert “either”, and
30
(b)
after “resident” insert “or meets such other condition as may be
prescribed by regulations made by the Board of Inland Revenue”.
Information
47
In section 251(4)(a) (persons to whom scheme administrators can be
required to provide information), after “are prescribed” insert “or to the
35
scheme administrators of other registered pension schemes”.