Finance (No.2) Bill

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Finance (No.2) Bill

Finance (No.2) Bill
Schedule 23 — Pension schemes etc: miscellaneous
445

(a)
the day on which one is purchased or sums or assets are
applied for its provision is no earlier than seven days
before, and no later than seven days after, the day on
which the other is purchased or sums or assets are applied
for its provision, and
5
(b)
the dependants’ scheme pension will be payable to a
dependant of the member.”
      (4)
In sub-paragraph (8)—
(a)
after “crystallised”, in the first place, insert “or from the scheme
pension purchase price”, and
10
(b)
after “crystallised”, in the second place, insert “or of the scheme
pension purchase price”.
      (5)
After that sub-paragraph insert—
    “(9)
Sub-paragraph (10) applies if—
(a)
sums or assets held for the purposes of, or representing
15
accrued rights under, a money purchase arrangement
relating to the member under a registered pension scheme
(“member money purchase funds”) are subject to a
relevant surrender or a relevant transfer,
(b)
the sole or main purpose of the relevant surrender or
20
relevant transfer is to increase the applicable amount on
the member becoming entitled to a scheme pension, and
(c)
the member becomes entitled to a scheme pension under a
relevant defined benefits arrangement.
     (10)
The pension scheme under which the relevant defined benefits
25
arrangement is an arrangement is to be treated as making an
unauthorised payment to the member of any amount by which—
(a)
the applicable amount in relation to the scheme pension
under sub-paragraph (6), exceeds
(b)
the amount which would be that applicable amount under
30
sub-paragraph (7A) if the arrangement were a money
purchase arrangement.
     (11)
For the purposes of sub-paragraph (9)—
(a)
member money purchase funds are subject to a relevant
surrender if they are surrendered and, in consequence of
35
the surrender, there is a corresponding increase in the
sums or assets held for the purposes of, or representing
rights under, a defined benefits arrangement relating to
the member under the pension scheme (or such an
arrangement is established), and
40
(b)
member money purchase funds are subject to a relevant
transfer if they are transferred so as to become held for the
purposes of, or to represent rights under, a defined
benefits arrangement relating to the member under any
other registered pension scheme.
45
     (12)
In sub-paragraphs (9) and (10) “relevant defined benefits
arrangement” means—
(a)
the defined benefits arrangement mentioned in paragraph
(a) or (b) of sub-paragraph (11), or

Finance (No.2) Bill
Schedule 23 — Pension schemes etc: miscellaneous
446

(b)
any other defined benefits arrangement relating to the
member (under the pension scheme or any other
registered pension scheme) in the case of which any of the
sums or assets held for the purposes of, or representing
accrued rights under, the arrangement directly or
5
indirectly represent sums or assets previously held for the
purposes of, or representing accrued rights under, the
defined benefits arrangement so mentioned.”
23    (1)
Paragraph 2 of that Schedule (the permitted maximum) is amended as
follows.
10
      (2)
In sub-paragraph (6), in the definition of AAC, for “amounts crystallised by”
substitute “relevant amount in the case of”.
      (3)
After that sub-paragraph insert—
   “(6A)
Subject to sub-paragraph (6B), the relevant amount in the case of a
benefit crystallisation event is the amount crystallised by it.
15
     (6B)
If the benefit crystallisation event is becoming entitled to a scheme
pension under a money purchase arrangement, the relevant
amount in the case of the benefit crystallisation event is the
aggregate of—
(a)
the amount of such of the sums held for the purposes of the
20
pension scheme, and
(b)
the market value of such of the assets held for the purposes
of the pension scheme,

as are applied in (or in connection with) the purchase or provision
of the scheme pension and any related dependants’ scheme
25
pension.”
24    (1)
Paragraph 29 of Schedule 36 (transitional provisions: applicable amount in
cases of enhanced protection) is amended as follows.
      (2)
In sub-paragraph (3), for “(7)” substitute “(7A)”.
      (3)
In the sub-paragraph (6) of paragraph 3 of Schedule 29 substituted by sub-
30
paragraph (3), after “pension” insert “under a defined benefits
arrangement”.
      (4)
After the sub-paragraph (7) of that paragraph so substituted insert—
   “(7A)
Where the member becomes entitled to a scheme pension under a
money purchase arrangement, the applicable amount is (subject to
35
sub-paragraph (8))—

where—

      VULSR, VUR and LS have the same meaning as in sub-
          paragraph (1), and

      SPPP is the scheme pension purchase price.”
40
25    (1)
Paragraph 34 of that Schedule (transitional provisions: entitlement to lump
sums exceeding 25% of uncrystallised rights) is amended as follows.

Finance (No.2) Bill
Schedule 23 — Pension schemes etc: miscellaneous
447

      (2)
In the sub-paragraph (7A) of paragraph 2 of Schedule 29 substituted by sub-
paragraph (2), in the definition of AC, for “sub-paragraph (7B)” substitute
“sub-paragraphs (7AA) and (7B)”.
      (3)
After that substituted sub-paragraph insert—
  “(7AA)
Where the pension in connection with which the lump sum is paid
5
is a scheme pension under a money purchase arrangement, AC is
the scheme pension purchase price, as it would be defined by
paragraph 3 if the words “but subject to sub-paragraph (8)” in sub-
paragraph (7A) and sub-paragraph (8) were omitted.”
      (4)
In the sub-paragraph (7B) so substituted, for “the lump sum and the amount
10
crystallised” substitute “what would otherwise be LS or AC”.
      (5)
In sub-paragraph (3), insert at the end “(but without prejudice to its
operation for the purposes of paragraph 2(7AA) of Schedule 29 as inserted
by sub-paragraph (2)).”
26
In section 280(2) (general index), after the entry relating to “related
15
dependants’ annuity” insert—

“related dependants’ scheme
paragraph 3(7C) of Schedule 29”

pension

Refund of excess contributions lump sum: excess relief at source
27    (1)
Paragraph 6 of Schedule 29 (refund of excess contributions lump sum) is
20
amended as follows.
      (2)
In sub-paragraphs (4) and (5), after “year is” insert “(subject to sub-
paragraph (7))”.
      (3)
After sub-paragraph (6) insert—
    “(7)
If any relief given in accordance with section 192(1) in relation to
25
any contribution included in RPC is in excess of the maximum
amount of relief to which the member is entitled under section 190,
RPC is to be taken to be reduced by the amount of that excess.”
Annuity protection lump sum death benefit: benefits from unsecured pension fund
28
In paragraph 16(3) of Schedule 29 (annuity protection lump sum death
30
benefit: annuity protection limit), in the definition of AC, insert at the end “,
but disregarding paragraphs 3 and 4 of Schedule 32,”.
Benefit crystallisation events: reaching 75 after designation for unsecured pension
29
In section 216(1) (benefit crystallisation events and amounts crystallised), in
the table, after the entry relating to benefit crystallisation event 5, insert—
35

Finance (No.2) Bill
Schedule 23 — Pension schemes etc: miscellaneous
448

“5A. The individual reaching the age
The aggregate of the amount of the

of 75 having designated sums or
sums and the market value of the

assets held for the purposes of a
assets representing the individual’s

money purchase arrangement under
unsecured pension fund under the

any of the relevant pension schemes
arrangement less the aggregate of

5

as available for the payment of
amounts crystallised by benefit

unsecured pension to the individual
crystallisation event 1 in relation to

the arrangement and the

individual”.

Availability of individual’s lifetime allowance: previous benefit crystallisation events
10
30    (1)
Section 219 (availability of individual’s lifetime allowance) is amended as
follows.
      (2)
In subsection (4) (previously-used amount)—
(a)
in paragraph (a), for “crystallised by” substitute “which is the
relevant untaxed amount in relation to”, and
15
(b)
in paragraph (b), for “crystallised by” substitute “which are the
relevant untaxed amounts in relation to”.
      (3)
After that subsection insert—
“(4A)
“The relevant untaxed amount”, in relation to a previous benefit
crystallisation event, is—
20
(a)
where no tax was charged in relation to the benefit
crystallisation event, the amount in respect of which tax
would have been so charged if none of the individual’s
lifetime allowance had been available, and
(b)
where tax was charged in relation to the benefit
25
crystallisation event, so much of the amount in respect of
which tax would have been so charged if none of the
individual’s lifetime allowance had been available as exceeds
the amount in respect of which tax was so charged.”
      (4)
In subsection (5), for “amount crystallised by” substitute “relevant untaxed
30
amount in relation to”.
Overseas pension schemes: extension of migrant member relief
31    (1)
Paragraph 4 of Schedule 33 (meaning of “relevant migrant member”) is
amended as follows.
      (2)
The existing provision becomes sub-paragraph (1).
35
      (3)
After that provision insert—
    “(2)
The Commissioners for Her Majesty’s Revenue and Customs may
by regulations provide that, in circumstances prescribed by the
regulations, paragraphs (a), (b) and (c) of sub-paragraph (1) have
effect as if the references in those paragraphs to the pension
40
scheme were to either the pension scheme or such other pension
scheme as is prescribed by the regulations.

Finance (No.2) Bill
Schedule 23 — Pension schemes etc: miscellaneous
449

      (3)
Regulations under sub-paragraph (2) may include provision
having effect in relation to times before they are made.”
Abatement
32
In section 279(1) (definitions), in the definition of “abatement”—
(a)
after “scheme pension” insert “to which a person has become
5
entitled”, and
(b)
for “re-employment” substitute “the person’s employment”.
Transitional provision: uncrystallised rights under paragraph 9 to include separate lump sums
33    (1)
Paragraph 9 of Schedule 36 (uncrystallised rights under arrangement under
pension scheme within paragraph 1(1)(a) to (d)) is amended as follows.
10
      (2)
In sub-paragraph (3), insert at the end “as increased, in a case where sub-
paragraph (5A) applies, in accordance with sub-paragraph (5B).”
      (3)
After sub-paragraph (5) insert—
   “(5A)
This sub-paragraph applies where, in the case of an arrangement
under a pension scheme which immediately before 6th April 2006
15
was within section 611A(1)(a) of ICTA—
(a)
a lump sum could be paid to the individual on 5th April
2006 under the pension scheme otherwise than by
commutation of pension, and
(b)
that lump sum could not be exchanged (in whole or in
20
part) for an increased pension.
     (5B)
Where sub-paragraph (5A) applies, the amount arrived at under
sub-paragraph (3) is the aggregate of what it otherwise would be
and so much of the amount of the lump sum as could not be so
exchanged.”
25
Transitional protection: taking account of death benefits
34
Schedule 36 (transitional provisions) is amended as follows.
35
After paragraph 11 insert—
“11A  (1)
This paragraph applies where—
(a)
paragraph 7 makes provision for the operation of a lifetime
30
allowance enhancement factor in relation to an individual
immediately before the individual’s death (and any
calculation required by paragraph 11 does not mean that
there is then no longer a primary protection factor),
(b)
a person is paid a defined benefits lump sum death benefit
35
or an uncrystallised funds lump sum death benefit in
respect of the individual, and
(c)
notice of intention to rely on this paragraph is given to an
officer of Revenue and Customs by that person in
accordance with regulations made by the Commissioners
40
for Her Majesty’s Revenue and Customs.
      (2)
If the value of the individual’s pre-commencement rights to death
benefits (see paragraphs 11B to 11D) exceeds RR (as adjusted

Finance (No.2) Bill
Schedule 23 — Pension schemes etc: miscellaneous
450

under paragraph 11, where that paragraph applies), the primary
protection factor is to be recalculated.
      (3)
The re-calculation involves taking RR to be the value of the
individual’s pre-commencement rights to death benefits and
arriving at a revised primary protection factor.
5
      (4)
The revised primary protection factor operates in relation to—
(a)
the benefit crystallisation event consisting of the payment
of the lump sum death benefit, and
(b)
any other benefit crystallisation event consisting of the
payment of a lump sum death benefit in respect of the
10
individual.
11B   (1)
This paragraph and paragraphs 11C and 11D specify the value of
the individual’s pre-commencement rights to death benefits.
      (2)
Subject to paragraphs 11C and 11D, the value of the individual’s
pre-commencement rights to death benefits is the aggregate of the
15
maximum amounts that could have been paid—
(a)
in respect of the individual as uncrystallised rights lump
sum death benefits, and
(b)
under relevant pension arrangements relating to the
individual,
20

if the individual had died on 5th April 2006.
      (3)
Lump sum death benefits are “uncrystallised rights lump sum
death benefits” if they are attributable to rights in respect of which
the individual had not, on 5th April 2006, become entitled to the
present payment of benefits.
25
      (4)
An arrangement is a “relevant pension arrangement” if it is an
arrangement under a pension scheme within paragraph 1(1).
11C   (1)
In arriving at the aggregate mentioned in paragraph 11B(2) the
following amounts are to be left out of account—
(a)
in the case of any lump sum death benefit which could
30
have been paid under a pension scheme in the case of
which approval could have been withdrawn under section
591B, 620(7) or 650 of ICTA, any amount in excess of the
permitted limit (see sub-paragraph (2)), and
(b)
in the case of any lump sum death benefit which could
35
have been paid under an arrangement in the case of which
rights to such a benefit are commuted into prospective
rights to receive dependants’ pensions, any dependants’
pension proportion amount (see sub-paragraphs (3) and
(4)).
40
      (2)
An “amount in excess of the permitted limit” is so much (if any) of
the maximum amount of any lump sum death benefit as could not
have been paid without having given grounds for withdrawing
approval of the pension scheme under section 591B, 620(7) or 650
of ICTA.
45
      (3)
A “dependants’ pension proportion amount” is so much (if any) of
the maximum amount of any lump sum death benefit which could

Finance (No.2) Bill
Schedule 23 — Pension schemes etc: miscellaneous
451

have been paid under the arrangement as is the dependants’
pension proportion of the lump sum death benefit.
      (4)
The dependants’ pension proportion is

where—
TA is the amount which, at the time when a defined benefits
5
lump sum death benefit or uncrystallised funds lump sum
death benefit is first paid in respect of the individual, is the
aggregate of the maximum amounts of any defined
benefits lump sum death benefits or uncrystallised funds
lump sum death benefits which could be paid under the
10
arrangement in respect of the individual, and
UTA is what TA would be if no prospective rights to the
payment of any of those lump sum death benefits had been
commuted into prospective rights to receive dependants’
pensions.
15
11D   (1)
Sub-paragraph (2) applies where any of the lump sum death
benefits mentioned in sub-paragraph (2) of paragraph 11B would
have been payable under a policy of life insurance held for the
purposes of a pension scheme and on 5th April 2006 the pension
scheme either—
20
(a)
was not an occupational pension scheme, or
(b)
was an occupational pension scheme with fewer than 20
members.
      (2)
The lump sum death benefit is only to be taken into account in
arriving at the aggregate mentioned in that sub-paragraph if—
25
(a)
a sum was paid under the policy when the individual
actually died, and
(b)
the terms of the policy had not been varied significantly
during the period beginning with 5th April 2006 and
ending with the death;
30

and any exercise of rights conferred by the policy is to be regarded
for this purpose as a variation.
      (3)
Sub-paragraph (4) applies where any of the lump sum death
benefits mentioned in sub-paragraph (2) of paragraph 11B would
have been payable under an occupational pension scheme.
35
      (4)
The lump sum death benefit is only to be taken into account in
arriving at the aggregate mentioned in that sub-paragraph if—
(a)
the individual was employed by a person on 5th April 2006
and continued to be employed by that person or a person
connected with that person until the time when the
40
individual died,
(b)
that person was a sponsoring employer in relation to the
pension scheme on 5th April 2006, and
(c)
the individual had not become entitled to the present
payment of benefits in respect of rights under the pension
45
scheme before the time when the individual died.