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.
178

prescribed, as if it were the original dependants’ scheme
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
5
unsecured pension fund, or
(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
10
under an arrangement under which no other sums or assets are held
(“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—
15
(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
20
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.
25
      (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
30
(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
35
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
40
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
45
payments), after “benefit” insert “or right”.

Finance (No. 2) Bill
Schedule 10 — Pension schemes etc.
179

      (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.”
Surrender and allocation of rights etc.
5
38
After section 172 insert—
“172A
Surrender
(1)
Subsection (2) applies if a member of a registered pension scheme
surrenders or agrees to surrender—
(a)
any benefit, other than an excluded pension, to which the
10
member (or any dependant of the member) has a prospective
entitlement under an arrangement under the pension
scheme, or
(b)
any right in respect of any sums or assets held for the
purposes of any arrangement under the pension scheme.
15
(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—
(a)
any benefit, other than an excluded pension, to which the
person has a prospective entitlement under an arrangement
20
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
purposes of any arrangement relating to a member of the
pension scheme under the pension scheme.
25
(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—
(a)
a surrender pursuant to a pension sharing order or provision,
(b)
a surrender (or agreement to surrender) by the member in
30
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
to become benefits or rights under another arrangement
under the pension scheme relating to the member or
35
dependant,
(d)
a surrender of (or agreement to surrender) benefits or rights
in order to fund the making of an authorised surplus
payment,
(e)
a surrender (or agreement to surrender) which constitutes an
40
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
Revenue.
(6)
Regulations under subsection (5)(f) may include provision having
45
effect in relation to times before they are made.

Finance (No. 2) Bill
Schedule 10 — Pension schemes etc.
180

(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
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—
5
(a)
in consequence of the surrender, the actual or prospective
entitlement of another member (or dependant of another
member) of the pension scheme, or of another person in
respect of another member, to benefits under the scheme is
increased, and
10
(b)
the two members are or have been connected persons.
(8)
The amount of the unauthorised payment is the consideration that
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.
15
(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
20
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
25
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
30
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,
35
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
40
(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
45
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

Finance (No. 2) Bill
Schedule 10 — Pension schemes etc.
181

which he is actually or prospectively entitled under the
pension scheme at that time, exceeds
(b)
the consideration which might be expected to be received in
respect of such an assignment (or assignation) immediately
before that time,
5

in consequence of the death (ignoring for the purposes of paragraphs
(a) and (b) any power to reduce the entitlement to the benefits).
(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
10
subsection (6)).
(5)
The amount which would (apart from this subsection) constitute the
unauthorised payment is to be reduced by so much of the excess as
arises—
(a)
from the payment of any transfer lump sum death benefit in
15
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
benefits or lump sum death benefits in respect of the dead
20
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
effect in relation to times before they are made.
25
(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
entitled under the pension scheme are increased at the same
30
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.
(9)
Section 839 of ICTA (connected persons) applies for the purposes of
35
this section.
172C
Allocation of unallocated employer contributions
(1)
This section applies if—
(a)
contributions are paid under a registered pension scheme by
an employer otherwise than in respect of any individual,
40
(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”),
(c)
the amount of the allocated contributions exceeds the
45
permitted maximum, and
(d)
the member and the employer, or the member and any
person connected with the employer at any time during the

Finance (No. 2) Bill
Schedule 10 — Pension schemes etc.
182

tax year, are connected persons at any time during the tax
year.
(2)
An arrangement is a relevant arrangement if it is—
(a)
a money purchase arrangement that is not a cash balance
arrangement, or
5
(b)
a hybrid arrangement under which the benefits that may be
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
10
entitled under section 188 (relief for contributions) in respect
of relievable pension contributions paid during the tax year
(see section 190), less
(b)
the amount of any contributions paid by employers under
any registered pension scheme in respect of the member in
15
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
registered pension schemes of which he is a member is—

where—
20
PM is the amount arrived at under subsection (3), and
N is the number of registered pension schemes of which he is a
member.
(5)
The pension scheme is to be treated as making an unauthorised
payment to the member (or to the member’s personal
25
representatives).
(6)
The amount of the unauthorised payment is the amount by which
the amount of the allocated contributions exceeds the permitted
maximum.
(7)
Section 839 of ICTA (connected persons) applies for the purposes of
30
this section.
172D
Limit on increase in benefits
(1)
This section applies where, at any time during any pension input
period in respect of a relevant arrangement relating to a member of
an occupational pension scheme that is a registered pension scheme,
35
the member and—
(a)
a sponsoring employer, or
(b)
a person connected with a sponsoring employer.

are connected persons.
(2)
If—
40
(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
pension input period in respect of the relevant arrangement,

Finance (No. 2) Bill
Schedule 10 — Pension schemes etc.
183


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
scheme that is—
5
(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,
defined benefits or cash balance benefits.
10
(4)
The pension input amount for a pension input period in respect of
the relevant arrangement is to be determined in accordance with—
(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
15
(c)
section 237 if it is a hybrid arrangement,

treating references in those sections to the individual as to the
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
20
input period in respect of the relevant arrangement is what the
pension input amount, as so determined, would have been if the
member were connected with—
(a)
a sponsoring employer, or
(b)
a person connected with a sponsoring employer,
25

at no time during the pension input period.
(6)
Section 839 of ICTA (connected persons) applies for the purposes of
this section.”
Restriction of employers’ relief in respect of contributions
39
After section 196 insert—
30
“196A
Power to restrict relief
(1)
The Board of Inland Revenue may make regulations for restricting
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
35
do).
(2)
This subsection applies where any of the benefits which will or may
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
40
are not so paid.
(3)
This subsection applies where, because relevant benefits are or may
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—
45
(a)
held for the purposes of, or

Finance (No. 2) Bill
Schedule 10 — Pension schemes etc.
184

(b)
representing accrued rights under,

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
5
being subject to relief is 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
10
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,
15

(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
20
sections 393A and 393B of that Act).”
40
After section 246 insert—
“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
25
employer-financed retirement benefits scheme (whether or not by
the making of contributions under the scheme) are not subject to
relief if subsection (2) applies.
(2)
This subsection applies where—
(a)
the provision of the relevant benefits results in a reduction in
30
the benefits payable to or in respect of the employee under a
registered pension scheme, or
(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.
35
(3)
But if the extent to which contributions paid by the employer under
the registered pension scheme in respect of the employee are subject
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
40
that is just and reasonable.
(4)
The references in this section to expenses of an employer being
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
45
(trading income) or Case I or II of Schedule D,