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.
185

(b)
their being expenses of management of the employer for the
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
5
employer,

(depending on which is appropriate in relation to the employer).
(5)
In this section—
“employer-financed retirement benefits scheme”, and
“relevant benefits”,
10

have the same meaning as in Chapter 2 of Part 6 of ITEPA 2003 (see
sections 393A and 393B of that Act).”
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
15
payment if rights not reduced so as fully to reflect amount of
payment of tax) and the word “and” before it, and
(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
20
crystallised), in the entry relating to benefit crystallisation event 6
(entitlement to relevant lump sum), in the second column (amount
crystallised), after “sum” insert “paid to the individual”.
43    (1)
Schedule 32 (benefit crystallisation events: supplementary) is amended as
follows.
25
      (2)
In paragraph 9 (benefit crystallisation event 2: meaning of “P”) is amended
as follows.
      (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
30
(b)
omit “which will be payable”.
      (4)
After that sub-paragraph insert—
    “(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
35
administrator for the purposes of section 215(9).”
      (5)
In paragraph 13 (benefit crystallisation event 3: meaning of “XP”), after sub-
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
40
administrator, that reduction is to be left out of account in
determining the rate at which the pension is payable for the
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
45

Finance (No. 2) Bill
Schedule 10 — Pension schemes etc.
186

the tax, the tax is not to be treated as tax paid by the scheme
administrator for the purposes of section 215(9).”
      (6)
Paragraph 14 (benefit crystallisation event 5: meaning of “DP” and “DSLS”)
is amended as follows.
      (7)
After sub-paragraph (1) insert—
5
   “(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
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).
10
     (1B)
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).”
      (8)
In sub-paragraph (2) (“DSLS”)—
15
(a)
for “the amount” substitute “so much”, and
(b)
after “pension)” insert “as would be paid to the individual”.
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”.
20
Lifetime allowance: pension credits
45    (1)
Section 220 (lifetime allowance enhancement factor in case of pension credits
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”.
25
      (3)
After that subsection insert—
“(4A)
The post-commencement pension in payment portion of the
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)
30
of WRP(NI)O 1999, is so much of that amount as is
attributable to rights to a post-commencement pension in
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
35
WRP(NI)O 1999, is so much of that amount as is just and
reasonable.”
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
40
country before taking up residence in United Kingdom)—
(a)
at the beginning insert “either”, and

Finance (No. 2) Bill
Schedule 10 — Pension schemes etc.
187

(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
5
scheme administrators of other registered pension schemes”.
Electronic payment
48
After section 255 insert—
“Payment
255A
Electronic payment
10
(1)
The Board of Inland Revenue may give directions requiring specified
persons to use electronic means for the making of specified
payments required to be made under or by virtue of this Part.
(2)
Directions under this section may make provision—
(a)
as to conditions that must be complied with in connection
15
with the use of electronic means for the making of any
payment,
(b)
for treating a payment as not having been made unless
conditions imposed by the directions are satisfied, and
(c)
for determining the time when a payment in accordance with
20
directions under this section is to be taken to be made.
(3)
Directions under this section may also make provision (which may
include provision for the application of conclusive or other
presumptions) as to the manner of proving for any purpose—
(a)
whether any use of electronic means for making a payment is
25
to be taken as having resulted in the payment being made,
(b)
the time of the making of any payment for the making of
which electronic means have been used, and
(c)
any other matter for which provision may be made by
directions under this section.
30
(4)
Directions under this section—
(a)
may be specific or general, and
(b)
may provide that the conditions of any authorisation or
requirement imposed by the directions are to be taken to be
satisfied only where the Inland Revenue is satisfied as to
35
specified matters.
(5)
Directions under this section may—
(a)
suspend for any period during which the use of electronic
means for the making of payments is impossible or
impractical, any requirements imposed by the directions
40
relating to the use of such means,
(b)
substitute alternative requirements for the suspended ones,
and

Finance (No. 2) Bill
Schedule 10 — Pension schemes etc.
188

(c)
make any provision that is necessary in consequence of the
imposition of the substituted requirements.
(6)
Directions under this section may—
(a)
make different provision for different cases,
(b)
make such incidental, supplementary, consequential and
5
transitional provision in connection with any provision
contained in such directions as the Board of Inland Revenue
thinks fit.
(7)
In this section—
“the Inland Revenue” includes any person who for the purposes
10
of the electronic means of payment is acting under the
authority of the Board of Inland Revenue, and
“specified” means specified in a direction under this section.
255B
Payments to be cleared payments
(1)
A payment made to the Board of Inland Revenue or the Inland
15
Revenue under or by virtue of this Part (otherwise than in cash) is to
be treated as not having been made until the earliest date on or
before which all the transactions that need to be completed before the
whole amount of the payment becomes available to the Board are
capable of being completed.
20
(2)
In this section “the Inland Revenue” includes any person who is
acting under the authority of the Board of Inland Revenue.”
Insurance company liable as scheme administrator
49    (1)
After section 273 insert—
“273A
Insurance company liable as scheme administrator
25
(1)
The Board of Inland Revenue may make regulations in relation to
cases where an insurance company makes a payment of—
(a)
a pension protection lump sum death benefit,
(b)
an annuity protection lump sum death benefit, or
(c)
an unsecured pension fund lump sum death benefit,
30

which (by virtue of section 161(3) and (4)) is treated for the purposes
of Chapter 3 as made by a registered pension scheme.
(2)
The regulations may provide that the insurance company—
(a)
is to be treated as the scheme administrator for the purposes
of the operation of section 206 in relation to the lump sum
35
death benefit, and
(b)
is responsible for the discharge of all obligations imposed on
the scheme administrator by or under this Part so far as
related to the liability imposed by that section to pay tax in
respect of it.
40
(3)
Where an insurance company is liable to pay any tax or interest, or is
responsible for the discharge of any other obligation, by virtue of
regulations under this section, no other person is liable to pay that
tax, or responsible for the discharge of that obligation, under sections
270 to 273.”
45

Finance (No. 2) Bill
Schedule 10 — Pension schemes etc.
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      (2)
In section 274(3)(b) (liabilities and other obligations under certain sections
not affected by pension scheme being terminated or ceasing to be
registered), insert at the end “or regulations under section 273A”.
Power to split schemes
50
Before section 275 insert—
5
“274A
Power to split schemes
(1)
The Board of Inland Revenue may make regulations for and in
connection with treating registered pension schemes to which this
section applies as if they were a number of separate registered
pension schemes for such of the purposes of this Part and of
10
provision made under it as are prescribed by the regulations.
(2)
This section applies to pension schemes prescribed, or of a
description prescribed, by the regulations.
(3)
The provision that may be made by the regulations may, in
particular, include—
15
(a)
provision as to who is to be treated as the scheme
administrator in relation to each of the separate pension
schemes, and
(b)
any such other modifications of the provision made by and
under this Part as appears appropriate in consequence of, or
20
otherwise in connection with, provision made under
subsection (1) (including provision so made by virtue of
paragraph (a) of this subsection).
(4)
The regulations may make different provision for different cases.”
Power to modify rules of existing schemes
25
51
In paragraph 3(2) of Schedule 36 (power to modify rules of existing schemes:
modifications to have effect until earlier of time when rules amended and
end of tax year 2008-09), for the words after “the pension scheme” substitute
“which state that the modifications no longer apply in relation to it take
effect, or
30
(b)
the end of the tax year 2010-11 or such later time as the
Board of Inland Revenue may by regulations prescribe.”
Primary and enhanced protection: valuation of uncrystallised rights
52    (1)
Schedule 36 (transitional provisions) is amended as follows.
      (2)
Paragraph 9 (valuation of uncrystallised rights under pension schemes
35
within paragraph 1(1)(a) to (d)) is amended as follows.
      (3)
In sub-paragraph (2) (alternative values)—
(a)
omit “the lower of”, and
(b)
for “and” at the end of paragraph (a) substitute “or (if lower)”.
      (4)
In sub-paragraph (4) (the maximum permitted pension), after “means”
40
insert—
“(a)
in the case of an arrangement under a pension scheme
which immediately before 6th April 2006 was within

Finance (No. 2) Bill
Schedule 10 — Pension schemes etc.
190

section 611(1)(a) of ICTA, the maximum annual pension
that could be paid to the individual under the pension
scheme on 5th April 2006, and
(b)
in any other case,”.
      (5)
In sub-paragraph (5) (assumptions)—
5
(a)
in paragraph (a), at the beginning insert “in the case of any
arrangement, that” and for “2006, that” substitute “2006”,
(b)
after that paragraph insert—
“(aa)
in the case of an arrangement within sub-
paragraph (4)(a), that the valuation assumptions
10
apply (see section 277),”, and
(c)
in paragraph (b), at the beginning insert “in the case of any other
arrangement, that” and for “scheme, that” substitute “scheme”.
      (6)
Paragraph 26 (lump sum protection: limit on value of uncrystallised rights
under pension schemes within paragraph 1(1)(a) to (d)) is amended as
15
follows.
      (7)
In sub-paragraph (2) (alternative values)—
(a)
omit “the lower of”, and
(b)
for “and” at the end of paragraph (a) substitute “or (if lower)”.
      (8)
In sub-paragraph (3) (the maximum permitted lump sum), after “means”
20
insert—
“(a)
in the case of an arrangement under a pension scheme
which immediately before 6th April 2006 was within
section 611(1)(a) of ICTA, the maximum lump sum that
could be paid to the individual under the pension scheme
25
on 5th April 2006, and
(b)
in any other case,”.
      (9)
In sub-paragraph (4) (assumptions)—
(a)
in paragraph (a), at the beginning insert “in the case of any
arrangement, that” and for “2006, that” substitute “2006”,
30
(b)
after that paragraph insert—
“(aa)
in the case of an arrangement within sub-
paragraph (3)(a), that the valuation assumptions
apply (see section 277),”, and
(c)
in paragraph (b), at the beginning insert “in the case of any other
35
arrangement, that” and for “scheme, that” substitute “scheme”.
Enhanced protection
53    (1)
Schedule 36 (transitional provisions) is amended as follows.
      (2)
Paragraph 12 (enhanced protection) is amended as follows.
      (3)
In sub-paragraph (2) (circumstances in which paragraph ceases to apply),
40
after paragraph (a) insert—
“(aa)
there is an impermissible transfer into the arrangement or
any of the arrangements (see paragraph 17A),”.
      (4)
In sub-paragraph (3) (effect of enhanced protection), for the words after “an

Finance (No. 2) Bill
Schedule 10 — Pension schemes etc.
191

individual” substitute—
“(a)
there is no liability to the lifetime allowance charge in
respect of the individual, and
(b)
the payment of a lifetime allowance excess lump sum to
the individual is not permitted by the lump sum rule (see
5
section 166).”
      (5)
In sub-paragraphs (5) and (6) (no enhanced protection if unsurrendered
relevant excess), for “9” substitute “9(3)”.
      (6)
In sub-paragraph (9)—
(a)
in paragraph (a), for “and 14” substitute “, 14 and 17A(1) and (2)”,
10
and
(b)
in paragraph (b), for “and 15” substitute “, 15 and 17A(3)”.
      (7)
In paragraph 13(a) (loss of enhanced protection: relevant benefit accrual in
case of money purchase arrangement that is not a cash balance
arrangement), after “the arrangement” insert “or, where the arrangement
15
has been a hybrid arrangement, if a relevant contribution was so paid at any
time after 5th April 2006,”.
      (8)
Paragraph 14 (loss of enhanced protection: relevant benefit accrual) is
amended as follows.
      (9)
In sub-paragraph (1)(c) (relevant benefit accrual: relevant contributions
20
consisting in employer’s contribution becoming held for individual), for “by
an employer of the individual otherwise than” substitute “otherwise than by
or on behalf of the individual or by an employer of the individual”.
     (10)
In sub-paragraph (2) (contributions which are not relevant contributions)—
(a)
for the words from the beginning to “minimum” substitute
25
“Minimum”, and
(b)
insert at the end “are not relevant contributions for the purposes of
paragraph 13(a)”.
     (11)
Paragraph 16 (enhanced protection: post-commencement earnings limit for
capped individuals) is amended as follows.
30
     (12)
In sub-paragraph (1) (individuals to whom paragraph applies), for “whom
section 590C of ICTA (earnings cap) had effect in” substitute “whom—
(a)
section 590C of ICTA or paragraph 20 of Schedule 6 to FA
1989 (earnings cap) had effect, or
(b)
provision similar to section 590C of ICTA had effect by
35
virtue of conditions imposed under section 591 of that Act
(discretionary approval),

            in”.
     (13)
In sub-paragraph (5) (appropriate three year period), for “the time when the
first relevant event occurs” substitute “the earliest of—
40
(a)
the first relevant event,
(b)
the individual leaving the employment to which the
arrangement relates, and
(c)
the individual’s death.”