Finance Bill

House of Commons

Session 2006 - 07
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Finance Bill

Finance Bill
Schedule 19 — Alternatively secured pensions and transfer lump sum death benefit etc
223

      (6)
“The relevant time”—
(a)
in the case of a policy of insurance within sub-paragraph (3), is 20th
March 2007, and
(b)
in the case of a policy of insurance within sub-paragraph (4), is the
time when it became a protected policy.
5
      (7)
A variation of the terms of a policy made in order to comply with the
Employment Equality (Age) Regulations 2006 (S.I. 2006/1031) or
Employment Equality (Age) Regulations (Northern Ireland) 2006 (S.R.
2006/261) (or any regulations amending or replacing them) is to be ignored
for the purposes of sub-paragraph (5).
10
Power to amend commencement provisions
8     (1)
The Commissioners for Her Majesty’s Revenue and Customs may by
regulations amend paragraphs 4 to 7.
      (2)
Regulations under sub-paragraph (1) having the effect of limiting the
contributions which are life assurance premium contributions may be made
15
so as to have effect in relation to times before they are made.
Schedule 19
Section 68

Alternatively secured pensions and transfer lump sum death benefit etc
Introduction
1
Part 4 of FA 2004 (pension schemes etc) is amended as follows.
20
Alternatively secured pension: guaranteed pension and maximum
2     (1)
In section 165(1) (pension rules) is amended as follows.
      (2)
In pension rule 2 (guaranteed pensions)—
(a)
for “, an annuity or alternatively secured pension” substitute “or an
annuity”, and
25
(b)
for “, annuity or alternatively secured pension” substitute “or
annuity”.
      (3)
In pension rule 7 (maximum alternatively secured pension), for “70%”
substitute “90%”.
3
In paragraph 12 of Schedule 28 (pension rules: alternatively secured pension
30
year), omit sub-paragraphs (3) and (4) (guaranteed pensions).
Maximum dependants’ alternatively secured pension
4
In section 167(1) (pension death benefit rules), in pension death benefit rule
6 (maximum dependants’ alternatively secured pension), for “70%”
substitute “90%”.
35

Finance Bill
Schedule 19 — Alternatively secured pensions and transfer lump sum death benefit etc
224

Abolition of transfer lump sum death benefit
5
In section 168(1) (lump sum death benefit rule), omit paragraph (g) (transfer
lump sum death benefit).
6
Omit section 172B(5)(a) (reduction for transfer lump sum death benefit).
7
In section 188(5) (amounts not to be treated as contributions), omit
5
paragraph (b) and the word “and” before it.
8
In section 280(2) (index), omit the entry relating to transfer lump sum death
benefit.
9
In Schedule 29, omit paragraph 19 (transfer lump sum death benefit).
10
In paragraph 17A of Schedule 36 (“enhanced protection”)—
10
(a)
in sub-paragraph (1), insert “or” after paragraph (a) and omit
paragraph (c) and the word “or” before it, and
(b)
in sub-paragraph (2), omit “, or to a transfer lump sum death benefit
being paid,”.
Untraceable members
15
11
In paragraph 11 of Schedule 28 (member’s alternatively secured pension
fund), insert at the end—
    “(6)
Sub-paragraph (7) applies if—
(a)
at the time when the member reaches the age of 75, the
scheme administrator has been unable to ascertain the
20
member’s whereabouts after having taken all reasonable
steps to do so, and
(b)
paragraph 8(2) applies in relation to the member and the
arrangement and none of the sums or assets held for the
purposes of the arrangement are member-designated
25
funds immediately before it applies.
      (7)
In that case the references in sub-paragraphs (2) and (3) to the time
when the member reached the age of 75 are to be read as referring
to the end of the period of six months beginning with any later
date on which the member’s whereabouts are subsequently
30
ascertained by the scheme administrator.”
Increase in rights on death
12    (1)
Section 172B (increase in rights of connected person on death) is amended as
follows.
      (2)
In subsection (2)(b), for “, alternatively secured pension fund, dependant’s
35
unsecured pension fund or dependant’s alternatively secured” substitute
“or dependant’s unsecured”.
      (3)
In subsection (4), for “(6)” substitute “(5)”.
      (4)
In subsection (7)(a), after “there” insert “are”.

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Schedule 19 — Alternatively secured pensions and transfer lump sum death benefit etc
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      (5)
After subsection (8) insert—
“(8A)
Nothing in this section applies in relation to the rights representing
the member’s unsecured pension fund if those rights would
represent the member’s alternatively secured pension fund but for
paragraph 11(6) and (7) of Schedule 28.”
5
13
After that section insert—
“172BA
Increase in rights on death arising from alternatively secured
pension fund etc
(1)
This section applies if, at any time (“the relevant time”) after the
death of a member of a registered pension scheme, another member
10
of the pension scheme becomes entitled to alternatively secured
rights.
(2)
“Alternatively secured rights” are rights representing the whole or
part of the dead member’s alternatively secured pension fund, or
dependant’s alternatively secured pension fund, in respect of an
15
arrangement under the pension scheme.
(3)
The pension scheme is to be treated as making an unauthorised
payment to the other member (or to the other member’s personal
representatives).
(4)
Subject to subsection (5), the amount of the unauthorised payment is
20
the amount by which—
(a)
the consideration which might be expected to be received in
respect of an assignment (or assignation) of the benefits to
which the other member is actually or prospectively entitled
under the pension scheme immediately after the relevant
25
time, exceeds
(b)
the consideration which might be expected to be received in
respect of such an assignment (or assignation) immediately
before the relevant time.
(5)
But that amount is to be reduced by so much (if any) of the excess as
30
arises from the other member becoming entitled to pension death
benefits or lump sum death benefits in respect of the dead member.
(6)
This section does not apply if the other member’s entitlement to the
alternatively secured rights is brought about by an assignment (or
agreement to assign) within section 172.
35
(7)
Rights representing the member’s unsecured pension fund are
alternatively secured rights for the purposes of this section if they
would be rights representing the member’s alternatively secured
pension fund but for paragraph 11(6) and (7) of Schedule 28.”

Finance Bill
Schedule 19 — Alternatively secured pensions and transfer lump sum death benefit etc
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Minimum alternatively secured pension and dependants’ alternatively secured pension
14
After section 181 insert—
“Alternatively secured pensions
“181A
  Minimum level of payment
(1)
The total amount of alternatively secured pension paid to a member
5
of a registered pension scheme in each alternatively secured pension
year in respect of a money purchase arrangement under the pension
scheme must be at least 55% of the basis amount for the alternatively
secured pension year (but subject to subsection (5)).
(2)
The total amount of dependants’ alternatively secured pension paid
10
to a dependant of a member of a registered pension scheme in each
alternatively secured pension year in respect of a money purchase
arrangement under the pension scheme must be at least 55% of the
basis amount for the alternatively secured pension year (but subject
to subsection (5)).
15
(3)
If subsection (1) or (2) is not complied with in an alternatively
secured pension year in the case of any arrangement under a
registered pension scheme, the pension scheme is to be treated as
having made a scheme chargeable payment when the alternatively
secured pension year ends.
20
(4)
The amount of the scheme chargeable payment is the difference
between—
(a)
the total amount of alternatively secured pension paid to the
member, or of the dependants’ alternatively secured pension
paid to the dependant, in respect of the arrangement in the
25
alternatively secured pension year, and
(b)
55% of the basis amount for the alternatively secured pension
year,

(or, if nothing is so paid, 55% of the basis amount for the alternatively
secured pension year).
30
(5)
Subsection (1) or (2) does not apply in relation to an alternatively
secured pension year if—
(a)
it is the alternatively secured pension year ending
immediately before the death of the member or dependant,
or
35
(b)
in the alternatively secured pension year the member’s
alternatively secured pension fund, or the dependant’s
alternatively secured pension fund, in respect of the
arrangement is applied on pension or annuity provision (see
subsection (6)).
40
(6)
The member’s alternatively secured pension fund, or the
dependant’s alternatively secured pension fund, in respect of the
arrangement is applied on pension or annuity provision if all of the
sums and assets representing it are applied in one or more of the
following ways—
45
(a)
towards the provision of a scheme pension or dependants’
scheme pension;

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Schedule 19 — Alternatively secured pensions and transfer lump sum death benefit etc
227

(b)
to purchase a scheme pension or dependants’ scheme
pension;
(c)
to purchase a lifetime annuity or dependants’ annuity.
(7)
Part 1 of Schedule 28 gives the meaning of expressions used in this
section so far as it relates to alternatively secured pension; and Part 2
5
of that Schedule gives the meaning of expressions used in this section
so far as it relates to dependants’ alternatively secured pension.”
15
In section 241(1) (scheme chargeable payment), after paragraph (a) insert—
“(aa)
a scheme chargeable payment which the pension scheme is to
be treated as having made by section 181A (minimum
10
alternatively secured pension etc), and”.
Charity lump sum death benefit
16    (1)
Paragraph 18 of Schedule 29 (charity lump sum death benefit) is amended as
follows.
      (2)
In sub-paragraph (1)(c), for “income withdrawal to which the member was
15
entitled” substitute “the member’s alternatively secured pension fund (or
what would be the member’s alternatively secured pension fund but for
paragraph 11(6) and (7) of Schedule 28)”.
      (3)
In sub-paragraph (1)(d), insert at the end “(or, if the member made no
nomination, selected by the scheme administrator).”
20
      (4)
In sub-paragraph (2)(d), for “dependants’ income withdrawal to which the
member was entitled” substitute “the dependant’s alternatively secured
pension fund”.
      (5)
In sub-paragraph (2)(e), for “(or, if the member made no nomination, by the
dependant).” substitute “or, if the member made no nomination, by the
25
dependant (or, if neither the member nor the dependant made a nomination,
selected by the scheme administrator).”
      (6)
In sub-paragraph (4), after “representing” insert “what is (or but for
paragraph 11(6) and (7) of Schedule 28 would be)”.
Discharge of liability to scheme chargeable payment
30
17
In section 268(6) (unauthorised payments surcharge and scheme chargeable
payments), for “(assignment)” substitute “, 172A, 172B, 172BA, 172C or 172D
or arises under section 181A”.
Non-UK schemes
18    (1)
Schedule 34 (non-UK schemes application of certain charges) is amended as
35
follows.
      (2)
In paragraph 1(6), omit the words from “but also” to the end.
      (3)
In paragraph 4(3), omit the words from “but also” to the end.

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Schedule 19 — Alternatively secured pensions and transfer lump sum death benefit etc
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      (4)
After paragraph 7 insert—
“Unauthorised payment charge: alternatively secured pension etc
7ZA
The Commissions for Her Majesty’s Revenue and Customs may
by regulations make provision for—
(a)
a relieved member of a relevant non-UK scheme, or
5
(b)
a transfer member of such a scheme,

to be liable to the unauthorised payment charge in circumstances
which are the same as or similar to those in which the scheme
administrator of such a scheme is liable to the scheme sanction
charge by virtue of section 181A (minimum alternatively and
10
dependants’ alternatively secured pension).”
Inheritance tax
19
IHTA 1984 is amended as follows.
20    (1)
Section 151A (person dying with alternatively secured pension fund) is
amended as follows.
15
      (2)
For subsection (2) substitute—
“(2)
Tax shall be charged on the relevant amount as if it were part of the
value transferred by the transfer of value made on the member’s
death at the rate or rates at which it would be charged if it formed the
highest part of that value.”
20
      (3)
In subsection (3)(a), after “death” insert “but reduced by the amount of any
previously charged income tax”.
      (4)
After subsection (4) insert—
“(4A)
In subsection (3)(a) above “the amount of any previously charged
income tax” means the amount of any liability to income tax which
25
(after the member’s death but before the time when tax is charged on
the transfer of value treated as made by the member on death) has
arisen by virtue of the making of an unauthorised member payment
under Part 4 of the Finance Act 2004 relating to the member’s
alternatively secured pension fund.
30
(4B)
Subsection (4C) below applies where the maximum that could be
transferred by the chargeable transfer made (under section 4 above)
on the member’s death if it were to be wholly chargeable to tax at the
rate of nil per cent. exceeds—
(a)
the value actually transferred by that chargeable transfer (or
35
nil if there is no such chargeable transfer), less
(b)
any previously untaxed alternatively secured pension fund
amount.
(4C)
Where this subsection applies, tax is to be charged on the previously
untaxed alternatively secured pension fund amount as if the nil rate
40
band maximum were—

where—

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Schedule 19 — Alternatively secured pensions and transfer lump sum death benefit etc
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UNRB is the unused nil-rate band, that is the excess mentioned
in subsection (4B) above, and
MUPR is the maximum unauthorised payment rate, that is the
maximum aggregate rate at which tax is chargeable under
Part 4 of the Finance Act 2004 in respect of an unauthorised
5
member payment.”
      (5)
In subsection (5), at the end of the definition of “dependants’ unsecured
pension” (but before “and”) insert—
“previously untaxed alternatively secured pension fund
amount” means so much of the aggregate mentioned in
10
subsection (3)(a) above as has not given rise to any liability to
tax by virtue of Part 4 of the Finance Act 2004 before tax is
charged on the transfer treated as made by the member on
death.”
      (6)
After that subsection insert—
15
“(6)
This section applies in relation to a member who would have an
alternatively secured pension fund immediately before death but for
sub-paragraphs (6) and (7) of paragraph 11 of Schedule 28 to the
Finance Act 2004 as if those sub-paragraphs were omitted (but
subject as follows).
20
(7)
In the case of such a member the references in subsection (3)(a) and
(b) to the member’s death are to the date on which the scheme
administrator becomes aware of the member’s death.”
21    (1)
Section 151B (relevant dependant with pension fund inherited from member
over 75) is amended as follows.
25
      (2)
In subsection (1)(b), after “before his death” insert “(or would have but for
paragraph 11(6) and (7) of Schedule 28 to the Finance Act 2004)”.
      (3)
Omit subsection (5).
22
After that section insert—
“151BA
Rate or rates of charge under section 151B
30
(1)
Tax charged under section 151B above shall be charged at the rate or
rates at which it would be charged on the death of the member if the
amount mentioned in subsection (3) of that section (as reduced
under subsection (4) of that section) (“the taxable amount”) had been
included in the aggregate mentioned in section 151A(3)(a) above (but
35
subject as follows).
(2)
The rate or rates at which tax is charged on the taxable amount shall
be determined as if the taxable amount had formed the very highest
part of the value of the member’s estate immediately before the
member’s death (above any amount which is part of that value apart
40
from this section).
(3)
The rate or rates at which tax is charged on the taxable amount shall
be determined on the assumptions that—
(a)
subsection (3)(b) of section 151A above were omitted, and
(b)
the references in subsections (4A) and (5) of that section to the
45
time when tax is charged on the transfer treated as made by