Office of Public Sector Information
PART 4 continued CHAPTER 3 continued
(1) This is the rule relating to the payment of lump sums by a registered pension scheme to a member of the pension scheme (“the lump sum rule”).
Lump sum rule
No lump sum may be paid other than—
a pension commencement lump sum,
a serious ill-health lump sum,
a short service refund lump sum,
a refund of excess contributions lump sum,
a trivial commutation lump sum,
a winding-up lump sum, or
a lifetime allowance excess lump sum.
(2) For the purposes of this Part, a person becomes entitled to a lump sum under a registered pension scheme—
(a) in the case of a pension commencement lump sum, immediately before the person becomes entitled to the pension in connection with which it is paid, and
(b) in any other case, when the person acquires an actual (rather than a prospective) right to receive the lump sum.
(3) Part 1 of Schedule 29 gives the meaning of expressions used in the lump sum rule.
(4) Schedule 36 contains (in Part 3) transitional provisions about lump sums.
(1) These are the rules relating to the payment of pension death benefits by a registered pension scheme in respect of a member of the pension scheme (“the pension death benefit rules”).
Pension death benefit rule 1
No payment of pension death benefit may be made otherwise than to a dependant of the member.
Pension death benefit rule 2
No payment of pension death benefit other than a dependants' scheme pension may be made in respect of a defined benefits arrangement.
Pension death benefit rule 3
If a dependant has not reached the age of 75, no payment of pension death benefit to the dependant other than—
a dependants' scheme pension,
a dependants' annuity, or
dependants' unsecured pension,
may be made to the dependant in respect of a money purchase arrangement; but a dependants' scheme pension may only be paid if the member or dependant had an opportunity to select a dependants' annuity instead.
Pension death benefit rule 4
The total amount of dependants' unsecured pension paid to a dependant in each unsecured pension year in respect of a money purchase arrangement must not exceed 120% of the basis amount for the unsecured pension year.
Pension death benefit rule 5
If a dependant has reached the age of 75, no payment of pension other than—
a dependants' scheme pension,
a dependants' annuity, or
dependants' alternatively secured pension,
may be made to the dependant in respect of a money purchase arrangement; but a dependants' scheme pension may only be paid if the member or dependant had an opportunity to select a dependants' annuity instead.
Pension death benefit rule 6
The total amount of dependants' alternatively secured pension paid to a dependant in each alternatively secured pension year in respect of a money purchase arrangement must not exceed 70% of the basis amount for the alternatively secured pension year.
(2) “Pension death benefit” means a pension payable on the death of the member (other than a member’s pension payable after the member’s death under pension rule 2: see section 165).
(3) Part 2 of Schedule 28 gives the meaning of expressions used in the pension death benefit rules.
(1) This is the rule relating to the payment of lump sum death benefits by a registered pension scheme in respect of a member of the pension scheme (“the lump sum death benefit rule”).
Lump sum death benefit rule
No lump sum death benefit may be paid other than—
a defined benefits lump sum death benefit,
a pension protection lump sum death benefit,
an uncrystallised funds lump sum death benefit,
an annuity protection lump sum death benefit,
an unsecured pension fund lump sum death benefit,
a charity lump sum death benefit,
a transfer lump sum death benefit,
a trivial commutation lump sum death benefit, or
a winding-up lump sum death benefit.
(2) In this Part “lump sum death benefit” means a lump sum payable on the death of the member.
(3) Part 2 of Schedule 29 gives the meaning of expressions used in the lump sum death benefit rule.
(4) Schedule 36 contains (in Part 3) transitional provision about lump sum death benefits.
(1) A “recognised transfer” is a transfer of sums or assets held for the purposes of, or representing accrued rights under, a registered pension scheme so as to become held for the purposes of, or to represent rights under—
(a) another registered pension scheme, or
(b) a qualifying recognised overseas pension scheme,
in connection with a member of that pension scheme.
(2) For the purposes of this Part a recognised overseas pension scheme is a qualifying recognised overseas pension scheme if—
(a) the scheme manager has given to the Inland Revenue notification that it is a recognised overseas pension scheme and has provided any such evidence that it is a recognised overseas pension scheme as the Inland Revenue may require,
(b) the scheme manager has undertaken to the Inland Revenue to inform the Inland Revenue if it ceases to be a recognised overseas pension scheme,
(c) the scheme manager has undertaken to the Inland Revenue to comply with any prescribed information requirements imposed on the scheme manager, and
(d) the recognised overseas pension scheme is not excluded from being a qualifying recognised overseas pension scheme by subsection (5).
(3) In this Part “scheme manager”, in relation to a pension scheme, means the person or persons administering, or responsible for the management of, the pension scheme.
(4) In this section “prescribed information requirements” means—
(a) requirements imposed by or under regulations made by the Board of Inland Revenue to provide to the Inland Revenue any information of a description prescribed by regulations so made, and
(b) requirements specified by regulations so made to provide information to an authority so specified in circumstances so specified.
(5) A recognised overseas pension scheme is excluded from being a qualifying recognised overseas pension scheme by this subsection if the Inland Revenue has decided that—
(a) there has been a failure to comply with any prescribed information requirements imposed on the scheme manager and the failure is significant, and
(b) by reason of the failure it is not appropriate that transfers of sums or assets held for the purposes of, or representing accrued rights under, registered pension schemes so as to become held for the purposes of, or to represent rights under, the recognised overseas pension scheme should be recognised transfers,
and has notified the person or persons appearing to be the scheme manager of that decision (but subject to subsection (7) and section 170).
(6) A failure to comply with prescribed information requirements imposed on the scheme manager is significant if—
(a) the amount of the information which has not been provided is substantial, or
(b) the failure to provide the information is likely to result in serious prejudice to the assessment or collection of tax.
(7) The Inland Revenue—
(a) may at any time after a recognised overseas pension scheme becomes excluded from being a qualifying recognised overseas pension scheme decide that the pension scheme is to cease to be so excluded, and
(b) must notify the scheme manager of the decision.
(1) This section applies where a recognised overseas pension scheme is excluded from being a qualifying recognised overseas pension scheme by a decision of the Inland Revenue under section 169(5).
(2) The scheme manager may appeal against the decision.
(3) The appeal is to the General Commissioners, except that the scheme manager may elect (in accordance with section 46(1) of TMA 1970) to bring the appeal before the Special Commissioners instead of the General Commissioners.
(4) Paragraphs 1, 2, 8 and 9 of Schedule 3 to TMA 1970 (rules for assigning proceedings to General Commissioners) have effect to identify the General Commissioners before whom an appeal under this section is to be brought, but subject to modifications specified in an order made by the Board of Inland Revenue.
(5) An appeal under this section against a decision must be brought within the period of 30 days beginning with the day on which the notification of the decision was given.
(6) The Commissioners before whom an appeal under this section is brought must consider whether the recognised overseas pension scheme ought to have been excluded from being a qualifying recognised overseas pension scheme.
(7) If they decide that the recognised overseas pension scheme ought to have been excluded from being a qualifying recognised overseas pension scheme, they must dismiss the appeal.
(8) If they decide that the recognised overseas pension scheme ought not to have been excluded from being a qualifying recognised overseas pension scheme, the recognised overseas pension scheme is to be treated as having remained a qualifying recognised overseas pension scheme (but subject to any further appeal or any determination on, or in consequence of, a case stated).
(1) A “scheme administration member payment” is a payment by a registered pension scheme to or in respect of a member of the pension scheme which is made for the purposes of the administration or management of the pension scheme.
(2) But if a payment falling within subsection (1) exceeds the amount which might be expected to be paid to a person who was at arm’s length, the excess is not a scheme administration member payment.
(3) Scheme administration member payments include in particular—
(a) the payment of wages, salaries or fees to persons engaged in administering the pension scheme, and
(b) payments made for the purchase of assets to be held for the purposes of the pension scheme.
(4) A loan to or in respect of a member of the pension scheme is not a scheme administration member payment.
(5) Regulations made by the Board of Inland Revenue may provide that payments of a description specified in the regulations are, or are not, scheme administration member payments.
(1) Subsection (2) applies if a member of a registered pension scheme (or the member’s personal representatives) assigns or agrees to assign any benefit, other than an excluded pension, to which the member has an actual or prospective entitlement under the pension scheme.
(2) Unless the assignment or agreement is pursuant to a pension sharing order or provision, the pension scheme is to be treated as making an unauthorised payment to the member (or to the member’s personal representatives in respect of the member).
(3) Subsection (4) applies if a person (or a person’s personal representatives) assigns or agrees to assign any benefit, other than an excluded pension, to which the person has an actual or prospective entitlement under a registered pension scheme in respect of a member of the pension scheme.
(4) Unless the assignment or agreement is pursuant to a pension sharing order or provision, the pension scheme is to be treated as making an unauthorised payment to the person (or the person’s personal representatives) in respect of the member.
(5) The amount of the unauthorised payment is the greater of—
(a) the consideration received in respect of the assignment or agreement, and
(b) the consideration which might be expected to be received in respect of the assignment or agreement if the parties to the transaction were at arm’s length.
(6) Where a pension scheme is treated by this section as having made an unauthorised payment in relation to an assignment (or an agreement to assign), payments by the pension scheme of the benefit assigned (or agreed to be assigned) are not unauthorised payments.
(7) An excluded pension is a pension which under pension rule 2 may continue to be paid after the member’s death (see section 165).
(8) “Assignment” includes assignation and related expressions are to be read accordingly.
(1) A registered pension scheme is to be treated as having made an unauthorised payment to a member of the pension scheme if an asset held for the purposes of the pension scheme is used to provide a benefit (other than a payment) to—
(a) the member, or
(b) a member of the member’s family or household.
(2) If the benefit is received by reason of an employment which is not an excluded employment, subsection (1) does not apply.
(3) If the benefit is received by reason of an excluded employment, subsection (1) only applies if—
(a) it is a benefit to which Chapter 6 or 10 of the benefits code (cars and vans, and benefits not dealt with elsewhere in benefits code) would apply if the employment were not an excluded employment,
(b) the pension scheme is an occupational pension scheme, and
(c) the member, or a member of the member’s family or household, is a director of, and has a material interest in, a sponsoring employer.
(4) A registered pension scheme is to be treated as having made an unauthorised payment in respect of a member of the pension scheme if, after the member’s death, an asset held for the purposes of the pension scheme is used to provide a benefit (other than a payment) to a person who, at the date of the member’s death, was a member of the member’s family or household.
(5) The person who receives the benefit is to be treated as having received the unauthorised payment.
(6) If the benefit is received by reason of an employment which is not an excluded employment, subsections (4) and (5) do not apply.
(7) If the benefit is received by reason of an excluded employment, subsections (4) and (5) only apply if—
(a) paragraphs (a) and (b) of subsection (3) apply, and
(b) at the date of the member’s death the member, or a member of the member’s family or household, was a director of, and had a material interest in, a sponsoring employer.
(8) The amount of an unauthorised payment treated as having been made by this section—
(a) in relation to such benefits, and in such circumstances, as may be prescribed by regulations made by the Board of Inland Revenue, is an amount determined in accordance with the regulations, and
(b) otherwise, is the amount which would be the cash equivalent of the benefit under the benefits code if the benefit were received by reason of an employment and the benefits code applied to it.
(9) For the purposes of subsection (8)—
(a) references in the benefits code to the employee are to be treated as references to the member, and
(b) references in the benefits code to the employer are to be treated as references to the pension scheme.
(10) In this section—
“the benefits code” has the meaning given by section 63(1) of ITEPA 2003,
“director” has the meaning given by section 67 of that Act,
“excluded employment” has the meaning given by section 63(4) of that Act, and
“material interest” has the meaning given by section 68 of that Act.
(11) Section 721 of ITEPA 2003 applies for the purposes of determining the members of a person’s family or household.
(1) A registered pension scheme is to be treated as having made an unauthorised payment to a member of the pension scheme if, in connection with any of the events mentioned in subsection (3) or a change in the value of a currency—
(a) the value of an asset held for the purposes of the pension scheme is reduced or a liability of the pension scheme is increased, and
(b) the value of an asset held by or for the benefit of the member is increased, a liability of the member is reduced, or a liability of another person is reduced for the benefit of the member.
(2) But if the event or the change in the value of the currency occurs after the member’s death—
(a) the pension scheme is to be treated as having made an unauthorised payment in respect of the member (rather than to the member), and
(b) the person who holds the asset or is subject to the liability in relation to which subsection (1)(b) is satisfied is to be treated as having received the unauthorised payment.
(3) The events are—
(a) the creation, alteration, release or extinction of any power, right, option or liability relating to assets held for the purposes of the pension scheme (whether or not provided for in the terms on which the asset is acquired or held),
(b) the creation, alteration, release or extinction of any power, right or option relating to a liability of the pension scheme (whether or not provided for in the terms on which the liability is incurred),
(c) the exercise of, or failure to exercise, any power, right or option in relation to assets held for the purposes of the pension scheme or a liability of the pension scheme, or
(d) the exercise of, or failure to exercise, any power, right or option which constitutes an asset held for the purposes of the pension scheme,
in a way which differs from that which might be expected if the parties to the transaction were at arm’s length.
(4) The amount of the unauthorised payment is the amount by which the reduction in value of the asset held for the purposes of the pension scheme, or the increase in the liability of the pension scheme, exceeds that which might be expected if the parties to the transaction were at arm’s length.
(5) Regulations made by the Board of Inland Revenue may make provision as to how the excess is to be calculated in relation to events of a description specified in the regulations (including provision as to the times at which the asset or liability is to be valued).
The only payments which a registered pension scheme that is an occupational pension scheme is authorised to make to or in respect of a sponsoring employer are—
(a) public service scheme payments (see section 176),
(b) authorised surplus payments (see section 177),
(c) compensation payments (see section 178),
(d) authorised employer loans (see section 179),
(e) scheme administration employer payments (see section 180), and
(f) payments of a description prescribed by regulations made by the Board of Inland Revenue.
A payment is a public service scheme payment if—
(a) it is made by a public service pension scheme, and
(b) it is not of a description prescribed by regulations made by the Board of Inland Revenue.
For the purposes of this Part a payment is an authorised surplus payment if it is of a description prescribed by regulations made by the Board of Inland Revenue.
A payment is a compensation payment if it is made in respect of a member’s liability to a sponsoring employer in respect of a criminal, fraudulent or negligent act or omission by the member.
(1) A loan made to or in respect of a sponsoring employer is an authorised employer loan if—
(a) the amount loaned does not exceed an amount equal to 50% of the aggregate of the amount of the sums, and the market value of the assets, held for the purposes of the pension scheme immediately before the loan is made,
(b) the loan is secured by a charge which is of adequate value, and
(c) the repayment terms comply with subsection (2).
(2) The repayment terms comply with this subsection if—
(a) the rate of interest payable on the loan is not less than the rate prescribed by regulations made by the Board of Inland Revenue,
(b) the loan repayment date is before the end of the period of five years beginning with the date on which the loan is made, or has been postponed to a date after the end of that period under subsection (3), and
(c) the amount payable in each period beginning with the date on which the loan is made, and ending with the last day of a loan year, is not less than the required amount.
(3) If on a standard loan repayment date any amount (including interest) is owing, the loan repayment date may be postponed to a date before the end of the period of five years beginning with the standard loan repayment date.
(4) The loan repayment date may be postponed under subsection (3) only once.
(5) If the amount of a loan to or in respect of a sponsoring employer is increased, the amount of the increase is to be treated as a loan made on the date of the increase.
(6) Schedule 30 gives the meaning of expressions used in this section and explains how to calculate the amount of the unauthorised payment when a loan to or in respect of a sponsoring employer does not comply with subsection (1).
(7) In this section and that Schedule “charge” includes a right in security or an agreement to create a right in security; and any reference to assets subject to a charge or assets charged includes a reference to the property over which such a right is granted.
(8) Schedule 36 contains (in Part 4) transitional provision about loans to sponsoring employers.
(1) A “scheme administration employer payment” is a payment made—
(a) by a registered pension scheme that is an occupational pension scheme, and
(b) to or in respect of a sponsoring employer,
for the purposes of the administration or management of the pension scheme.
(2) But if a payment falling within subsection (1) exceeds the amount which might be expected to be paid to a person who was at arm’s length, the excess is not a scheme administration employer payment.
(3) Scheme administration employer payments include in particular—
(a) the payment of wages, salaries or fees to persons engaged in administering the pension scheme, and
(b) payments made for the purchase of assets to be held for the purposes of the pension scheme.
(4) A loan to or in respect of a sponsoring employer is not a scheme administration employer payment.
(5) Payments made to acquire shares in a sponsoring employer are not scheme administration employer payments if, when the payment is made—
(a) the market value of shares in the sponsoring employer held for the purposes of the pension scheme is equal to or greater than 5% of the aggregate of the amount of the sums, and the market value of the assets, held for the purposes of the pension scheme, or
(b) the total market value of shares in sponsoring employers held for the purposes of the pension scheme is equal to or greater than 20% of the aggregate of the amount of the sums, and the market value of the assets, held for the purposes of the pension scheme.
(6) Regulations made by the Board of Inland Revenue may provide that payments of a description specified in the regulations are, or are not, scheme administration employer payments.
(1) A registered pension scheme that is an occupational pension scheme is to be treated as having made an unauthorised payment to a sponsoring employer if, in connection with any of the events mentioned in subsection (2) or a change in the value of a currency—
(a) the value of an asset held for the purposes of the pension scheme is reduced or a liability of the pension scheme is increased, and
(b) the value of an asset held by or for the benefit of the sponsoring employer is increased, a liability of the sponsoring employer is reduced, or a liability of another person is reduced for the benefit of the sponsoring employer.
(2) The events are—
(a) the creation, alteration, release or extinction of any power, right, option or liability relating to assets held for the purposes of the pension scheme (whether or not provided for in the terms on which the asset is acquired or held),
(b) the creation, alteration, release or extinction of any power, right or option relating to a liability of the pension scheme (whether or not provided for in the terms on which the liability is incurred),
(c) the exercise of, or failure to exercise, any power, right or option in relation to assets held for the purposes of the pension scheme or a liability of the pension scheme, or
(d) the exercise of, or failure to exercise, any power, right or option which constitutes an asset held for the purposes of the pension scheme,
in a way which differs from that which might be expected if the parties to the transaction were at arm’s length.
(3) The amount of the unauthorised payment is the amount by which the reduction in value of the asset held for the purposes of the pension scheme, or the increase in the liability of the pension scheme, exceeds that which might be expected if the parties to the transaction were at arm’s length.
(4) Regulations made by the Board of Inland Revenue may make provision as to how the excess is to be calculated in relation to events of a description specified in the regulations (including provision as to the times at which the asset or liability is to be valued).
(1) A registered pension scheme is not authorised to borrow an amount in respect of a money purchase arrangement unless the arrangement borrowing condition is met.
(2) The arrangement borrowing condition is met if—
where—
APB is the aggregate of the amounts previously borrowed in respect of the arrangement (excluding any amounts which have been repaid),
PB is the amount proposed to be borrowed in respect of the arrangement, and
VA is the value of the arrangement.
(3) The value of the arrangement is the aggregate of—
(a) the amount of such of the sums and the market value of such of the assets as represent the member’s unsecured pension fund or alternatively secured pension fund in respect of the arrangement (if any),
(b) the amount of such of the sums and the market value of such of the assets as represent dependants' unsecured pension funds or alternatively secured pension funds in respect of the arrangement (if any),
(c) the aggregate of the value of each scheme pension or dependants' scheme pension payable in respect of the arrangement, and
(d) the value of the uncrystallised rights under the arrangement.
(4) The value of a scheme pension or dependants' scheme pension payable in respect of the arrangement is—
RVF × ARP
where—
RVF is the relevant valuation factor (see section 276), and
ARP is the annual rate at which the pension is payable.
(5) Rights are uncrystallised if no-one has become entitled to the present payment of benefits in respect of the rights; and a person is to be treated as entitled to the present payment of benefits in respect of the sums and assets representing the person’s unsecured pension fund or alternatively secured pension fund.
(6) If the arrangement is a cash balance arrangement, the value of the uncrystallised rights under the arrangement is the amount which would, on the valuation assumptions (see section 277), be available for the provision of benefits in respect of those rights if a person became entitled to benefits in respect of those rights.
(7) If the arrangement is a money purchase arrangement other than a cash balance arrangement, the value of the uncrystallised rights under the arrangement is the aggregate of the amount of such of the sums, and the market value of such of the assets, held for the purposes of the arrangement as represent those rights.
(8) If the arrangement is a hybrid arrangement under which either cash balance benefits or other money purchase benefits (but not defined benefits) may be provided, the value of the uncrystallised rights under the arrangement is the greater of—
(a) their value calculated under subsection (6) (on the assumption that cash balance benefits are provided), and
(b) their value calculated under subsection (7) (on the assumption that other money purchase benefits are provided).
(1) Subsection (2) applies if a registered pension scheme borrows in respect of a money purchase arrangement an amount which it is not authorised to borrow under section 182.
(2) The pension scheme is to be treated as having made a scheme chargeable payment—
(a) if subsection (3) applies, of an amount calculated in accordance with subsection (4), and
(b) otherwise, of the amount borrowed.
(3) This subsection applies if, immediately before the amount is borrowed—
(4) If subsection (3) applies, the amount of the scheme chargeable payment is—
(5) In subsections (3) and (4)—
APB is the aggregate of the amounts previously borrowed in respect of the arrangement (excluding any amounts which have been repaid),
AB is the amount borrowed, and
VA is the value of the arrangement, calculated in accordance with section 182(3), immediately before the amount is borrowed.
Finance Act 2004