Finance (No. 2) Bill

House of Commons

Session 2004 - 05
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Other Bills before Parliament

Finance (No. 2) Bill

Finance (No. 2) Bill
Schedule 10 — Pension schemes etc.
171

      (3)
Condition B is that they have at any time since the dependant
reached the age of 75 been designated as available for the payment
of alternatively secured dependants’ pension to the dependant or
arise, or (directly or indirectly) derive, from sums or assets which
have been so designated or which so arise or derive.
5
      (4)
If any sums or assets representing a dependant’s alternatively
secured pension fund in respect of an arrangement under the
pension scheme would (apart from this sub-paragraph) come to be
taken to represent another dependant’s alternatively secured
pension fund of his under the pension scheme, or an alternatively
10
secured pension fund of his under the pension scheme, they are to
be treated as not doing so.”
24
In paragraph 3(8) of Schedule 29 (pension commencement lump sum:
deduction from applicable amount in case of scheme pension), for
“surrender” substitute “application”.
15
25    (1)
Schedule 32 (benefit crystallisation events: supplementary) is amended as
follows.
      (2)
In paragraph 3(1) (benefit crystallisation events 1, 2 and 4: prevention of
overlap), for “surrender” substitute “application”.
      (3)
In paragraph 5(2) (benefit crystallisation events 1 and 5: hybrid
20
arrangements), for “the sums or assets held for the purposes of the
arrangement are to be treated as having been designated” substitute “, under
paragraph 8(2) of Schedule 28, any relevant uncrystallised funds are to be
treated as having been designated under the arrangement”.
Meaning of “dependant”
25
26
In paragraph 15 of Schedule 28 (meaning of “dependant”), after sub-
paragraph (1) insert—
   “(1A)
If the rules of the pension scheme so provide, a person who was
married to the member when the member first became entitled to
a pension under the pension scheme is a dependant of the
30
member.”
Dependants’ scheme pensions
27    (1)
Paragraph 16 of Schedule 28 (dependants’ scheme pension) is amended as
follows.
      (2)
Omit sub-paragraph (1) (special provisions for pension scheme with fewer
35
than 50 members).
      (3)
In sub-paragraph (2) (pension scheme with 50 or more members)—
(a)
for “In the case of a pension scheme with 50 or more members, a”
substitute “A”, and
(b)
omit sub-paragraph (2)(b) and the word “and” before it.
40
      (4)
After that sub-paragraph insert—
    (2A)
The Board of Inland Revenue may by regulations make provision
in relation to cases in which a dependants’ scheme pension
payable to a dependant of a member of a registered pension

Finance (No. 2) Bill
Schedule 10 — Pension schemes etc.
172

scheme by an insurance company (“the original dependants’
scheme pension”) ceases to 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
5
towards the provision of either another dependants’
scheme pension (a “new dependants’ scheme pension”) or
a scheme pension, lifetime annuity, short-term annuity,
dependants’ annuity or dependants’ short-term annuity
by the other insurance company, or
10
(b)
sums or assets are transferred to the relevant registered
pension scheme.
     (2B)
The regulations may provide that—
(a)
in a case where a new dependants’ scheme pension
becomes payable, the new dependants’ scheme pension is
15
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
pension, and
(b)
in any other case, the relevant registered pension scheme is
20
to be treated as making an unauthorised payment in
respect of the member of an amount equal to the aggregate
of the amount of the sums, and the market value of the
assets, transferred.
     (2C)
For the purposes of sub-paragraphs (2A) and (2B) a registered
25
pension scheme is the relevant registered pension scheme if the
original dependants’ scheme pension was acquired using sums or
assets held for the purposes of the pension scheme.”
      (5)
Omit sub-paragraphs (3) to (6) (condition to be satisfied).
28
In Schedule 28 (authorised pensions), after paragraph 16 insert—
30
“16A  (1)
Paragraphs 16B and 16C apply where—
(a)
the member dies after 5th April 2006,
(b)
he has reached the age of 75 before his death, and
(c)
at the time of his death he is actually or prospectively
entitled to one or more scheme pensions under the pension
35
scheme.
      (2)
References in this paragraph and paragraph 16B to a scheme
pension include a pension payable before 6th April 2006 which
would be a scheme pension if payable after that date.
16B   (1)
Where a pension is payable under the pension scheme to a
40
dependant of the member in the period of 12 months beginning
with the date of the member’s death (“the post-death year”), so
much of the pension as exceeds the initial member pension limit is
not a dependants’ scheme pension.
      (2)
But if—
45
(a)
more than one pension is so payable to one of the
dependants of the member in the post-death year, or

Finance (No. 2) Bill
Schedule 10 — Pension schemes etc.
173

(b)
pensions are so payable to more than one dependant of the
member in the post-death year,

(or both), so much of any of the pensions as exceeds the
appropriate portion of the initial member pension limit is not a
dependants’ scheme pension.
5
      (3)
The “initial member pension limit” is (subject to sub-paragraph
(4)) the sum of—
(a)
the aggregate of the amounts of the scheme pensions to
which the member is actually entitled under the pension
scheme immediately before his death payable to the
10
member in the period of 12 months ending with the date of
his death (“the pre-death year”),
(b)
the aggregate of the amounts of the scheme pensions to
which the member is prospectively entitled under the
pension scheme at that time which would have been so
15
payable if he had been actually entitled to the pensions
throughout the pre-death year, and
(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
20
pensions under the pension scheme before his death.
      (4)
But if the member became (actually) entitled to a scheme pension
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
25
the pre-death year were the amount which would have been
payable to him in the period of 12 months beginning with the date
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
30
dependant of the member in the post-death year, is—

where—
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
35
payable under the pension scheme to dependants of the
member in the post-death year.
16C   (1)
Where a pension is payable under the pension scheme to a
dependant of the member, otherwise than in excepted
circumstances, in—
40
(a)
the period of 12 months beginning with the end of the post-
death year, or
(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
45
pension.
      (2)
But if—

Finance (No. 2) Bill
Schedule 10 — Pension schemes etc.
174

(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
5
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
10
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,
15
(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
20
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
25
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
30
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
35
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
40
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—
45
(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”).

Finance (No. 2) Bill
Schedule 10 — Pension schemes etc.
175

      (9)
The relevant annual percentage rate is—
(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.
5
     (10)
Calculation B involves increasing the initial member pension limit
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.
10
     (12)
If it is not, the relevant indexation percentage is 0%.
     (13)
The “excepted circumstances amount” is the aggregate of the
amounts of the relevant increases in pensions which were payable
under the pension scheme to dependants of the member in
excepted circumstances in any period or periods within
15
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
of the member is the difference between CYP and PYP (for this
purpose reading the references in subsection (5) to the 12 months
20
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
dependant of the member in the 12 months in question, is—

where—
25
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
payable under the pension scheme to one or more
dependants of the member in the 12 months in question.”
30
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
(a) insert—
“(za)
it is purchased either together with a lifetime annuity
35
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
is purchased together with a lifetime annuity if the dependant’s
annuity is related to the lifetime annuity.”
40
30    (1)
Paragraph 3 of Schedule 29 (pension commencement lump sum: applicable
amount) is amended as follows.

Finance (No. 2) Bill
Schedule 10 — Pension schemes etc.
176

      (2)
In sub-paragraph (4) (applicable amount where member entitled to lifetime
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
5
lifetime annuity payable to a member of a registered pension
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
10
before, and no later than seven days after, the day on
which the other is purchased, and
(b)
the dependant’s annuity will be payable to a dependant of
the member.”
31
In the table in section 216(1) (benefit crystallisation events and amounts
15
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
annuity purchased from unsecured pension fund), for “is” substitute “or a
20
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—

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

25
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
connection with becoming entitled to relevant pension: lump sum and
30
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—
    “(6)
The Board of Inland Revenue may by regulations provide that,
35
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
prescribed is to be treated as a pension commencement lump sum
40
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.

Finance (No. 2) Bill
Schedule 10 — Pension schemes etc.
177

      (2)
For sub-paragraph (5) (annuity purchase price: sums and assets to be
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’
5
annuity consist of or include 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 value of those assets, and
(b)
in any case, so much (if any) of the sums or assets applied
10
in (or in connection with) the purchase of the annuity or
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).”
15
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
20
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
25
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
30
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
35
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
40
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
45
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