Finance (No. 3) Bill

Session 2010 - 11
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Finance (No. 3) Bill

Finance (No. 3) Bill
Schedule 16 — Benefits under pension schemes
Part 1 — Changes to benefits available under pension schemes etc
236

(ii)
is substantially similar in character to a
pension, benefit or allowance to which that
section applies.
      (8)
Any regulations made under paragraph 7 of Schedule 34
(application of Part 4 of this Act in relation to relevant non-UK
5
schemes) have effect for the purposes of sub-paragraphs (3)(c) and
(4)(b) of this paragraph as they have effect for the purposes of that
Schedule.
14B   (1)
The Treasury may by order amend paragraph 14A(2) so as to
substitute a different amount for the amount for the time being
10
specified as the minimum income threshold.
      (2)
The Treasury may by regulations—
(a)
amend paragraph 14A so as to add, vary or remove
descriptions of payments which are relevant income;
(b)
provide that in prescribed circumstances the whole or part
15
of any relevant payment, or any relevant payment of a
prescribed description, is not to be regarded as relevant
income.
      (3)
In this paragraph—
“prescribed” means prescribed in regulations made by the
20
Treasury;
“relevant payment” means a payment falling within
paragraph 14A(3).
The relevant day
14C
“The relevant day” means—
25
(a)
in a case where subsection (3A) of section 165 has not
previously applied to an arrangement relating to the
member, the day on which the declaration referred to in
paragraph (b) of that subsection is made, and
(b)
in a case where subsection (3A) of that section has
30
previously applied to such an arrangement, the day on
which that subsection first so applied.
Relevant contributions
14D
“Relevant contributions” means—
(a)
relievable pension contributions paid by or on behalf of the
35
member, or
(b)
contributions paid in respect of the member by an
employer of the member.
Valid and accepted declarations
14E   (1)
A declaration is “valid” if it complies with such requirements as
40
may be prescribed by regulations made by the Commissioners for
Her Majesty’s Revenue and Customs.
      (2)
A declaration is accepted by the scheme administrator of a
registered pension scheme if, as a result of the making of the

Finance (No. 3) Bill
Schedule 16 — Benefits under pension schemes
Part 1 — Changes to benefits available under pension schemes etc
237

declaration, the member becomes eligible to receive payments of
drawdown pension in respect of an arrangement under the
scheme which, but for the application of section 165(3A), would be
unauthorised member payments.”
Dependants’ drawdown pension
5
11    (1)
In Part 4 of FA 2004, section 167 (pension death benefit rules) is amended as
follows.
      (2)
In subsection (1)—
(a)
in pension death benefit rule 3—
(i)
for “If a dependant has not reached the age of 75, no payment
10
of pension death benefit to the dependant” substitute “No
payment of pension death benefit”,
(ii)
for paragraph (c) substitute—
“(c)
dependants’ drawdown pension,”, and
(iii)
for “the dependant” substitute “a dependant”;
15
(b)
for pension death benefit rule 4 substitute—

“Pension death benefit rule 4

The total amount of dependants’ drawdown pension paid to
a dependant in each drawdown pension year in respect of a
money purchase arrangement must not exceed 100% of the
20
basis amount for the drawdown pension year.

But this limit does not apply in relation to an arrangement to
which subsection (2A) applies.”;
(c)
omit pension death benefit rules 5 and 6.
      (3)
After subsection (2) insert—
25
“(2A)
This subsection applies to an arrangement if—
(a)
the dependant meets the flexible drawdown conditions,
(b)
the dependant makes a valid declaration to the scheme
administrator to that effect, and
(c)
the declaration is accepted by the scheme administrator.
30
(2B)
The dependant meets the flexible drawdown conditions if—
(a)
the dependant satisfied the minimum income requirement
on the relevant day,
(b)
no relevant contributions are paid under any money
purchase arrangement (other than a cash balance
35
arrangement) relating to the dependant under a registered
pension scheme in the tax year in which the declaration is
made, and
(c)
at the time of the declaration the dependant is not an active
member of any registered pension scheme under which there
40
is a defined benefits or cash balance arrangement relating to
the dependant.”
Meaning of “dependants’ drawdown pension”
12
Part 2 of Schedule 28 to FA 2004 (pension death benefit rules) is amended as
follows.
45

Finance (No. 3) Bill
Schedule 16 — Benefits under pension schemes
Part 1 — Changes to benefits available under pension schemes etc
238

13    (1)
In paragraph 18 (meaning of “dependants’ unsecured pension”), for
““Dependants’ unsecured pension”” substitute ““Dependants’ drawdown
pension””.
      (2)
The heading before paragraph 18 becomes “Dependants’ drawdown pension”.
14
In paragraph 20 (dependants’ short-term annuity), in sub-paragraph (1)—
5
(a)
in paragraph (a), for “dependant’s unsecured pension fund”
substitute “dependant’s drawdown pension fund”;
(b)
in paragraph (d), omit the words “reaches the age of 75 or”.
15
For paragraph 21 (meaning of “dependants’ income withdrawal”)
substitute—
10
“21
“Dependants’ income withdrawal” means an amount (other than
an annuity) which the dependant is entitled to be paid from the
dependant’s drawdown pension fund in respect of an
arrangement.”
Dependant’s drawdown pension fund
15
16    (1)
In Part 2 of Schedule 28 to FA 2004, paragraph 22 (dependant’s unsecured
pension fund) is amended as follows.
      (2)
In sub-paragraph (1), for “dependant’s unsecured pension fund” substitute
“dependant’s drawdown pension fund”.
      (3)
In sub-paragraph (2)(a), for “dependant’s unsecured pension” substitute
20
“dependants’ drawdown pension”.
      (4)
In sub-paragraph (3)—
(a)
for “dependant’s unsecured pension fund” (in both places)
substitute “dependant’s drawdown pension fund”;
(b)
in paragraph (a), for “an unsecured pension fund” substitute “a
25
drawdown pension fund”.
      (5)
The heading before paragraph 22 becomes “Dependant’s drawdown pension
fund”.
Drawdown pension year and basis amount for drawdown pension year
17    (1)
In Part 2 of Schedule 28 to FA 2004, paragraph 23 (unsecured pension year)
30
is amended as follows.
      (2)
In sub-paragraph (1)—
(a)
for ““Unsecured pension year”” substitute ““Drawdown pension
year””;
(b)
in paragraph (a), for “dependants’ unsecured pension” substitute
35
“dependants’ drawdown pension”;
(c)
at the end insert—

“This is subject to paragraph 24B.”
      (3)
For sub-paragraph (2) substitute—
    “(2)
The drawdown pension year in which the dependant dies is the
40
last drawdown pension year and ends immediately before the
dependant’s death.”

Finance (No. 3) Bill
Schedule 16 — Benefits under pension schemes
Part 1 — Changes to benefits available under pension schemes etc
239

      (4)
The heading before paragraph 23 becomes “Drawdown pension year and basis
amount for drawdown pension year”.
18    (1)
Paragraph 24 of that Schedule (basis amount) is amended as follows.
      (2)
For sub-paragraph (1) substitute—
   “(A1)
This paragraph applies in relation to drawdown pension years
5
beginning on or before the dependant’s 75th birthday.
      (1)
Subject as follows, the period of three drawdown pension years
beginning with the first drawdown pension year, and each
succeeding period of three drawdown pension years, is a
“reference period”.
10
    (1ZA)
But the reference period in which the dependant reaches the age
of 75 ends with the drawdown pension year in which the
dependant reaches that age.”
      (3)
In sub-paragraph (1B)(b)—
(a)
after “subject to” insert “sub-paragraph (1ZA) and”;
15
(b)
for “five unsecured pension years” (in both places) substitute “three
drawdown pension years”.
      (4)
In sub-paragraphs (2) and (4)—
(a)
for “unsecured pension year” substitute “drawdown pension year”;
(b)
for “dependant’s unsecured pension fund” substitute “dependant’s
20
drawdown pension fund”.
      (5)
In sub-paragraph (5)—
(a)
for “an unsecured pension year” substitute “a drawdown pension
year”;
(b)
for “that unsecured pension year” substitute “that drawdown
25
pension year”.
      (6)
In sub-paragraph (6)—
(a)
for “unsecured pension year” substitute “drawdown pension year”;
(b)
for “dependant’s unsecured pension fund” substitute “dependant’s
drawdown pension fund”.
30
      (7)
After sub-paragraph (6) insert—
   “(6A)
But sub-paragraph (5) does not apply where the operation of that
sub-paragraph in relation to an additional fund designation
during a drawdown pension year would reduce the basis amount
for that drawdown pension year.”
35
      (8)
In sub-paragraph (7), for “dependant’s unsecured pension fund” substitute
“dependant’s drawdown pension fund”.
      (9)
In sub-paragraph (8)—
(a)
for “sums and assets” substitute “sums or assets”;
(b)
for “unsecured dependants’ pension” substitute “dependants’
40
drawdown pension”.
     (10)
In sub-paragraph (8A), for “dependant’s unsecured pension fund”
substitute “dependant’s drawdown pension fund”.

Finance (No. 3) Bill
Schedule 16 — Benefits under pension schemes
Part 1 — Changes to benefits available under pension schemes etc
240

     (11)
In sub-paragraph (9)(b), for “unsecured pension year” substitute
“drawdown pension year”.
     (12)
After sub-paragraph (10) insert—
   “(11)
Nothing in this paragraph applies in respect of an arrangement to
which section 167(2A) applies.”
5
19
After paragraph 24 of that Schedule insert—
“24A  (1)
This paragraph applies in relation to drawdown pension years
beginning after the dependant’s 75th birthday.
      (2)
For each drawdown pension year beginning after the dependant
reached the age of 75, the basis amount is the annual amount of the
10
relevant annuity which could have been purchased by the
application of the sums and assets representing the dependant’s
drawdown pension fund on the nominated date.

But this is subject to sub-paragraph (4).
      (3)
“The nominated date” is such day within the period of 60 days
15
ending with the first day of the drawdown pension year as is
nominated by the scheme administrator (or, if no day is
nominated by the scheme administrator, is the first day of that
year).
      (4)
On the occasion of each additional fund designation during a
20
drawdown pension year, the basis amount of that drawdown
pension year is to be recalculated in accordance with sub-
paragraph (5).
      (5)
The basis amount for the drawdown pension year is the annual
amount of the relevant annuity which could have been purchased
25
by the application of the sums and assets representing the
dependant’s drawdown pension fund immediately after the
additional fund designation.
      (6)
But sub-paragraph (4) does not apply where the operation of that
sub-paragraph in relation to an additional fund designation
30
during a drawdown pension year would reduce the basis amount
for that drawdown pension year.
      (7)
“Additional fund designation” has the meaning given by
paragraph 24(8).
      (8)
Paragraph 14 defines “relevant annuity”.
35
      (9)
Nothing in this paragraph applies in respect of an arrangement to
which section 167(2A) applies.
24B   (1)
This paragraph applies if the dependant has reached the age of 75.
      (2)
Sub-paragraph (3) applies if, at any time during a drawdown
pension year in respect of an arrangement (“the current
40
drawdown pension year”), the dependant notifies the scheme
administrator that the dependant wishes the drawdown pension
year following the current drawdown pension year to begin on the
day on which the next drawdown pension year in respect of
another arrangement relating to the dependant under the pension
45

Finance (No. 3) Bill
Schedule 16 — Benefits under pension schemes
Part 1 — Changes to benefits available under pension schemes etc
241

scheme (including any arrangement relating to that person as a
member of the scheme) will begin.
      (3)
The scheme administrator may determine—
(a)
that the current drawdown pension year is to end
immediately before that day, and
5
(b)
that the period of 12 months beginning with that day, and
each succeeding period of 12 months, is a drawdown
pension year in respect of the arrangement.
      (4)
The scheme administrator may not make a determination under
this paragraph more than once in relation to the same
10
arrangement.”
Flexible drawdown: minimum income requirement etc
20
In Part 2 of Schedule 28 to FA 2004, after paragraph 24B insert—
“Minimum income requirement
24C   (1)
The dependant satisfies the minimum income requirement at any
15
time in a tax year if the amount of relevant income payable to the
dependant for that tax year is not less than the minimum income
threshold.
      (2)
The minimum income threshold is £20,000.
      (3)
“Relevant income” means any of the following kinds of income—
20
(a)
payments of a scheme pension or dependants’ scheme
pension provided by a registered pension scheme;
(b)
payments of a lifetime annuity or dependants’ annuity
made by a registered pension scheme;
(c)
payments under an overseas pension scheme which, if the
25
scheme were a registered pension scheme, would fall
within paragraph (a) or (b);
(d)
payments of a social security pension;
(e)
payments under the financial assistance scheme which are
payable until the dependant’s death;
30
(f)
payments made under that scheme in anticipation of, and
on account of, payments falling within paragraph (e).
      (4)
But “relevant income” does not include—
(a)
drawdown pension or dependants’ drawdown pension, or
(b)
any payments under an overseas pension scheme which, if
35
the scheme were a registered pension scheme, would be
drawdown pension or dependants’ drawdown pension.
      (5)
A payment of any pension or annuity within sub-paragraph (3), or
a payment under the financial assistance scheme, is not to be
regarded as relevant income unless the dependant has, at any time
40
before the time mentioned in sub-paragraph (1), already received
a payment of that pension or annuity or (as the case may be) a
payment under that scheme.
      (6)
For the purposes of sub-paragraph (1), the amount of any relevant
income payable in a currency other than sterling is to be taken to
45

Finance (No. 3) Bill
Schedule 16 — Benefits under pension schemes
Part 1 — Changes to benefits available under pension schemes etc
242

be the equivalent amount in sterling, calculated by reference to an
appropriate spot rate of exchange prevailing on the relevant day.
      (7)
In this paragraph—
“financial assistance scheme” means the scheme provided for
by regulations under section 286 of the Pensions Act 2004;
5
“social security pension” means—
(a)
any pension, benefit or allowance to which section
577 of ITEPA 2003 applies, and
(b)
any pension, benefit or allowance which—
(i)
is payable under the law of a country or
10
territory outside the United Kingdom, and
(ii)
is substantially similar in character to a
pension, benefit or allowance to which that
section applies.
      (8)
Any regulations made under paragraph 7 of Schedule 34
15
(application of Part 4 of this Act in relation to relevant non-UK
schemes) have effect for the purposes of sub-paragraphs (3)(c) and
(4)(b) of this paragraph as they have effect for the purposes of that
Schedule.
24D   (1)
The Treasury may by order amend paragraph 24C(2) so as to
20
substitute a different amount for the amount for the time being
specified as the minimum income threshold.
      (2)
The Treasury may by regulations—
(a)
amend paragraph 24C so as to add, vary or remove
descriptions of payments which are relevant income;
25
(b)
provide that in prescribed circumstances the whole or part
of any relevant payment, or any relevant payment of a
prescribed description, is not to be regarded as relevant
income.
      (3)
In this paragraph—
30
“prescribed” means prescribed in regulations made by the
Treasury;
“relevant payment” means a payment falling within
paragraph 24C(3).
The relevant day
35
24E
“The relevant day” means—
(a)
in a case where subsection (2A) of section 167 has not
previously applied to an arrangement relating to the
dependant, the day on which the declaration referred to in
paragraph (b) of that subsection is made, and
40
(b)
in a case where subsection (2A) of that section has
previously applied to such an arrangement, the day on
which that subsection first so applied.
Relevant contributions
24F
“Relevant contributions” means—
45