Part 5 - Miscellaneous amendments
167.Paragraph 70 amends the anti-recycling rules in paragraph 3A(3) of Schedule 29 which prevent the exploitation of the pensions tax rules to generate artificially high amounts of tax relief by using the pension commencement lump sum to make a further tax-relieved contribution into a registered pension scheme. The amendment reduces to £7,500 the minimum aggregate value of pension commencement lump sums paid to an individual in a 12 month period that triggers the recycling rule.
168.Paragraph 71 amends paragraph 7(1) of Schedule 29 to provide that, from 6 April 2015, a trivial commutation lump sum can be paid only in respect of a defined benefits arrangement. Those with relatively small amounts of money purchase savings will be able to take an UFPLS from this date, so there is no longer a need for trivial commutation lump sum rules for money purchase arrangements. Paragraph 71 also provides that from 6 April 2015, a trivial commutation lump sum can be paid once the member has reached normal minimum pension age (normally age 55) in line with the minimum age for the payment of other pension benefits, a reduction from the previous requirement for the member to be aged at least 60, or where the ill-health condition in paragraph 1 of Schedule 28 is satisfied. Paragraph 71 also provides that to be a trivial commutation lump sum, a lump sum only needs to extinguish any defined benefit rights relating to the member under the pension scheme.
169.Paragraph 72 amends article 23C(4) of the Taxation of Pension Schemes (Transitional Provisions) Order 2006 (SI 2006/572) to provide that from 6 April 2015, under that article, lump sums of up to £10,000 representing a member’s remaining pension after payment of certain protected pension commencement lump sums can be paid once the member has reached normal minimum pension age (normally age 55), rather than the minimum age of 60 which applied previously, or the ill-health condition is satisfied.
170.Paragraph 73 amends the Registered Pension Schemes (Authorised Payments) Regulations 2009 (SI 2009/1171).
171.Paragraph 73(2) substitutes a new regulation 10 as a consequence of the removal of a trivial commutation lump sum as an option for money purchase arrangements from 6 April 2015. This new regulation 10 provides that certain lump sums that would have been authorised payments under the regulations, but for the fact that they hadn’t extinguished all rights under the scheme because of the ongoing payment of a lifetime annuity, can be commuted to a lump sum if they are less than £10,000. This lump sum does not count towards the limit in regulation 11A(2).
172.Paragraph 73(3) provides that from 6 April 2015 a lump sum under regulation 11, 11A or 12 (small pot lump sums of up to £10,000) can be paid as an authorised payment once the member has reached normal minimum pension age (normally age 55), or the ill-health condition is satisfied.
173.Paragraph 74(1) to (4) amend paragraph 20 of Schedule 29 to provide a new circumstance when a trivial commutation lump sum death benefit may be paid. As a result, a trivial commutation lump sum death benefit may also be paid to an individual in respect of any entitlement they had to receive any guaranteed pension payments of a lifetime annuity or scheme pension payable after the member’s death. The lump sum must extinguish the individual's rights to receive the guaranteed pension payments under the scheme or contract concerned. This applies to payments made on or after 6 April 2015.
174.Paragraph 74(4) amends paragraph 20(2) of Schedule 29 to increase the limit for the trivial commutation lump sum death benefit to £30,000 to bring the maximum in line with a trivial commutation lump sum. This applies to payments made on or after 6 April 2015.
175.Paragraph 75 amends Schedule 29 to remove the facility for schemes to pay a winding-up lump sum death benefit. This provision is unnecessary from 6 April 2015 because all winding-up lump sum death benefits also satisfy the conditions to be a trivial commutation lump sum death benefit.
176.Paragraph 76 amends paragraph 7 of Schedule 32 which prescribes how a lifetime annuity is valued for the purpose of testing against the lifetime allowance where an individual becomes entitled to it before normal minimum pension age, and where the ill-heath condition is not met. It provides that where the individual becomes entitled to the lifetime annuity after 5 April 2015, the amount of the BCE 2 that is tested against the lifetime allowance is the greater of the sums and assets used to purchase the lifetime annuity and the amount that would have been tested against the lifetime allowance had the lifetime annuity been a scheme pension on the day the member became entitled to it. That is, 20 times the annual rate of the lifetime annuity on that date.
177.Paragraph 77 amends paragraph 20(4)(a) and (b) of Schedule 36 which prescribe how a pre-6 April 2006 drawdown pension is valued for the purposes of the lifetime allowance, if and when the first BCE occurs in respect of the individual on or after this date. The lifetime allowance was introduced from 6 April 2006 and pensions in payment on that date were not tested against the lifetime allowance but their value does reduce the amount of available lifetime allowance that an individual has when a BCE occurs. This paragraph provides that where the member’s first BCE is on or after 6 April 2015, and either the individual was receiving 'capped drawdown' or had opted to receive 'flexible drawdown' in a pension year that began on or after 27 March 2014, the amount of the lifetime allowance available is reduced by 80% of 25 times the maximum amount that could have been paid as a drawdown pension. As the maximum that can be paid as a drawdown pension was increased from 120% to 150% of the basis amount from 27 March 2014, limiting the amount tested to 80% of this figure ensures that overall it gives the same result as before 27 March 2014.
178.Paragraph 78 inserts new paragraph 23ZA into Schedule 36 in connection with transfers relating to individuals who have a protected pension age protecting their right to take their pension before the normal minimum pension age, currently age 55. It ensures that where an individual has taken their pension benefits before the normal minimum pension age using their protected pension age, then if they transfer the protected pension benefits that are in payment as part of a recognised transfer, any pension payments before age 55 will be authorised payments. This applies to any recognised transfers made on or after 6 April 2015.
179.Paragraph 79 inserts new section 273B into FA 2004. New section 273B provides a permissive scheme rules override in connection with certain payments in respect of money purchase arrangements that will be authorised payments as a result of amendments made by Schedule 1, so that the trustees or scheme managers can make these payments if they wish, even if the rules of the scheme do not allow the payment to be made.
180.Paragraph 81 amends section 579CA of ITEPA 2003, regarding the taxation of pensions for individuals who are temporarily non-resident, as it applies when the individual's year of departure was in or after the 2013-14 tax year and the individual's period of return is in the 2015-16 tax year or later. Section 579CA provides that a relevant withdrawal under a registered pension scheme during a period of temporary non-residence is to be treated as taxable pension income under section 579B when the individual returns to the UK. What constitutes a period of temporary non-residence is set out in Part 4 of Schedule 45 to Finance Act 2013 (FA 2013), which contains anti-avoidance rules in connection with the new statutory residence test introduced by FA 2013.
181.Paragraph 81(2) amends section 579CA so that it does not apply unless the total relevant withdrawals under section 579CA and 576A exceed £100,000. New section 579CA(4A) inserted into ITEPA 2003 by paragraph 81(3) provides that when calculating the value of relevant non-sterling withdrawals, the values are translated into sterling values by reference to the average exchange rate for the year to 31st March that falls in that tax year. HMRC publishes average exchange rates on its website. Where the value of relevant withdrawals during a temporary period of non-residence exceeds £100,000, all of the withdrawals are treated as taxable pension income subject to section 579B in the period of return to the UK, not just the excess over £100,000.
182.Paragraph 81(3) and (4) amend the definition of relevant withdrawal. Relevant withdrawals comprise the payments to members that would, under new section 227G of FA 2004, trigger the application of the money purchase annual allowance and the payments to beneficiaries of equivalent character (which do not trigger the application of the money purchase annual allowance). Payments to members that would not trigger the application of the money purchase annual allowance by virtue of being attributable to a disqualifying pension credit (see section 227G(10) and (11), inserted by paragraph 65 of Schedule 1) are also included as relevant withdrawals.
183.Paragraph 82 amends section 579CA of ITEPA 2003 as it applies when the individual's year of departure was before the 2013-14 tax year and the individual's year of return is the 2015-16 tax year or later. Before the 2013-14 tax year, section 579CA applied to individuals who satisfied the "residence requirements" as defined in section 579CA(2). Section 579CA was amended by paragraph 117 of Schedule 45 to FA 2013 and now, as explained above, applies when relevant withdrawals are made during a temporary period of non-residence. To prevent the change in the definition of when section 579CA applies affecting people who had become non-resident before the statutory residence test came into effect, paragraph 158 of Schedule 45 to FA 2013 provides that the unamended rules apply when the temporary period of non-residence began before the new statutory residence test came into force on 6 April 2013. Paragraph 82 of Schedule 1 accordingly makes the same amendments to the former definition of what constitutes a relevant withdrawal as paragraph 81 makes to the current section 579CA.
184.Paragraph 83 amends section 576A of ITEPA 2003 as it applies when the individual's year of departure was in or after the 2013-14 tax year and the individual's period of return is in the 2015-16 tax year or later. Section 576A provides that a relevant withdrawal under a relevant non-UK scheme during a period of temporary non-residence is to be treated as taxable pension income under section 575 of ITEPA 2003 when the individual returns to the UK. What constitutes a period of temporary non-residence is set out in Part 4 of Schedule 45 to Finance Act 2013 (FA 2013), which contains anti-avoidance rules in connection with the new statutory residence test introduced by FA 2013. Paragraph 83 of Schedule 1 makes similar amendments to the definition of what constitutes a relevant withdrawal as are being made to the current section 579CA by paragraph 81, except that the amendments apply as if the payment had been made from a registered pension scheme.
185.Paragraph 84 amends section 576A of ITEPA 2003 as it applies when the individual's year of departure was before the 2013-14 tax year and the individual's year of return is the 2015-16 tax year or later. Paragraph 84 of Schedule 1 makes the same amendments to the definition of what constitutes a relevant withdrawal as are being made to the current section 576A by paragraph 83.
186.Paragraph 85 amends section 164 of FA 2004 and inserts new subsections (3) and (4) to provide a power to make regulations to provide that an authorised payment under FA 2004 does not trigger the money purchase annual allowance, or that an authorised payment is not a relevant withdrawal for the purposes of temporary non-residence under section 579CA of ITEPA 2003, or for relevant non-UK schemes under section 576A of ITEPA 2003.
