The Pensions (Abolition of Lifetime Allowance Charge etc) (No. 2) Regulations 2024

The Pension Protection Fund (Tax) Regulations 2006

26.—(1) The Pension Protection Fund (Tax) Regulations 2006(1) are amended as follows.

(2) Omit regulation 23 (modifications of Part 4 of FA 2004).

(3) In regulation 23A (modifications of section 220 of FA 2004)—

(a) in the words before paragraph (a), for “Section 220 of” substitute “Paragraph 20A of Schedule 36 to”;

(b) in paragraph (a), for “subsection (4)” substitute “sub-paragraph (5)”;

(c) in paragraph (b), for “subsection (4A)(a)” substitute “sub-paragraph (6)(a)”;

(d) in paragraph (c), for “subsection (4A)(b)” substitute “sub-paragraph (6)(b)”.

(4) Omit regulation 29 (operation of lifetime allowance enhancement factor).

(5) In regulation 32 (disapplication of paragraphs 35 and 36 of Schedule 36 to FA 2004)—

(a) for “Paragraphs 35 and 36” substitute “Paragraph 36”;

(b) omit “winding-up lump sums paid by former approved superannuation funds and”;

(c) for “do” substitute “does”.

(6) For regulation 42 (application of section 636A of ITEPA 2003) and regulation 42A (application of section 636B of ITEPA 2003) substitute—

“42B.— (1) This regulation modifies Chapter 15A of Part 9 of ITEPA 2003 (pension income: lump sums under registered pension schemes) in relation to certain lump sums paid by the PPF.

(2) That Chapter has effect as if, after section 637G (trivial commutation lump sums and winding-up lump sums) there were inserted—

“637GA.    PPF compensation commutation lump sums and PPF pension credit commutation lump sums

(1) Subject to subsection (2), no liability to income tax arises on a PPF compensation commutation lump sum or a PPF pension credit commutation lump sum.

(2) If the amount of the lump sum exceeds the permitted maximum, section 579A (pensions) applies to the excess as it applies to any pension under a registered pension scheme.

(3) In subsection (2) “the permitted maximum”, in relation to a PPF compensation commutation lump sum or a PPF pension credit commutation lump sum, means the lower of—

(a) so much of the individual’s lump sum allowance as is available on the individual becoming entitled to the lump sum (see section 637Q), and

(b) so much of the individual’s lump sum and death benefit allowance as is available on the individual becoming entitled to the lump sum (see section 637S).

637GB.    PPF terminal illness lump sums

(1) Subject to subsection (2), no liability to income tax arises on a PPF terminal illness lump sum.

(2) If the amount of the lump sum exceeds the permitted maximum, section 579A (pensions) applies to the excess as it applies to any pension under a registered pension scheme.

(3) In subsection (2) “the permitted maximum”, in relation to a PPF terminal illness lump sum, means so much of the individual’s lump sum and death benefit allowance as is available on the individual becoming entitled to the lump sum (see section 637S).

637GC.    Miscellaneous PPF lump sums

(1) Subject to subsection (3), an individual to whom a lump sum within subsection (2) is paid is treated as having taxable pension income for the tax year in which the payment is made equal to the amount of the lump sum.

(2) The lump sums are—

(a) a PPF compensation commutation excess lump sum;

(b) a PPF money purchase lump sum;

(c) a PPF money purchase trivial commutation lump sum;

(d) a PPF pension credit commutation excess lump sum.

(3) If, immediately before the lump sum is paid, the member has uncrystallised rights under any one or more arrangements under the PPF, the amount of the taxable pension income is reduced by the tax-free element (if any).

(4) In subsection (3) “the tax free element” means 25% of the value of any uncrystallised rights extinguished by the lump sum.

(5) In this section “uncrystallised rights” has the same meaning as in section 212 of FA 2004; and the value for the purposes of this section of any uncrystallised rights is to be calculated in accordance with that section.”.

(3) Section 637Q of ITEPA 2003 (availability of individual’s lump sum allowance) has effect as if, in the definition of “relevant lump sum” in subsection (2)(b) of that section—

(a) the “or” at the end of sub-paragraph (i) were omitted;

(b) after sub-paragraph (ii) there were inserted—

“(iii) a PPF compensation commutation lump sum, or

(iv) a PPF pension credit commutation lump sum.”.

(4) Section 637S of ITEPA 2003 (availability of individual’s lump sum and death benefit allowance) has effect as if, in the definition of “relevant lump sum” in subsection (2)(b) of that section—

(a) the “or” at the end of sub-paragraph (ii) were omitted;

(b) after sub-paragraph (iii) there were inserted—

“(iv) a PPF compensation commutation lump sum,

(v) a PPF pension credit commutation lump sum, or

(vi) a PPF terminal illness lump sum.”.

(5) For the purposes of this regulation (including the modifications made by it)—

“PPF compensation commutation excess lump sum” means—

(a)

a lump sum paid under paragraph 24 of Schedule 7 to the Pensions Act 2004 (pension compensation provisions: commutation of periodic compensation)(2), where the portion of periodic compensation commuted exceeds 25%, or

(b)

a lump sum paid under paragraph 24 of Schedule 6 to the Pensions (Northern Ireland) Order 2005 (pension compensation provisions: commutation of periodic compensation)(3), where the portion of periodic compensation commuted exceeds 25%;

“PPF compensation commutation lump sum” means—

(a)

a lump sum paid under paragraph 24 of Schedule 7 to the Pensions Act 2004, where the portion of periodic compensation commuted does not exceed 25%, or

(b)

a lump sum paid under paragraph 24 of Schedule 6 to the Pensions (Northern Ireland) Order 2005, where the portion of periodic compensation commuted does not exceed 25%;

“PPF money purchase lump sum” means a lump sum paid under—

(a)

regulation 9A of the Pension Protection Fund (General and Miscellaneous Amendments) Regulations 2006 (PPF money purchase lump sums)(4), or

(b)

regulation 9A of the Pension Protection Fund (General and Miscellaneous Amendments) Regulations (Northern Ireland) 2006 (PPF money purchase lump sums)(5);

“PPF money purchase trivial commutation lump sum” means a lump sum paid under—

(a)

regulation 9 of the Pension Protection Fund (General and Miscellaneous Amendments) Regulations 2006 (trivial commutation), or

(b)

regulation 9 of the Pension Protection Fund (General and Miscellaneous Amendments) Regulations (Northern Ireland) 2006 (trivial commutation);

“PPF pension credit commutation excess lump sum” means—

(a)

a lump sum paid under paragraph 9 of Schedule 5 to the Pensions Act 2008 (pension compensation payable on discharge of pension compensation credit: commutation of periodic compensation)(6), where the portion of periodic compensation commuted exceeds 25%, or

(b)

a lump sum paid under paragraph 9 of Schedule 4 to the Pensions (No. 2) Act (Northern Ireland) 2008 (pension compensation payable on discharge of pension compensation credit: commutation of periodic compensation)(7), where the portion of periodic compensation commuted exceeds 25%;

“PPF pension credit commutation lump sum” means—

(a)

a lump sum paid under paragraph 9 of Schedule 5 to the Pensions Act 2008, where the portion of periodic compensation commuted does not exceed 25%, or

(b)

a lump sum paid under paragraph 9 of Schedule 4 to the Pensions (No. 2) Act (Northern Ireland) 2008, where the portion of periodic compensation commuted does not exceed 25%;

“PPF terminal illness lump sum” means a lump sum paid under—

(a)

paragraph 25E of Schedule 7 to the Pensions Act 2004 (pension compensation provisions: terminal illness lump sum: effect of successful application)(8),

(b)

paragraph 25E of Schedule 6 to the Pensions (Northern Ireland) Order 2005 (pension compensation provisions: terminal illness lump sum: effect of successful application)(9),

(c)

paragraph 15 of Schedule 5 to the Pensions Act 2008 (pension compensation payable on discharge of pension compensation credit: terminal illness lump sum: effect of successful application), or

(d)

paragraph 15 of Schedule 4 to the Pensions (No. 2) Act (Northern Ireland) 2008 (pension compensation payable on discharge of pension compensation credit: terminal illness lump sum: effect of successful application).”.

(1)

S.I. 2006/575. Regulation 23A was inserted by, and regulations 42 and 42A were substituted by, S.I. 2013/1117.

(2)

2004 c. 35. Paragraph 24 of Schedule 7 was amended by paragraph 25 of Schedule 4 to the Pensions Act 2011 (c. 19), paragraph 6 of Schedule 20 to the Pensions Act 2014 (c. 19) and by S.I. 2023/1309.

(3)

S.I. 2005/255 (N.I.). Paragraph 24 was amended by paragraph 25 of Schedule 4 to the Pensions Act (Northern Ireland) 2012 (c. 3) (N.I.), paragraph 4 of Schedule 20 to the Pensions Act (Northern Ireland) 2015 (c. 5) (N.I.) and by S.I. 2023/1312.

(4)

S.I. 2006/580. Regulation 9A was inserted by S.I. 2013/627 and amended by S.I. 2016/294 and 2017/324.

(5)

S.R. 2006 No. 155. Regulation 9A was inserted by S.R. 2013 No. 95 and was amended by S.R. 2016 No. 165 and S.R. 2017 No. 59.

(6)

2008 c. 30. Paragraphs 9 and 15 of Schedule 5 were amended, respectively, by paragraphs 33 and 34 of Schedule 4 to the Pensions Act 2011 (c. 19).

(7)

2008 c. 13 (N.I.). Paragraphs 9 and 15 of Schedule 4 were amended, respectively, by paragraphs 33 and 34 of Schedule 4 to the Pensions Act (Northern Ireland) 2012.

(8)

2004 c. 35. Paragraph 25E of Schedule 7 was inserted by paragraph 14 of Schedule 8 to the Pensions Act 2008 (c. 30) and amended by paragraph 26 of Schedule 4 to the Pensions Act 2011 (c. 19).

(9)

S.R. & O. (N. I.) No. 2005 No. 255. Paragraph 25E of Schedule 6 was inserted by the Pensions (No. 2) Act (Northern Ireland) 2008 and was amended by paragraph 26 of Schedule 4 to the Pensions Act (Northern Ireland) 2012.