Office of Public Sector Information
SCHEDULE 10 continued
(2) In sub-paragraph (1) (sums and assets designated as available for the payment of dependants' unsecured pension), for paragraphs (a) and (b) substitute—
“(a) as are dependant-designated funds, and
(b) have not been applied towards the provision of a dependants' scheme pension.”
(3) After that sub-paragraph insert—
“(2) For the purposes of this Part sums or assets held for the purposes of an arrangement are dependant-designated funds if they—
(a) have been designated at any time under the arrangement as available for the payment of dependant’s unsecured pension to the dependant, or
(b) arise, or (directly or indirectly) derive, from sums or assets which have been so designated or which so arise or derive.
(3) If any sums or assets representing a dependant’s unsecured pension fund in respect of an arrangement under the pension scheme would (apart from this sub-paragraph)—
(a) come to be taken to represent another dependant’s unsecured pension fund of his under the pension scheme, or an unsecured pension fund of his under the pension scheme, or
(b) are applied towards the provision of a scheme pension or a lifetime annuity,
they are to be treated as not doing so.”
22 (1) Paragraph 24 of Schedule 28 (“unsecured pension years” etc.) is amended as follows.
(2) In sub-paragraph (4) (“basis amount”)—
(a) in paragraph (a), for “or recent additional fund designation” substitute “, recent additional fund designation or recent pension sharing event”, and
(b) in paragraph (b), for “or additional fund designation” substitute “, additional fund designation or pension sharing event”.
(3) After sub-paragraph (8) insert—
“(8A) “Pension sharing event” means the coming into operation of a pension sharing order or provision relating to the sums and assets representing the dependant’s unsecured pension fund.”
(4) In sub-paragraph (9) (“recent”), for “or additional fund designation” substitute “, additional fund designation or pension sharing event”.
23 (1) Paragraph 25 of Schedule 28 (dependant’s alternatively secured pension fund) is amended as follows.
(2) In sub-paragraph (1)(b) (exclusion of certain sums and assets), for “for purchasing a dependants' scheme pension or a dependants' annuity or paid as dependants' income withdrawal” substitute “towards the provision of a dependants' scheme pension”.
(3) For sub-paragraphs (2) and (3) (conditions to be met) substitute—
“(2) Condition A is that they—
(a) were part of the dependant’s unsecured pension fund in respect of the arrangement when the dependant reached the age of 75, or
(b) arise, or (directly or indirectly) derive, from sums or assets within paragraph (a) or which so arise or derive.
(3) Condition B is that they have at any time since the dependant reached the age of 75 been designated as available for the payment of alternatively secured dependants' pension to the dependant or arise, or (directly or indirectly) derive, from sums or assets which have been so designated or which so arise or derive.
(4) If any sums or assets representing a dependant’s alternatively secured pension fund in respect of an arrangement under the pension scheme would (apart from this sub-paragraph) come to be taken to represent another dependant’s alternatively secured pension fund of his under the pension scheme, or an alternatively secured pension fund of his under the pension scheme, they are to be treated as not doing so.”
24 In paragraph 3(8) of Schedule 29 (pension commencement lump sum: deduction from applicable amount in case of scheme pension), for “surrender” substitute “application”.
25 (1) Schedule 32 (benefit crystallisation events: supplementary) is amended as follows.
(2) In paragraph 3(1) (benefit crystallisation events 1, 2 and 4: prevention of overlap), for “surrender” substitute “application”.
(3) In paragraph 5(2) (benefit crystallisation events 1 and 5: hybrid arrangements), for “the sums or assets held for the purposes of the arrangement are to be treated as having been designated” substitute “, under paragraph 8(2) of Schedule 28, any relevant uncrystallised funds are to be treated as having been designated under the arrangement”.
26 In paragraph 15 of Schedule 28 (meaning of “dependant”), after sub-paragraph (1) insert—
“(1A) If the rules of the pension scheme so provide, a person who was married to the member when the member first became entitled to a pension under the pension scheme is a dependant of the member.”
27 (1) Paragraph 16 of Schedule 28 (dependants' scheme pension) is amended as follows.
(2) Omit sub-paragraph (1) (special provisions for pension scheme with fewer than 50 members).
(3) In sub-paragraph (2) (pension scheme with 50 or more members)—
(a) for “In the case of a pension scheme with 50 or more members, a” substitute “A”, and
(b) omit sub-paragraph (2)(b) and the word “and” before it.
(4) After that sub-paragraph insert—
“(2A) The Board of Inland Revenue may by regulations make provision in relation to cases in which a dependants' scheme pension payable to a dependant of a member of a registered pension scheme by an insurance company (“the original dependants' scheme pension”) ceases to be payable and in consequence of that—
(a) sums or assets (or both) are transferred from the insurance company to another insurance company and are applied towards the provision of either another dependants' scheme pension (a “new dependants' scheme pension”) or a scheme pension, lifetime annuity, short-term annuity, dependants' annuity or dependants' short-term annuity by the other insurance company, or
(b) sums or assets are transferred to the relevant registered pension scheme.
(2B) The regulations may provide that—
(a) in a case where a new dependants' scheme pension becomes payable, the new dependants' scheme pension is to be treated, to such extent as is prescribed by the regulations and for such of the purposes of this Part as are so prescribed, as if it were the original dependants' scheme pension, and
(b) in any other case, the relevant registered pension scheme is to be treated as making an unauthorised payment in respect of the member of an amount equal to the aggregate of the amount of the sums, and the market value of the assets, transferred.
(2C) For the purposes of sub-paragraphs (2A) and (2B) a registered pension scheme is the relevant registered pension scheme if the original dependants' scheme pension was acquired using sums or assets held for the purposes of the pension scheme.”
(5) Omit sub-paragraphs (3) to (6) (condition to be satisfied).
28 In Schedule 28 (authorised pensions), after paragraph 16 insert—
“16A (1) Paragraphs 16B and 16C apply where—
(a) the member dies after 5th April 2006,
(b) he has reached the age of 75 before his death, and
(c) at the time of his death he is actually or prospectively entitled to one or more scheme pensions under the pension scheme.
(2) References in this paragraph and paragraph 16B to a scheme pension include a pension payable before 6th April 2006 which would be a scheme pension if payable after that date.
16B (1) Where a pension is payable under the pension scheme to a dependant of the member in the period of 12 months beginning with the date of the member’s death (“the post-death year”), so much of the pension as exceeds the initial member pension limit is not a dependants' scheme pension.
(2) But if—
(a) more than one pension is so payable to one of the dependants of the member in the post-death year, or
(b) pensions are so payable to more than one dependant of the member in the post-death year,
(or both), so much of any of the pensions as exceeds the appropriate portion of the initial member pension limit is not a dependants' scheme pension.
(3) The “initial member pension limit” is (subject to sub-paragraph (4)) the sum of—
(a) the aggregate of the amounts of the scheme pensions to which the member is actually entitled under the pension scheme immediately before his death payable to the member in the period of 12 months ending with the date of his death (“the pre-death year”),
(b) the aggregate of the amounts of the scheme pensions to which the member is prospectively entitled under the pension scheme at that time which would have been so payable if he had been actually entitled to the pensions throughout the pre-death year, and
(c) 5% of the aggregate of the amounts of the lump sums on which there is no liability to income tax to which the member has become entitled in connection with scheme pensions under the pension scheme before his death.
(4) But if the member became (actually) entitled to a scheme pension under the pension scheme during the pre-death year, sub-paragraph (3)(a) has effect as if the amount of that scheme pension which was payable to the member under the pension scheme in the pre-death year were the amount which would have been payable to him in the period of 12 months beginning with the date on which he became entitled to it had he not died.
(5) The “appropriate portion” of the initial member pension limit, in relation to any pension payable under the pension scheme to a dependant of the member in the post-death year, is—
where—
P is the amount of that pension payable in the post-death year, and
AP is the aggregate of the amounts of each of the pensions payable under the pension scheme to dependants of the member in the post-death year.
16C (1) Where a pension is payable under the pension scheme to a dependant of the member, otherwise than in excepted circumstances, in—
(a) the period of 12 months beginning with the end of the post-death year, or
(b) any succeeding period of 12 months,
(“the 12 months in question”), so much of the pension as exceeds the current member pension limit is not a dependants' scheme pension.
(2) But if—
(a) more than one pension is so payable to one of the dependants in the 12 months in question, or
(b) pensions are so payable to more than one dependant of the member in the 12 months in question,
(or both), so much of any of the pensions as exceeds the appropriate portion of the current member pension limit is not a dependants' scheme pension.
(3) “Excepted circumstances” means—
(a) that at the beginning of the period of 12 months in question there are at least 50 pensioner members of the pension scheme, and
(b) that the condition in subsection (4) is met.
(4) The condition in this subsection is met if —
(a) the difference between CYP and PYP in the case of each relevant existing pension is the same amount,
(b) the difference between CYP and PYP in the case of each relevant existing pension is the same percentage of PYP, or
(c) in the case of each relevant existing pension the difference between CYP and PYP is the aggregate of a percentage of PYP and an amount which are both the same as those the aggregate of which make up the difference between CYP and PYP in the case of each other relevant existing pension.
(5) In this section—
“relevant existing pension” means a pension payable to any dependant of any member under the pension scheme throughout the 12 months in question and the immediately preceding period of 12 months,
“CYP”, in relation to a relevant existing pension, is the current year pension, that is the amount of the pension payable in the 12 months in question, and
“PYP”, in relation to a relevant existing pension, is the previous year pension, that is the amount of the pension payable in the immediately preceding period of 12 months.
(6) The “current member pension limit”, in relation to the 12 month period in question, is the initial member pension limit increased by the aggregate of—
(a) the permitted margin, and
(b) the excepted circumstances amount.
(7) The “permitted margin” is the amount by which the initial member pension limit would be greater if it had been increased by whichever of calculation A and calculation B gives the greater amount.
(8) Calculation A involves increasing the initial member pension limit by the relevant annual percentage rate for the whole of the period—
(a) beginning with the first month beginning after the end of the post-death year (“the opening month”), and
(b) ending with the first month of the 12 months in question (“the closing month”).
(9) The relevant annual percentage rate is—
(a) if the relevant valuation factor in relation to the pension scheme is a number greater than 20, the annual rate agreed by the Inland Revenue and the scheme administrator, and
(b) otherwise, 5% per annum.
(10) Calculation B involves increasing the initial member pension limit by the relevant indexation percentage.
(11) If the retail prices index for the closing month is higher than it was for the opening month, the relevant indexation percentage is the percentage increase in the retail prices index.
(12) If it is not, the relevant indexation percentage is 0%.
(13) The “excepted circumstances amount” is the aggregate of the amounts of the relevant increases in pensions which were payable under the pension scheme to dependants of the member in excepted circumstances in any period or periods within subsection (1)(a) or (b).
(14) The relevant increase in the case of any pension payable in relation to any 12 month period under the pension scheme to a dependant of the member is the difference between CYP and PYP (for this purpose reading the references in subsection (5) to the 12 months in question as references to the 12 month period).
(15) The “appropriate portion” of the current member pension limit, in relation to any pension payable under the pension scheme to a dependant of the member in the 12 months in question, is—
where—
P is the amount of that pension payable in the 12 months in question, and
AP is the aggregate of the amounts of each of the pensions payable under the pension scheme to one or more dependants of the member in the 12 months in question.”
29 (1) Paragraph 17 of Schedule 28 (dependants' annuity) is amended as follows.
(2) In sub-paragraph (1) (meaning of “dependants' annuity”), before paragraph (a) insert—
“(za) it is purchased either together with a lifetime annuity payable to the member or after the member’s death,”.
(3) After that sub-paragraph insert—
“(1A) For the purposes of sub-paragraph (1)(za) a dependants' annuity is purchased together with a lifetime annuity if the dependant’s annuity is related to the lifetime annuity.”
30 (1) Paragraph 3 of Schedule 29 (pension commencement lump sum: applicable amount) is amended as follows.
(2) In sub-paragraph (4) (applicable amount where member entitled to lifetime annuity to be one third of purchase price), for “of the annuity” substitute “of the lifetime annuity and any related dependants' annuity”.
(3) After that sub-paragraph insert—
“(4A) For the purposes of this Part a dependants' annuity is related to a lifetime annuity payable to a member of a registered pension scheme—
(a) if they are purchased either in the form of a joint life annuity or separately in circumstances in which the day on which the one is purchased is no earlier than seven days before, and no later than seven days after, the day on which the other is purchased, and
(b) the dependant’s annuity will be payable to a dependant of the member.”
31 In the table in section 216(1) (benefit crystallisation events and amounts crystallised), in benefit crystallisation event 4 (becoming entitled to lifetime annuity), in column 2 (amount crystallised), insert at the end “and any related dependants' annuity”.
32 In paragraph 4(1) of Schedule 32 (benefit crystallisation events 4: lifetime annuity purchased from unsecured pension fund), for “is” substitute “or a related dependants' annuity is, or both the lifetime annuity and a related dependants' annuity are,”.
33 In the table in section 280(2) (index of defined expressions), insert at the appropriate place—
| “related dependants' annuity | paragraph 3(4A) of Schedule 29”. |
34 (1) Paragraph 1 of Schedule 29 (meaning of “pension commencement lump sum”) is amended as follows.
(2) In sub-paragraph (3)(b) (member must become entitled to lump sum in connection with becoming entitled to relevant pension: lump sum and pension to be under same arrangement), for “under the arrangement” substitute “, otherwise than by virtue of the operation of paragraph 8(2) of Schedule 28, under the pension scheme”.
(3) After sub-paragraph (5) insert—
“(6) The Board of Inland Revenue may by regulations provide that, where incorrect income tax has been paid by the scheme administrator in relation to the member by way of the lifetime allowance charge in circumstances prescribed by the regulations, a lump sum subsequently paid to the member in circumstances so prescribed is to be treated as a pension commencement lump sum even though either or both of the conditions in sub-paragraph (1)(c) and (e) are not met.”
35 (1) Paragraph 3 of Schedule 29 (applicable amount limit) is amended as follows.
(2) For sub-paragraph (5) (annuity purchase price: sums and assets to be disregarded) substitute—
“(5) There is to be deducted from that aggregate—
(a) if the sums or assets applied in (or in connection with) the purchase of the annuity or any related dependants' annuity consist of or include sums or assets representing the whole or part of the member’s unsecured pension fund, the aggregate of the amount of those sums and the market value of those assets, and
(b) in any case, so much (if any) of the sums or assets applied in (or in connection with) the purchase of the annuity or any related dependants' annuity as represents rights which are attributable to a disqualifying pension credit.”
(3) In sub-paragraph (7) (scheme pensions), in the definition of AC, insert at the end “(disregarding paragraph 3 of Schedule 32).”
36 In section 169 (recognised transfers), after subsection (1) insert—
“(1A) A transfer of sums or assets held for the purposes of, or representing accrued rights under, a registered pension scheme to an insurance company is to be treated as a recognised transfer if the sums or assets had been applied by the pension scheme towards the provision of a scheme pension or a dependants' scheme pension (but subject to regulations under subsections (1B) and (1C)).
(1B) The Board of Inland Revenue may by regulations provide that, where any of the sums or assets transferred represent rights in respect of a scheme pension to which a member of a registered pension scheme has become entitled (“the original scheme pension”)—
(a) the transfer is not a recognised transfer unless those sums and assets are, after the transfer, applied towards the provision of a scheme pension (a “new scheme pension”), and
(b) if they are so applied, the new scheme pension is to be treated, to such extent as is prescribed by the regulations and for such of the purposes of this Part as are so prescribed, as if it were the original scheme pension.
(1C) The Board of Inland Revenue may by regulations provide that, where any of the sums or assets transferred represent rights in respect of a dependants' scheme pension to which a dependant of a member of a registered pension scheme has become entitled in respect of the member (“the original dependants' scheme pension”)—
(a) the transfer is not a recognised transfer unless those sums and assets are, after the transfer, applied towards the provision of a dependants' scheme pension (a “new dependants' scheme pension”), and
(b) if they are so applied, the new dependants' scheme pension is to be treated, to such extent as is prescribed by the regulations and for such of the purposes of this Part as are so prescribed, as if it were the original dependants' scheme pension.
(1D) The Board of Inland Revenue may by regulations provide that, where any of the sums or assets transferred represent—
(a) a person’s unsecured pension fund or dependant’s unsecured pension fund, or
(b) a person’s alternatively secured pension fund or dependant’s alternatively secured pension fund,
under an arrangement (“the old arrangement”), the transfer is not a recognised transfer unless all of those sums and assets become held under an arrangement under which no other sums or assets are held (“the new arrangement”).
(1E) If regulations so provide they may make in relation to cases in which the sums and assets become so held provision as to the treatment for the purposes of any provision of this Part of—
(a) the sums and assets transferred, and
(b) the new arrangement,
including provision for treating the sums and assets transferred as remaining, to such extent as is prescribed by the regulations and for such of the purposes of this Part as are so prescribed, sums and assets held under the old arrangement.”
37 (1) Section 172 (assignment of benefit to which member has actual or prospective entitlement to constitute unauthorised payment) is amended as follows.
(2) In subsection (1) (members), for the words after “agrees to assign” substitute—
“(a) any benefit, other than an excluded pension, to which the member (or any dependant of the member) has an actual or prospective entitlement under the pension scheme, or
(b) any right in respect of any sums or assets held for the purposes of any arrangement under the pension scheme.”
(3) In subsection (3) (other persons), for the words after “agrees to assign” substitute—
“(a) any benefit, other than an excluded pension, to which the person has an actual or prospective entitlement under the pension scheme in respect of a member of the pension scheme, or
(b) any right in respect of any sums or assets held for the purposes of any arrangement relating to the member under the pension scheme.”
(4) In subsection (5)(b) (amount of unauthorised payment), insert at the end “and any power to reduce the entitlement to the benefit or right did not exist.”
(5) In subsection (6) (payments of benefits assigned not unauthorised payments), after “benefit” insert “or right”.
(6) For subsection (7) substitute—
“(7) An excluded pension is so much of any pension which under pension rule 2 may continue to be paid after the member’s death as may be so paid.”
38 After section 172 insert—
(1) Subsection (2) applies if a member of a registered pension scheme surrenders or agrees to surrender—
(a) any benefit, other than an excluded pension, to which the member (or any dependant of the member) has a prospective entitlement under an arrangement under the pension scheme, or
(b) any right in respect of any sums or assets held for the purposes of any arrangement under the pension scheme.
(2) The pension scheme is to be treated as making an unauthorised payment to the member.
(3) Subsection (4) applies if a person surrenders or agrees to surrender—
(a) any benefit, other than an excluded pension, to which the person has a prospective entitlement under an arrangement under the pension scheme relating to a member of a pension scheme, or
(b) any right in respect of any sums or assets held for the purposes of any arrangement relating to a member of the pension scheme under the pension scheme.
(4) The pension scheme is to be treated as making an unauthorised payment to the person in respect of the member.
(5) Subsections (2) and (4) do not apply to—
(a) a surrender pursuant to a pension sharing order or provision,
(b) a surrender (or agreement to surrender) by the member in return for the conferring on a dependant of an entitlement to benefits after the member’s death,
(c) a transfer of (or agreement to transfer) benefits or rights so as to become benefits or rights under another arrangement under the pension scheme relating to the member or dependant,
(d) a surrender of (or agreement to surrender) benefits or rights in order to fund the making of an authorised surplus payment,
(e) a surrender (or agreement to surrender) which constitutes an assignment (or agreement to assign) within section 172, or
(f) any surrender (or agreement to surrender) of a description prescribed by regulations made by the Board of Inland Revenue.
(6) Regulations under subsection (5)(f) may include provision having effect in relation to times before they are made.
(7) Subsections (2) and (4) do not apply to the surrender of a benefit to which the member (or a dependant of the member) has a prospective entitlement, or to which the person has a prospective entitlement in respect of a member, under an arrangement that is a defined benefits arrangement or cash balance arrangement unless—
(a) in consequence of the surrender, the actual or prospective entitlement of another member (or dependant of another member) of the pension scheme, or of another person in respect of another member, to benefits under the scheme is increased, and
(b) the two members are or have been connected persons.
(8) The amount of the unauthorised payment is the consideration that might be expected to be received if what is surrendered were assigned by a transaction between parties at arm’s length and any power to reduce the entitlement to the benefit or right did not exist.
(9) In this section “surrender”, in relation to any benefit or right of a member (or dependant of a member) of a pension scheme or other person, includes any schemes, arrangements or understandings of any kind (whether or not legally enforceable) the main purpose, or one of the main purposes, of which is to reduce the member’s (or dependant's), or person's, entitlement to the benefit or right.
(10) An excluded pension is so much of any pension which under pension rule 2 may continue to be paid after the member’s death as may be so paid.
(11) Section 839 of ICTA (connected persons) applies for the purposes of this section.
(1) This section applies if—
(a) at any time after the death of a relevant member of a registered pension scheme, there is an increase in the pension rights of another member of the pension scheme which is attributable to the death, and
(b) the dead member and other member were connected persons immediately before the death.
(2) A member of a registered pension scheme is a relevant member if, immediately before his death, any of his rights under the pension scheme are—
(a) rights to benefit to which the member (or any dependant of the member) has a prospective entitlement under an arrangement under the pension scheme, or
(b) rights representing the member’s unsecured pension fund, alternatively secured pension fund, dependant’s unsecured pension fund or dependant’s alternatively secured pension fund in respect of an arrangement under the pension scheme.
(3) There is at any time an increase in the pension rights of the other member of the pension scheme which is attributable to the death if—
(a) the consideration which might be expected to be received in respect of an assignment (or assignation) of the benefits to which he is actually or prospectively entitled under the pension scheme at that time, exceeds
(b) the consideration which might be expected to be received in respect of such an assignment (or assignation) immediately before that time,
in consequence of the death (ignoring for the purposes of paragraphs (a) and (b) any power to reduce the entitlement to the benefits).
(4) The pension scheme is to be treated as making an unauthorised payment to the other member (or to the other member’s personal representatives) of an amount equal to the excess (but subject to subsection (6)).
(5) The amount which would (apart from this subsection) constitute the unauthorised payment is to be reduced by so much of the excess as arises—
(a) from the payment of any transfer lump sum death benefit in respect of the dead member so as to become held for the purposes of, or to represent accrued rights under, an arrangement relating to the other member,
(b) from the other member becoming entitled to pension death benefits or lump sum death benefits in respect of the dead member, or
(c) in any manner prescribed by regulations made by the Board of Inland Revenue.
(6) Regulations under subsection (5)(c) may include provision having effect in relation to times before they are made.
(7) This section does not apply if—
(a) at the time of the increase mentioned in subsection (1)(a) there at least 20 members of the pension scheme, and
(b) the benefits to which each of them is actually or prospectively entitled under the pension scheme are increased at the same rate in consequence of the death.
(8) This section does not apply if the increase in the pension rights of the other member is brought about by an assignment (or agreement to assign) within section 172.
(9) Section 839 of ICTA (connected persons) applies for the purposes of this section.
Finance Act 2005