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
461

(b)
the sole or main purpose of the relevant surrender or
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.
5
     (10)
The pension scheme under which the relevant defined benefits
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
10
(b)
the amount which would be that applicable amount under
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
15
surrender if they are surrendered and, in consequence of
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
20
arrangement is established), and
(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
25
other registered pension scheme.
     (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
30
(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
35
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.
40
      (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.
45
     (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—

Finance (No.2) Bill
Schedule 23 — Pension schemes etc: miscellaneous
462

(a)
the amount of such of the sums held for the purposes of the
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
5
of the scheme pension and any related dependants’ scheme
pension.”
      (4)
In sub-paragraph (7), for “an amount crystallised by” substitute “the
relevant amount in the case of”.
24    (1)
Paragraph 29 of Schedule 36 (transitional provisions: applicable amount in
10
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-
paragraph (3), after “pension” insert “under a defined benefits
arrangement”.
15
      (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
sub-paragraph (8))—

where—
20

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

      SPPP is the scheme pension purchase price.”
25    (1)
Paragraph 34 of that Schedule (transitional provisions: entitlement to lump
sums exceeding 25% of uncrystallised rights) is amended as follows.
25
      (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
30
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
35
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
40
dependants’ annuity” insert—

Finance (No.2) Bill
Schedule 23 — Pension schemes etc: miscellaneous
463

“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
amended as follows.
5
      (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
any contribution included in RPC is in excess of the maximum
10
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
benefit: annuity protection limit), in the definition of AC, insert at the end “,
15
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—

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

20

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

as available for the payment of
amounts crystallised by benefit

25

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
30    (1)
Section 219 (availability of individual’s lifetime allowance) is amended as
30
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
(b)
in paragraph (b), for “crystallised by” substitute “which are the
35
relevant untaxed amounts in relation to”.

Finance (No.2) Bill
Schedule 23 — Pension schemes etc: miscellaneous
464

      (3)
After that subsection insert—
“(4A)
“The relevant untaxed amount”, in relation to a previous benefit
crystallisation event, is—
(a)
where no tax was charged in relation to the benefit
crystallisation event, the amount in respect of which tax
5
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
crystallisation event, so much of the amount in respect of
which tax would have been so charged if none of the
10
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
amount in relation to”.
Overseas pension schemes: extension of migrant member relief
15
31    (1)
Paragraph 4 of Schedule 33 (meaning of “relevant migrant member”) is
amended as follows.
      (2)
The existing provision becomes sub-paragraph (1).
      (3)
After that provision insert—
    “(2)
The Commissioners for Her Majesty’s Revenue and Customs may
20
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
scheme were to either the pension scheme or such other pension
scheme as is prescribed by the regulations.
25
      (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
30
entitled”, and
(b)
for “re-employment” substitute “the person’s employment”.
Amendments and transitionals
33    (1)
Section 281 (minor and consequential amendments) is amended as follows.
      (2)
After subsection (2) insert—
35
“(2A)
The Treasury may by order make in any relevant enactment such
amendments (including repeals and revocations) as may appear
appropriate in consequence of, or otherwise in connection with, any
amendment (or repeal or revocation) made in this Part by any
enactment contained in an Act passed after this Act (an “amending
40
Act”).
(2B)
For this purpose a relevant enactment is—

Finance (No.2) Bill
Schedule 23 — Pension schemes etc: miscellaneous
465

(a)
an enactment contained in an Act passed, or
(b)
an instrument made,

before the passing of the amending Act or in the Session in which the
amending Act is passed.”
      (3)
In subsection (3), after “(2)” insert “or (2A)”.
5
      (4)
After that subsection insert—
“(4)
An order under subsection (2) or (2A) may include provision having
effect in relation to times before it is made if it does not increase any
person’s liability to tax.”
34    (1)
Section 283 (transitionals and savings) is amended as follows.
10
      (2)
After subsection (3) insert—
“(3A)
The Treasury may by order make any transitional provision which
may appear appropriate in consequence of, or otherwise in
connection with, any amendment (or repeal or revocation) made in
this Part by any enactment contained in an Act passed after this Act
15
(an “amending Act”).
(3B)
An order under subsection (3A) may, in particular, include savings
from the effect of any amendment (or repeal or revocation) made by
the amending Act.
(3C)
An order under subsection (2) or (3A) may include provision having
20
effect in relation to times before it is made if it does not increase any
person’s liability to tax.”
      (3)
In subsections (4) and (5), after “(2)” insert “or (3A)”.
Transitional provision: uncrystallised rights under paragraph 9 to include separate lump sums
35    (1)
Paragraph 9 of Schedule 36 (uncrystallised rights under arrangement under
25
pension scheme within paragraph 1(1)(a) to (d)) is amended as follows.
      (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
30
under a pension scheme which immediately before 6th April 2006
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
35
(b)
that lump sum could not be exchanged (in whole or in
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
40
exchanged.”

Finance (No.2) Bill
Schedule 23 — Pension schemes etc: miscellaneous
466

Transitional protection: taking account of death benefits
36
Schedule 36 (transitional provisions) is amended as follows.
37
After paragraph 11 insert—
“11A  (1)
This paragraph applies where—
(a)
paragraph 7 makes provision for the operation of a lifetime
5
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
10
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
15
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
under paragraph 11, where that paragraph applies), the primary
protection factor is to be recalculated.
20
      (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.
      (4)
The revised primary protection factor operates in relation to—
(a)
the benefit crystallisation event consisting of the payment
25
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
individual.
11B   (1)
This paragraph and paragraphs 11C and 11D specify the value of
30
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
maximum amounts that could have been paid—
(a)
in respect of the individual as uncrystallised rights lump
35
sum death benefits, and
(b)
under relevant pension arrangements relating to the
individual,

if the individual had died on 5th April 2006.
      (3)
Lump sum death benefits are “uncrystallised rights lump sum
40
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.
      (4)
An arrangement is a “relevant pension arrangement” if it is an
arrangement under a pension scheme within paragraph 1(1).
45

Finance (No.2) Bill
Schedule 23 — Pension schemes etc: miscellaneous
467

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
have been paid under a pension scheme in the case of
which approval could have been withdrawn under section
5
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
have been paid under an arrangement in the case of which
rights to such a benefit are commuted into prospective
10
rights to receive dependants’ pensions, any dependants’
pension proportion amount (see sub-paragraphs (3) and
(4)).
      (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
15
have been paid without having given grounds for withdrawing
approval of the pension scheme under section 591B, 620(7) or 650
of ICTA.
      (3)
A “dependants’ pension proportion amount” is so much (if any) of
the maximum amount of any lump sum death benefit which could
20
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
25
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
30
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.
35
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—
40
(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—
45
(a)
a sum was paid under the policy when the individual
actually died, and