Finance Act 2004 (c. 12)

SCHEDULES

SCHEDULE 29 U.K. Registered pension schemes: authorised lump sums—supplementary

Part 1 U.K. Lump sum rule

Pension commencement lump sum U.K.

1 (1) For the purposes of this Part a lump sum is a pension commencement lump sum if— U.K.

[F1 (a) the member becomes entitled to it before reaching the age of 75,

(aa) the member becomes entitled to it in connection with becoming entitled to a relevant pension (or dies after becoming entitled to it but before becoming entitled to the relevant pension in connection with which it was anticipated that the member would become entitled to it)]

(b) it is paid when all or part of the member’s lifetime allowance is available,

(c) it is paid within the period [F2 beginning six months before, and ending one year after,] the day on which the member becomes entitled to it,

(d) it is paid when the member has reached normal minimum pension age (or the ill-health condition is satisfied),

(e) F3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(f) it is not an excluded lump sum (see sub-paragraph (4)).

(2) But if a lump sum falling within sub-paragraph (1) exceeds the permitted maximum, the excess is not a pension commencement lump sum.

(3) A pension is a relevant pension if—

(a) it is income withdrawal, a lifetime annuity or a scheme pension, and

(b) the member becomes entitled to it under the arrangement under which the member becomes entitled to the lump sum.

(4) A lump sum is an excluded lump sum if—

(a) the pension in connection with which the member becomes entitled to it is a scheme pension the rate of which is to reduce (or which is to cease to be payable) in accordance with paragraph 2(4)(c) of Schedule 28 when the member becomes entitled to state retirement pension, and

(b) the sole or main purpose of making provision for the pension to be such a pension was to increase the member’s entitlement to a lump sum on which there is no liability to income tax.

(5) Paragraph 2 defines the permitted maximum.

Textual Amendments

F1 Sch. 29 para. 1(1)(a)(aa) substituted (retrospective to 6.4.2006) for Sch. 29 para. 1(1)(a) by Finance Act 2007 (c. 11), Sch. 20 paras. 11(2)(a), 24(3)

F2 Words in Sch. 29 para. 1(1)(c) substituted (retrospective to 6.4.2006) by Finance Act 2007 (c. 11), Sch. 20 paras. 11(2)(b), 24(3)

F3 Words in Sch. 29 para. 1(1)(e) omitted (retrospective to 6.4.2006) by virtue of Finance Act 2007 (c. 11), Sch. 20 paras. 11(2)(c), 24(3)

2 (1) If sub-paragraph (2) applies, the permitted maximum is nil. U.K.

(2) This sub-paragraph applies if all the member’s rights under the arrangement under which the member becomes entitled to the relevant pension are attributable to a disqualifying pension credit.

(3) A pension credit is disqualifying if, when the member becomes entitled to it, the person subject to the corresponding pension debit has an actual (rather than a prospective) right to payment of a pension under the relevant arrangement.

(4) The relevant arrangement is the arrangement to which the pension sharing order or provision, by virtue of which the member becomes entitled to the pension credit, relates.

(5) If sub-paragraph (2) does not apply, the permitted maximum is the lower of—

(a) the available portion of the member’s lump sum allowance, and

(b) the applicable amount, calculated in accordance with paragraph 3.

[F4 (5A) But if the member dies before becoming entitled to the relevant pension in connection with which it was anticipated that the member would become entitled to the lump sum, the permitted maximum is the available portion of the member's lump sum allowance.]

(6) The available portion of the member’s lump sum allowance is—

where—

CSLA is the current standard lifetime allowance, and

AAC is the aggregate of the amounts crystallised by each benefit crystallisation event which has occurred in relation to the member before the member becomes entitled to the lump sum, as adjusted under sub-paragraph (7) (and if no such benefit crystallisation event has occurred, is nil).

(7) The adjustment of an amount crystallised by a previous benefit crystallisation event referred to in the definition of AAC is the multiplication of the amount by—

where—

CSLA is the current standard lifetime allowance, and

PSLA is the standard lifetime allowance at the time of the previous benefit crystallisation event.

(8) If the amount given by sub-paragraph (6) is negative, no portion of the member’s lump sum allowance is available.

Textual Amendments

F4 Sch. 29 para. 2(5A) inserted (retrospectively) by Finance Act 2007 (c. 11), Sch. 20 paras. 11(4), 24(3)

3 (1) Where the member becomes entitled to income withdrawal, the applicable amount is one third of the aggregate of— U.K.

(a) the amount of the sums designated as available for the payment of unsecured pension on that occasion, and

(b) the market value of the assets so designated,

but subject to sub-paragraph (2).

(2) Any of the sums and assets so designated which represent rights attributable to a disqualifying pension credit are to be disregarded.

(3) Where the member becomes entitled to a lifetime annuity, the applicable amount is one third of the annuity purchase price.

(4) “The annuity purchase price” is the aggregate of—

(a) the amount of such of the sums held for the purposes of the pension scheme, and

(b) the market value of such of the assets held for the purposes of the pension scheme,

as are applied in (or in connection with) the purchase of the annuity, but subject to sub-paragraph (5).

(5) Any of the sums and assets applied in (or in connection with) the purchase of the annuity which—

(a) have been designated as available for the payment of unsecured income, or

(b) represent rights which are attributable to a disqualifying pension credit,

are to be disregarded.

(6) Where the member becomes entitled to a scheme pension, the applicable amount is—

but subject to sub-paragraph (8).

(7) In sub-paragraph (6)—

• LS is the amount of the lump sum, and

• AC is the amount crystallised by reason of the member becoming entitled to the pension (see section 216).

(8) There is to be deducted from the aggregate of the amount of the lump sum and the amount crystallised—

(a) if the scheme pension is funded (in whole or in part) by the surrender of 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 aggregate of the lump sum and the amount crystallised as represents rights which are attributable to a disqualifying pension credit.