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
230

the member on death were to the time when tax is charged
under this section.
(4)
Subsection (5) below applies where, before the time when the
dependant dies or ceases to be a relevant dependant, there have been
one or more reductions of tax by virtue of the coming into force of a
5
substitution of a new Table in Schedule 1 to this Act since the
member’s death.
(5)
The rate or rates at which tax is charged under section 151B above is
to be determined as if the new Table effecting the reduction of tax (or
the most recent reduction of tax) had been in force at the time of the
10
member’s death.”
23    (1)
Section 151C (dependant dying with other pension fund) is amended as
follows.
      (2)
For subsection (2) substitute—
“(2)
Tax shall be charged on the relevant amount as if it were part of the
15
value transferred by the transfer of value made on the dependant’s
death at the rate or rates at which it would be charged if it formed the
highest part of that value.”
      (3)
In subsection (3)(a), after “death” insert “but reduced by the amount of any
previously charged income tax”.
20
      (4)
After that subsection insert—
“(3A)
In subsection (3)(a) above “the amount of any previously charged
income tax” means the amount of any liability to income tax which
(after the dependant’s death but before the time when tax is charged
on the transfer of value treated as made by the dependant on death)
25
has arisen by virtue of the making of an unauthorised member
payment under Part 4 of the Finance Act 2004 relating to the
dependant’s alternatively secured pension fund.
(3B)
Subsection (3C) below applies where the maximum that could be
transferred by the chargeable transfer made (under section 4 above)
30
on 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, less
(b)
any previously untaxed dependant’s alternatively secured
pension fund amount.
35
(3C)
Where this subsection applies, tax is to be charged on the previously
untaxed dependant’s alternatively secured pension fund amount as
if the nil rate band maximum were—

where—
UNRB is the unused nil rate band, that is the excess mentioned
40
in subsection (3B) 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
member payment.
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Finance Bill
Schedule 19 — Alternatively secured pensions and transfer lump sum death benefit etc
231

(3D)
The relevant amount is to be reduced by the aggregate of so much of
the sums and the value of the assets of the dependant’s alternatively
secured pension fund as arises, or (directly or indirectly) derives,
from sums or assets forming part of an alternatively secured pension
fund of the member which were designated as available for the
5
payment of—
(a)
dependants’ unsecured pension, or
(b)
dependants’ alternatively secured pension,

to the dependant under the arrangement.”
      (5)
In subsection (4), omit “and” at the end of the definition of “dependant” and
10
insert at the end—
““previously untaxed dependant’s alternatively secured
pension fund amount” means so much of the aggregate
mentioned in subsection (3)(a) above as has not given rise to
any liability to tax by virtue of Part 4 of the Finance Act 2004
15
before tax is charged on the transfer treated as made by the
dependant on death.”
24
In section 216(6)(ac) (delivery of account)—
(a)
after “occurs” insert “, the scheme administrator becomes aware of
the death”, and
20
(b)
insert at the end “(depending on which occasions the charge)”.
25
In section 226(4) (payment), after “Act” insert “, or under section 151A above
by virtue of subsection (6) of that section,”.
26
In section 233(1)(c) (interest on unpaid tax), after “Act” insert “, or under
section 151A above by virtue of subsection (6) of that section,”.
25
27
In Schedule 2 (provisions applying on reduction of tax), omit paragraph 6A.
Consequential amendment
28    (1)
Section 636A of ITEPA 2003 (exemption for certain lump sums under
registered pension schemes) is amended as follows.
      (2)
In subsection (1)—
30
(a)
insert “or” at the end of paragraph (d), and
(b)
omit paragraph (f) and the word “or” before it.
      (3)
In subsection (7), omit ““transfer lump sum death benefit”,”.
Commencement
29    (1)
The amendments made by paragraphs 2(2) and 3 have effect in relation to
35
deaths of members of registered pension schemes occurring on or after 6th
April 2007.
      (2)
The amendments made by paragraphs 2(3), 4, 14 and 15 have effect for
alternatively secured pension years beginning on or after 6th April 2007.
      (3)
The amendments made by paragraphs 5 to 10, 18(2) and (3) and 28 have
40
effect in relation to lump sum death benefits paid in respect of members of
schemes whose deaths occur on or after 6th April 2007.

Finance Bill
Schedule 20 — Pension schemes etc: miscellaneous
232

      (4)
The amendments made by paragraphs 11, 12(5) and 16(2), (4) and (6) are
deemed to have come into force on 6th April 2006.
      (5)
The amendments made by paragraphs 12(2) and 13 have effect in relation to
members of registered pension schemes becoming entitled to alternatively
secured rights on or after 6th April 2007 in respect of members whose deaths
5
occur on or after that date.
      (6)
The amendments made by paragraph 16(3) and (5) have effect in relation to
charity lump sum death benefits paid on or after 6th April 2007.
      (7)
The amendment made by paragraph 17 is deemed to have come into force
on 6th April 2007.
10
      (8)
The amendments made by paragraphs 19 to 27 have effect in relation to
deaths, cases where scheme administrators become aware of deaths and
cessations of dependency occurring on or after 6th April 2007.
Schedule 20
Section 69

Pension schemes etc: miscellaneous
15
Introduction
1
Part 4 of FA 2004 (pension schemes etc) is amended as follows.
Persons by whom registered pension schemes may be established
2     (1)
Section 154 (persons by whom registered pension scheme may be
established) is amended as follows.
20
      (2)
For subsection (1) substitute—
“(1)
An application to register a pension scheme may be made only if the
pension scheme—
(a)
is an occupational pension scheme, or
(b)
has been established by a person with permission under
25
FISMA 2000 to establish in the United Kingdom a personal
pension scheme or a stakeholder pension scheme.”
      (3)
After subsection (2) insert—
“(2A)
Subsection (1) is to be construed in accordance with section 22 of
FISMA 2000, any relevant order under that section and Schedule 2 to
30
that Act.”
      (4)
Omit subsection (3).
      (5)
In subsection (4), omit “and section 155”.
3
Omit section 155 (persons by whom scheme may be established:
supplementary).
35
4
In section 273 (members liable as scheme administrator)—
(a)
in subsection (5)(a), omit “was established by a person or body
specified in section 154(1)(a) to (g) (insurance companies etc) and”,
and

Finance Bill
Schedule 20 — Pension schemes etc: miscellaneous
233

(b)
in subsection (7), omit “was established by a person or body specified
in section 154(1)(a) to (g) and”.
Unauthorised payments reduced by amount of scheme sanction charge
5
In section 160 (unauthorised payments), after subsection (4) insert—
“(4A)
If an unauthorised member payment or unauthorised employer
5
payment made to or in respect of a person would have been greater
but for a reduction made in respect of the whole, or any proportion,
of the amount which the scheme administrator considers may be the
amount of the liability to the scheme sanction charge in respect of it,
it is to be regarded for the purposes of this Part as increased by the
10
amount of the reduction.
(4B)
But if the amount, or that proportion of the amount, of that liability
is in fact less than the amount of the reduction, a subsequent
payment of an amount not exceeding the difference between that
amount and the amount of the reduction made—
15
(a)
to or in respect of the same person, and
(b)
before the end of the period of two years beginning with the
date on which the unauthorised member payment or
unauthorised employer payment was made,

is not to be regarded for the purposes of this Part as an unauthorised
20
member payment or unauthorised employer payment.”
Surrenders
6     (1)
Section 172A (surrender) is amended as follows.
      (2)
In subsection (5), after paragraph (d) insert—
“(da)
a surrender made as part of a retirement-benefit activities
25
compliance exercise,
(db)
a surrender of a prospective entitlement to pension death
benefits within section 167(1) or lump sum death benefits
within section 168(1) (or both) made in order to comply with
the Employment Equality (Age) Regulations 2006 or
30
Employment Equality (Age) Regulations (Northern Ireland)
2006 (or any regulations amending or replacing them),”.
      (3)
In subsection (10), for “An” substitute “For the purposes of this section an”.
      (4)
After that subsection insert—
“(10A)
For the purposes of this section a surrender relating to an
35
arrangement under the pension scheme (“the old arrangement”) is
made as part of a retirement-benefit activities compliance exercise
if—
(a)
it is made in connection with the making of an arrangement
under another pension scheme relating to the member (“the
40
new arrangement”),
(b)
the old arrangement and the new arrangement relate to the
same employment,
(c)
both the rights surrendered and the rights conferred under
the new arrangement consist of or include a prospective
45

Finance Bill
Schedule 20 — Pension schemes etc: miscellaneous
234

entitlement to pension death benefits within section 167(1) or
lump sum death benefits within section 168(1) (or both),
(d)
the surrender and the making of the new arrangement
constitute or form part of a transaction the purpose of which
is to secure that the activities of the pension scheme are
5
limited to retirement-benefit activities within the meaning of
section 255 of the Pensions Act 2004 or Article 232 of the
Pensions (Northern Ireland) Order 2005, and
(e)
the rights surrendered and the rights conferred under the
new arrangement are not significantly different.”
10
Scheme pensions where ill-health condition met
7     (1)
Schedule 28 (pension rules) is amended as follows.
      (2)
In paragraph 2(4) (scheme pensions: cases where cessation or reduction of
pension is permitted), for paragraph (a) substitute—
“(a)
the reduction of the pension if the member became entitled
15
to it by reason of the ill-health condition being met,”.
      (3)
In paragraph 2A(2) (certain reductions not permitted if part of avoidance
arrangements), for “the rate of which is reduced in accordance with
paragraph (b) of sub-paragraph (4) of paragraph 2 but” substitute “which is
reduced in accordance with paragraph (a) of sub-paragraph (4) of paragraph
20
2, or the rate of which is reduced in accordance with paragraph (b) of that
sub-paragraph, and”.
Unsecured and dependants’ unsecured pensions: reference periods
8     (1)
Schedule 28 (pension rules) is amended as follows.
      (2)
In paragraph 10 (reference periods for unsecured pensions), for sub-
25
paragraph (1) substitute—
    “(1)
Subject as follows, the period of five unsecured pension years
beginning with the first unsecured pension year, and each
succeeding period of five unsecured pension years, is a “reference
period”.
30
     (1A)
Sub-paragraph (1B) applies if, at any time during a reference
period (“the current reference period”), the member notifies the
scheme administrator that the member wishes a new reference
period to begin on the next day that is an anniversary of the
reference date in relation to the current reference period.
35
     (1B)
The scheme administrator may determine—
(a)
that the current reference period is to end immediately
before that day (so that sub-paragraph (1) no longer
applies), and
(b)
that (subject to any further operation of this sub-
40
paragraph) the period of five unsecured pension years
beginning with that day, and each succeeding period of
five unsecured pension years, is to be a reference period.
     (1C)
The first day of each reference period is, in relation to that period,
“the reference date”.”
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Finance Bill
Schedule 20 — Pension schemes etc: miscellaneous
235

      (3)
In paragraph 24 (reference periods for dependants’ unsecured pensions), for
sub-paragraph (1) substitute—
    “(1)
Subject as follows, the period of five unsecured pension years
beginning with the first unsecured pension year, and each
succeeding period of five unsecured pension years, is a “reference
5
period”.
     (1A)
Sub-paragraph (1B) applies if, at any time during a reference
period (“the current reference period”), the dependant notifies the
scheme administrator that the dependant wishes a new reference
period to begin on the next day that is an anniversary of the
10
reference date in relation to the current reference period.
     (1B)
The scheme administrator may determine—
(a)
that the current reference period is to end immediately
before that day (so that sub-paragraph (1) no longer
applies), and
15
(b)
that (subject to any further operation of this sub-
paragraph) the period of five unsecured pension years
beginning with that day, and each succeeding period of
five unsecured pension years, is to be a reference period.
     (1C)
The first day of each reference period is, in relation to that period,
20
“the reference date”.”
Pension commencement lump sums
9
In section 166(2)(a) (when person becomes entitled to pension
commencement lump sum), after “paid” insert “(or, if the person dies before
becoming entitled to the pension in connection with which it was
25
anticipated it would be paid, immediately before death)”.
10
In section 219(7) (multiple benefit crystallisation events occuring by reason
of payment of lump sum death benefits treated as occurring immediately
before death), insert at the end “but immediately after any benefit
crystallisation event occurring immediately before the individual’s death by
30
virtue of section 166(2).”
11    (1)
Schedule 29 (authorised lump sums) is amended as follows.
      (2)
In paragraph 1(1) (conditions to be met if lump sum is to be pension
commencement lump sum)—
(a)
for paragraph (a) substitute—
35
“(a)
the member becomes entitled to it before reaching
the age of 75,
(aa)
the member becomes entitled to it in connection
with becoming entitled to a relevant pension (or
dies after becoming entitled to it but before
40
becoming entitled to the relevant pension in
connection with which it was anticipated that the
member would become entitled to it)”,
(b)
in paragraph (c), for “of three months beginning with” substitute
“beginning six months before, and ending one year after,”, and
45
(c)
omit paragraph (e) (but not including the “and” at the end).

Finance Bill
Schedule 20 — Pension schemes etc: miscellaneous
236

      (3)
In paragraph 2 (“permitted maximum”), after sub-paragraph (5) insert—
   “(5A)
But if the member dies before becoming entitled to the relevant
pension in connection with which it was anticipated that the
member would become entitled to the lump sum, the permitted
maximum is the available portion of the member’s lump sum
5
allowance.”
Winding-up lump sums
12    (1)
Paragraph 10 of Schedule 29 (winding-up lump sums) is amended as
follows.
      (2)
In sub-paragraph (1)(c), for “the member’s employer” substitute “any
10
person by whom the member is employed at the time when the lump sum is
paid, and who has made contributions under the pension scheme in respect
of the member within the period of five years ending with the day on which
it is paid,”.
      (3)
In sub-paragraph (3)—
15
(a)
for “are that the employer” substitute “referred to in paragraph (c) of
sub-paragraph (1) are that the person mentioned in that paragraph”,
and
(b)
omit paragraph (a).
Lump sum death benefits
20
13    (1)
Schedule 29 (authorised lump sums) is amended as follows.
      (2)
In paragraph 13(c) (defined benefits lump sum death benefit), for “day on
which the member died,” substitute “earlier of the day on which the scheme
administrator first knew of the member’s death and the day on which the
scheme administrator could first reasonably be expected to have known of
25
it,”.
      (3)
In paragraph 15(1)(c) (uncrystallised funds lump sum death benefit), for
“day on which the member died,” substitute “earlier of the day on which the
scheme administrator first knew of the member’s death and the day on
which the scheme administrator could first reasonably be expected to have
30
known of it,”.
Taxable property held by investment-regulated pension schemes: indirect holdings in REITs
14    (1)
Schedule 29A (taxable property held by investment-regulated pension
schemes) is amended as follows.
      (2)
In paragraph 20(1)(b) (indirect holdings: introduction to exception for
35
REITs), for “paragraph 22 makes” substitute “paragraphs 22, 24 and 25
make”.
      (3)
In paragraph 22 (REITs)—
(a)
in sub-paragraph (1), after paragraph (b) insert—

“and paragraph 24 applies to the pension scheme’s interest
40
in the vehicle.”, and
(b)
omit sub-paragraph (2).