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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

250

 

(c)   

at the end insert—

         

“But, in a case where the member had not reached the age

of 75 at the date of the member’s death, a lump sum death

benefit is an uncrystallised funds lump sum death benefit

only if it is paid before the end of the relevant two-year

5

period.”

      (3)  

After that sub-paragraph insert—

   “(1A)  

“The relevant two-year period” means the period of two years

beginning with the earlier of the day on which the scheme

administrator first knew of the member’s death and the day on

10

which the scheme administrator could first reasonably be

expected to have known of it.”

36    (1)  

Paragraph 16 (annuity protection lump sum death benefit) is amended as

follows.

      (2)  

In sub-paragraph (1), omit paragraph (a).

15

      (3)  

In sub-paragraph (3), for the definition of “AC” substitute—

“AC is—

(a)   

in a case where the member became entitled to the

pension or annuity before reaching the age of 75, the

amount crystallised by reason of the member

20

becoming entitled to the pension or annuity,

disregarding paragraphs 3 and 4 of Schedule 32, and

(b)   

in a case where the member became entitled to the

pension or annuity after having reached that age, the

amount that would have been so crystallised

25

(disregarding those paragraphs) but for paragraph 2

of that Schedule,”.

37    (1)  

Paragraph 17 (unsecured pension fund lump sum death benefit) is amended

as follows.

      (2)  

For sub-paragraph (1) substitute—

30

    “(1)  

For the purposes of this Part a lump sum death benefit is a

drawdown pension fund lump sum death benefit if—

(a)   

it is paid in respect of income withdrawal to which the

member was entitled under an arrangement at the date of

the member’s death, and

35

(b)   

it is not a charity lump sum death benefit.”

      (3)  

In sub-paragraph (2)—

(a)   

for “an unsecured pension fund lump sum death benefit” substitute

“a drawdown pension fund lump sum death benefit”;

(b)   

omit paragraph (b);

40

(c)   

at the end of paragraph (c) insert “, and

(d)   

it is not a charity lump sum death benefit.”

      (4)  

In sub-paragraph (3), for “an unsecured pension fund lump sum death

benefit” substitute “a drawdown pension fund lump sum death benefit”.

      (5)  

In sub-paragraph (4), for “unsecured pension fund” substitute “drawdown

45

pension fund”.

 
 

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

251

 

      (6)  

The heading before paragraph 17 becomes “Drawdown pension fund lump sum

death benefit”.

38    (1)  

Paragraph 18 (charity lump sum death benefit) is amended as follows.

      (2)  

In sub-paragraph (1)—

(a)   

omit paragraph (a);

5

(b)   

in paragraph (c), for the words from “in respect of” to “Schedule 28)”

substitute “in respect of the member’s drawdown pension fund”;

(c)   

in paragraph (d), omit from “(or, if the member” to the end.

      (3)  

After sub-paragraph (1) insert—

   “(1A)  

A lump sum death benefit is also a charity lump sum death benefit

10

if—

(a)   

the member had reached the age of 75 at the date of the

member’s death,

(b)   

there are no dependants of the member,

(c)   

it is paid in respect of relevant uncrystallised funds in

15

respect of a money purchase arrangement at the date of the

member’s death, and

(d)   

it is paid to a charity nominated by the member.

     (1B)  

“Relevant uncrystallised funds” has the meaning given by

paragraph 15(2).”

20

      (4)  

In sub-paragraph (2)—

(a)   

omit paragraph (b);

(b)   

in paragraph (d), for “the dependant’s alternatively secured pension

fund” substitute “the dependant’s drawdown pension fund”;

(c)   

in paragraph (e), omit from “(or, if neither the member” to the end.

25

      (5)  

In sub-paragraph (4), for the words from “representing” to “pension fund”

substitute “representing what is the member’s or dependant’s drawdown

pension fund”.

39         

In paragraph 20(1) (trivial commutation lump sum death benefit), omit—

(a)   

paragraph (a), and

30

(b)   

paragraph (c) (but not the “and” after it).

Serious ill-health lump sum charge

40         

In Part 4 of FA 2004 (pension schemes etc), after section 205 insert—

“205A   

Serious ill-health lump sum charge

(1)   

A charge to income tax, to be known as the serious ill-health lump

35

sum charge, arises where a serious ill-health lump sum is paid by a

registered pension scheme to a member who has reached the age of

75.

(2)   

The person liable to the serious ill-health lump sum charge is the

scheme administrator.

40

(3)   

The scheme administrator is liable to the serious ill-health lump sum

charge whether or not—

(a)   

the scheme administrator, and

 
 

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

252

 

(b)   

the person to whom the serious ill-health lump sum is paid,

   

are resident, ordinarily resident or domiciled in the United

Kingdom.

(4)   

The rate of the charge is 55% in respect of the lump sum.

(5)   

The Treasury may by order increase or decrease the rate for the time

5

being specified in subsection (4).

(6)   

Tax under this section is to be charged on the amount of the lump

sum paid or, if the rules of the pension scheme permit the scheme

administrator to deduct the tax before payment, on the amount of the

lump sum before deduction of tax.

10

(7)   

A serious ill-health lump sum paid to a member who has reached the

age of 75 is not to be treated as income for any purpose of the Tax

Acts.”

Special lump sum death benefits charge

41    (1)  

In Part 4 of FA 2004, section 206 (special lump sum death benefits charge) is

15

amended as follows.

      (2)  

In subsection (1), for paragraph (c) substitute—

“(c)   

a drawdown pension fund lump sum death benefit,”.

      (3)  

After that subsection insert—

“(1A)   

The special lump sum death benefits charge also arises where—

20

(a)   

a defined benefits lump sum death benefit, or

(b)   

an uncrystallised funds lump sum death benefit,

   

is paid by a registered pension scheme in respect of a member who

had reached the age of 75 at the date of the member’s death.”

      (4)  

In subsection (4), for “35%” substitute “55%”.

25

      (5)  

For subsection (7) substitute—

“(7)   

None of the following is to be treated as income for any purpose of

the Tax Acts—

(a)   

any lump sum death benefit mentioned in subsection (1);

(b)   

a defined benefits lump sum death benefit or uncrystallised

30

funds lump sum death benefit paid in respect of a member

who had reached the age of 75 at the date of the member’s

death.”

Exemption from income tax of certain lump sums and lump sum death benefits

42    (1)  

Section 636A of ITEPA 2003 (exemption for certain lump sums under

35

registered pension schemes) is amended as follows.

      (2)  

In subsection (1)—

(a)   

in paragraph (b), after “serious ill-health lump sum” insert “paid to a

member who has not reached the age of 75”;

(b)   

in paragraph (d), after “defined benefits lump sum death benefit”

40

insert “paid in respect of a member who had not reached the age of

75 at the date of the member’s death”;

 
 

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

253

 

(c)   

in paragraph (e), after “uncrystallised funds lump sum death

benefit” insert “paid in respect of such a member”.

      (3)  

After subsection (3) insert—

“(3A)   

A serious ill-health lump sum which is paid under a registered

pension scheme to a member who has reached the age of 75 is subject

5

to income tax in accordance with section 205A of FA 2004 (charge to

tax on scheme administrator in respect of such a lump sum) but not

otherwise.”

      (4)  

In subsection (4)—

(a)   

before paragraph (a) insert—

10

“(za)   

a defined benefits lump sum death benefit paid in

respect of a member who had reached the age of 75 at

the date of the member’s death,”;

(b)   

after paragraph (a) insert—

“(aa)   

an uncrystallised funds lump sum death benefit paid

15

in respect of a member who had reached the age of 75

at the date of the member’s death,”;

(c)   

for paragraph (c) substitute—

“(c)   

a drawdown pension fund lump sum death benefit,”.

      (5)  

In subsection (7)—

20

(a)   

after ““defined benefits lump sum death benefit”,” insert—

““drawdown pension fund lump sum death benefit”,”;

(b)   

after ““pension protection lump sum death benefit”,” insert “and”;

(c)   

omit ““unsecured pension fund lump sum death benefit”,” (and the

“and” before it).

25

Lifetime allowance charge: benefit crystallisation events

43         

In section 216 of FA 2004 (benefit crystallisation events and amounts

crystallised), in the table in subsection (1), after the entry for benefit

crystallisation event 5A insert—

 

“5B. The individual reaching the

The amount of any remaining

 

30

 

age of 75 when there is a money

unused funds”.

 
 

purchase arrangement relating to

  
 

the individual under any of the

  
 

relevant pension schemes

  

44    (1)  

Schedule 32 to FA 2004 (benefit crystallisation events: supplementary) is

35

amended as follows.

      (2)  

After paragraph 14 insert—

“Benefit crystallisation event 5B: meaning of “remaining unused funds”

14A        

For the purposes of benefit crystallisation event 5B “remaining

unused funds” means—

40

(a)   

in relation to a cash balance arrangement, a sum equal to

what would, on the valuation assumption in section 277(a),

 
 

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

254

 

be available for the provision of benefits to or in respect of

the member if the member became entitled to them on

reaching the age of 75, and

(b)   

in relation to any other arrangement, such of the sums and

assets held for the purposes of the arrangement as are not

5

member-designated funds and have not been applied

towards the provision of a scheme pension or a

dependants’ scheme pension.”

      (3)  

After paragraph 15 insert—

“Benefit crystallisation event 6: prevention of overlap with other events

10

15A        

Benefit crystallisation event 6 does not apply in relation to a

pension commencement lump sum paid in respect of a money

purchase arrangement if—

(a)   

the individual becomes entitled to it before reaching the

age of 75, but

15

(b)   

it is not paid to the individual until after the individual has

reached that age.”

Annual allowance charge: persons meeting flexible drawdown conditions

45    (1)  

In section 227 of FA 2004 (annual allowance charge), at the end of subsection

(4) insert—

20

   

“But see section 227A (individuals who meet flexible drawdown

conditions).”

      (2)  

After section 227 insert—

“227A   

Individuals who meet flexible drawdown conditions

(1)   

This section applies in the case of an individual in relation to whom

25

there is or has been a flexible drawdown arrangement under a

pension scheme.

   

In this section “flexible drawdown arrangement” means an

arrangement to which section 165(3A) or 167(2A) applies.

(2)   

For each tax year following the first tax year in which there was a

30

flexible drawdown arrangement in relation to the individual, section

227 applies to the individual as if the reference in subsection (4) of

that section to the amount by which the total pension input amount

exceeds the amount of the annual allowance were a reference to the

amount in subsection (3) of this section.

35

(3)   

The amount referred to in subsection (2) is—equation: plus[times[char[T],char[P],char[I],char[A]],minus[times[char[R],char[P],char[I],

char[A]]]]

   

where—

TPIA is the total pension input amount for the tax year, and

RPIA is so much of the aggregate of the pension input amounts

in respect of each defined benefits or cash balance

40

arrangement relating to the individual under any registered

pension scheme of which the individual is not an active

member as does not exceed the annual allowance.

 
 

Finance (No. 3) Bill
Schedule 16 — Benefits under pension schemes
Part 2 — Consequential amendments

255

 

(4)   

For the tax year following the first tax year in which there was a

flexible drawdown arrangement in relation to the individual, the

reference in subsection (3) to a registered pension scheme of which

the individual is not an active member includes, in a case where the

individual was an active member of a registered pension scheme at

5

any time during that first tax year but has not been such a member

since the relevant time, a reference to that registered pension scheme.

(5)   

In subsection (4) the “relevant time” is the time at which there first

began to be a flexible drawdown arrangement in relation to the

individual.”

10

Removal of certain charges to inheritance tax in respect of pension schemes

46         

IHTA 1984 is amended as follows.

47    (1)  

Section 12 (dispositions allowable for income tax or conferring benefits

under pension scheme) is amended as follows.

      (2)  

After subsection (2) insert—

15

“(2ZA)   

Where a person who is a member of a registered pension scheme, a

qualifying non-UK pension scheme or a section 615(3) scheme omits

to exercise pension rights under the pension scheme, section 3(3)

above does not apply in relation to the omission.”

      (3)  

Omit subsections (2A) to (2E).

20

48         

Omit the following provisions—

(a)   

section 151A (person dying with alternatively secured pension

fund);

(b)   

section 151B (relevant dependant with pension fund inherited from

member over 75);

25

(c)   

section 151BA (rate or rates of charge under section 151B);

(d)   

section 151C (dependant dying with other pension fund);

(e)   

section 151D (unauthorised payment where person dies over 75 with

pension or annuity);

(f)   

section 151E (rate or rates of charge under section 151D).

30

Part 2

Consequential amendments

Inheritance Tax Act 1984

49         

IHTA 1984 is amended as follows.

50    (1)  

Section 12 (dispositions allowable for income tax or conferring benefits

35

under pension scheme) is amended as follows.

      (2)  

In subsection (2F), omit paragraph (b) (and the “and” before it).

      (3)  

In subsection (2G)—

(a)   

omit the definitions of “lump sum death benefit”, “pension death

benefit” and “relevant dependant”;

40

(b)   

in the definition of “pension”, for “that Part” substitute “Part 4”.

 
 

Finance (No. 3) Bill
Schedule 16 — Benefits under pension schemes
Part 2 — Consequential amendments

256

 

51         

In section 151 (treatment of pension rights, etc), in subsection (2), for “Subject

to sections 151A and 151C below, an interest” substitute “An interest”.

52         

In section 200 (transfer on death)—

(a)   

in subsection (1), omit “(subject to subsection (1A) below)”;

(b)   

omit subsection (1A).

5

53         

In section 210 (pension rights, etc), omit subsections (2) and (3).

54    (1)  

Section 216 (delivery of accounts) is amended as follows.

      (2)  

In subsection (1), omit paragraph (bca).

      (3)  

In subsection (3)(a), omit “(or would do apart from section 151A(3)(b) or

151C(3)(b) above)”.

10

      (4)  

In subsection (4), omit “(or would be apart from section 151A(3)(b),

151C(3)(b) or 151B(4) above)”.

      (5)  

In subsection (6), omit paragraph (ac).

      (6)  

In subsection (7), for “, 126 or 151D” substitute “or 126”.

55         

In section 226 (payment: general rules), in subsection (4)—

15

(a)   

for “, 126, 151B or 151D” substitute “or 126”;

(b)   

omit from “, or under section 151A” to “that section,”.

56         

In section 233 (interest on unpaid tax), in subsection (1)(c)—

(a)   

for “, 126, 151B or 151D” substitute “or 126”;

(b)   

omit from “, or under section 151A” to “that section,”.

20

57         

In section 272 (general interpretation), omit the definition of “scheme

administrator”.

Pension Schemes Act 1993

58         

Until such time as the repeal of section 28A of the Pension Schemes Act 1993

(requirements for interim arrangements) by paragraph 11 of Schedule 4 to

25

the Pensions Act 2007 has effect for all purposes, subsection (3) of that

section has effect with the following amendments—

(a)   

in paragraph (a)—

(i)   

for “unsecured pension year” substitute “drawdown pension

year”,

30

(ii)   

after “twelve months” insert “(disregarding the second

sentence of pension rule 5)”, and

(iii)   

for “where the member has not reached the age of 75,”

substitute “or”;

(b)   

in paragraph (c)—

35

(i)   

for “unsecured pension year” substitute “drawdown pension

year”,

(ii)   

after “twelve months” insert “(disregarding the second

sentence of pension death benefit rule 4)”, and

(iii)   

omit “and the member’s widow, widower or surviving civil

40

partner has not reached the age of 75, or”;

(c)   

omit paragraphs (b) and (d).

 
 

 
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Revised 31 March 2011