Office of Public Sector Information
SCHEDULE 23 continued
11D (1) Sub-paragraph (2) applies where any of the lump sum death benefits mentioned in sub-paragraph (2) of paragraph 11B would have been payable under a policy of life insurance held for the purposes of a pension scheme and on 5th April 2006 the pension scheme either—
(a) was not an occupational pension scheme, or
(b) was an occupational pension scheme with fewer than 20 members.
(2) The lump sum death benefit is only to be taken into account in arriving at the aggregate mentioned in that sub-paragraph if—
(a) a sum was paid under the policy when the individual actually died, and
(b) the terms of the policy had not been varied significantly during the period beginning with 5th April 2006 and ending with the death;
and any exercise of rights conferred by the policy is to be regarded for this purpose as a variation.
(3) Sub-paragraph (4) applies where any of the lump sum death benefits mentioned in sub-paragraph (2) of paragraph 11B would have been payable under an occupational pension scheme.
(4) The lump sum death benefit is only to be taken into account in arriving at the aggregate mentioned in that sub-paragraph if—
(a) the individual was employed by a person on 5th April 2006 and continued to be employed by that person or a person connected with that person until the time when the individual died,
(b) that person was a sponsoring employer in relation to the pension scheme on 5th April 2006, and
(c) the individual had not become entitled to the present payment of benefits in respect of rights under the pension scheme before the time when the individual died.
(5) Section 839 of ICTA (connected persons) applies for the purposes of this paragraph.”
39 In paragraph 14 (enhanced protection: relevant contributions), after sub-paragraph (2) insert—
“(3) A contribution is not a relevant contribution for the purposes of paragraph 13(a) if—
(a) it may only be applied for or towards the payment of premiums under a policy of insurance on the life of the individual,
(b) the policy is issued, or issued in respect of insurances made, before 6th April 2006,
(c) there is no right to surrender any rights under the policy,
(d) the terms of the policy are not varied significantly during the period beginning with 6th April 2006 and ending with the individual’s actual death so as to increase the benefits payable under the policy or extend the period during which benefits are so payable, and
(e) no benefits are paid, or other payments made, under (or on the surrender of rights under) the policy except by reason of the individual’s death;
and any exercise of rights conferred by the policy is to be regarded for this purpose as a variation.
(4) A contribution is not a relevant contribution for the purposes of paragraph 13(a) if it is paid—
(a) by a sponsoring employer,
(b) under a relevant hybrid arrangement, and
(c) solely in respect of the provision in respect of the individual of lump sum death benefits which are defined benefits or cash balance benefits.
(5) A “relevant hybrid arrangement” is a hybrid arrangement under an occupational pension scheme—
(a) which subsequently becomes a money purchase arrangement that is not a cash balance arrangement, and
(b) under which lump sum death benefits would have been payable in respect of the individual if the individual had died on 5th April 2006.”
40 (1) Paragraph 15 (enhanced protection: “the relevant crystallised amount”) is amended as follows.
(2) In sub-paragraph (3), for “paragraph 16” substitute “paragraphs 15A and 16”.
(3) In sub-paragraph (4), for “is the greater” substitute “is (subject to paragraph 15A) the greater”.
(4) In sub-paragraph (5), after “(4)(a)” insert “and paragraph 15A(2)(a)”.
(5) In sub-paragraph (6), after “(4)(b)” insert “and paragraph 15A(2)(b)”.
41 After that paragraph insert—
“15A (1) This paragraph applies where—
(a) a person is paid a defined benefits lump sum death benefit or an uncrystallised funds lump sum death benefit in respect of the individual under the arrangement, and
(b) notice of intention to rely on this paragraph is given to an officer of Revenue and Customs by that person in accordance with regulations made by the Commissioners for Her Majesty’s Revenue and Customs.
(2) For the purposes of paragraph 13(b), if the amount yielded by sub-paragraph (3) is greater than what would otherwise be the appropriate limit in relation to a relevant event which consists of—
(a) the payment of the lump sum death benefit, or
(b) the payment of any other lump sum death benefit in respect of the individual under the arrangement or another cash balance arrangement or defined benefits arrangement related to the arrangement,
that greater amount is the appropriate limit in relation to such a relevant event.
(3) The amount yielded by this sub-paragraph is the greater of—
(a) the value of the individual’s pre-commencement rights to death benefits, as increased by the relevant indexation percentage (see sub-paragraph (5) of paragraph 15), or
(b) what would be the value of the individual’s pre-commencement rights to death benefits on the assumptions specified in sub-paragraph (6) of that paragraph (but subject to the modifications in sub-paragraph (7) of this paragraph).
(4) The value of the individual’s pre-commencement rights to death benefits is the aggregate of the maximum amounts that could have been paid in respect of the individual as uncrystallised rights lump sum death benefits under—
(a) the arrangement, or
(b) any other cash balance arrangement or defined benefits arrangement related to the arrangement,
if the individual had died on 5th April 2006.
(5) Lump sum death benefits are “uncrystallised rights lump sum death benefits” if they are attributable to rights in respect of which the individual had not, on 5th April 2006, become entitled to the present payment of benefits.
(6) Paragraphs 11C and 11D apply in arriving at the aggregate mentioned in sub-paragraph (4) as in arriving at that mentioned in paragraph 11B(2) but as if—
(a) each of the references to paragraph 11B(2) were to sub-paragraph (4) of this paragraph, and
(b) in paragraph 11D(1), for “of a pension scheme” there were substituted “of any arrangement within paragraph 15A(4) under a pension scheme”.
(7) In their operation for the purposes of this paragraph sub-paragraphs (6) to (11) of paragraph 15 have effect as if—
(a) for the references in sub-paragraphs (6)(a) and (7)(a) and (10) to the time of the first relevant event there were substituted a reference to the time immediately before the individual’s death, and
(b) the words in parentheses in sub-paragraph (6)(a) were omitted.”
42 In section 256(1) (enhanced lifetime allowance regulations)—
(a) in paragraph (d), after “7(1)(b)” insert “or 11A(1)(c)”, and
(b) in paragraph (e), after “12(1)” insert “or 15A(1)(b)”.
43 (1) Paragraph 22 of Schedule 36 (right to take benefits before normal minimum pension age: schemes within paragraph 1(1)(a) to (e) of Schedule 36) is amended as follows.
(2) In sub-paragraph (7), for paragraph (b) substitute—
“(b) in a case where on 5th April 2006 the member had an actual or prospective right under the pension scheme to any benefit from an age of less than 50, Condition 1 is met or, in any other case, Condition 2 or 3 is met.”
(3) After that sub-paragraph insert—
“(7A) Condition 1 is met if—
(a) the member is not, after becoming entitled to the benefits mentioned in sub-paragraph (7)(a), employed by a person who is a sponsoring employer in relation to the pension scheme and with whom the member is connected, and
(b) the member’s becoming entitled to those benefits is not part of an arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions.
(7B) Condition 2 is met if—
(a) the member is not, after becoming entitled to the benefits mentioned in sub-paragraph (7)(a), employed by a person specified in sub-paragraph (7C), and
(b) the member’s becoming entitled to those benefits is not part of an arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions.
(7C) The persons referred to in sub-paragraph (7B)(a) are—
(a) any person who was a sponsoring employer in relation to the pension scheme at any time during the period of six months ending with the day on which the member became entitled to the benefits mentioned in sub-paragraph (7)(a) and by whom the member was employed at any time during that period,
(b) any person who is connected with any such person, or
(c) any person who is a sponsoring employer in relation to the pension scheme and with whom the member is connected.
(7D) If the member has become entitled to the benefits payable under arrangements under the pension scheme by reason of service in the armed forces of the Crown, any employment on compulsory recall is to be disregarded for the purposes of sub-paragraph (7B)(a).
(7E) Condition 3 is met if —
(a) paragraph (a) of sub-paragraph (7B) is not satisfied but one of the re-employment conditions is met, and
(b) paragraph (b) of that sub-paragraph is satisfied.
(7F) The re-employment conditions are—
(a) that the member is not employed as mentioned in sub-paragraph (7B)(a) during the period of six months beginning with the day on which the member becomes entitled to the benefits mentioned in sub-paragraph (7)(a), and
(b) that the member is not employed as mentioned in sub-paragraph (7B)(a) during the period of one month beginning with that day, but is so employed during the period of five months beginning at the end of that period, and either the pension abatement condition or the materially different employment condition is met.
(7G) The pension abatement condition is met if—
(a) the pension scheme is a public service pension scheme, and
(b) the member’s benefits under the scheme consist of or include a scheme pension which is liable to reduction by abatement while the member is employed as mentioned in sub-paragraph (7B)(a) and is under the age of 55.
(7H) The materially different employment condition is met—
(a) in a case where the member is employed as mentioned in sub-paragraph (7B)(a) in more than one employment during the period of five months mentioned in sub-paragraph (7F)(b), if each of those employments, and
(b) otherwise, if the employment in which the member is so employed during that period,
is materially different in nature from the employment in which the member was employed immediately before becoming entitled to the benefits mentioned in sub-paragraph (7)(a).
(7I) For the purposes of sub-paragraph (7D) “employment on compulsory recall” means permanent service—
(a) under Part 4 of the Reserve Forces Act 1996,
(b) under Part 5 of that Act,
(c) under a call-out or recall order made under that Act,
(d) having been called out or recalled under the Reserve Forces Act 1980, or
(e) because of any other call-out or recall obligation of an officer.
(7J) Section 839 of ICTA (connected persons) applies for the purposes of this paragraph.”
44 Schedule 36 (transitional provisions) is amended as follows.
45 In paragraphs 9(4)(a) and 26(3)(a) (primary protection: maximum permitted pension and maximum permitted lump sum), for “611(1)(a)” substitute “611A(1)(a)”.
46 In paragraph 54(1)(b) (benefits taxable under Chapter 2 of Part 6 of ITEPA 2003 where contributions taxed pre-commencement: old schemes), for “1st September 1993” substitute “1st December 1993”.
Finance Act 2006