Finance Act 2006

Pension commencement lump sum: scheme pensions under money purchase arrangements U.K.

22 (1) Paragraph 3 of Schedule 29 (pension commencement lump sum: applicable amount) is amended as follows. U.K.

(2) In sub-paragraph (6), after “pension” insert “ under a defined benefits arrangement ”.

(3) After sub-paragraph (7) insert—

“(7A) Where the member becomes entitled to a scheme pension under a money purchase arrangement, the applicable amount is one third of the scheme pension purchase price.

(7B) “The scheme pension 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 or provision of the scheme pension and any related dependants' scheme pension, but subject to sub-paragraph (8).

(7C) For the purposes of this Part a dependants' scheme pension is related to a scheme pension payable to a member of a registered pension scheme if—

(a) the day on which one is purchased or sums or assets are applied for its provision is no earlier than seven days before, and no later than seven days after, the day on which the other is purchased or sums or assets are applied for its provision, and

(b) the dependants' scheme pension will be payable to a dependant of the member.”

(4) In sub-paragraph (8)—

(a) after “crystallised”, in the first place, insert “ or from the scheme pension purchase price ”, and

(b) after “crystallised”, in the second place, insert “ or of the scheme pension purchase price ”.

(5) After that sub-paragraph insert—

“(9) Sub-paragraph (10) applies if—

(a) sums or assets held for the purposes of, or representing accrued rights under, a money purchase arrangement relating to the member under a registered pension scheme (“member money purchase funds”) are subject to a relevant surrender or a relevant transfer,

(b) the sole or main purpose of the relevant surrender or relevant transfer is to increase the applicable amount on the member becoming entitled to a scheme pension, and

(c) the member becomes entitled to a scheme pension under a relevant defined benefits arrangement.

(10) The pension scheme under which the relevant defined benefits arrangement is an arrangement is to be treated as making an unauthorised payment to the member of any amount by which—

(a) the applicable amount in relation to the scheme pension under sub-paragraph (6), exceeds

(b) the amount which would be that applicable amount under sub-paragraph (7A) if the arrangement were a money purchase arrangement.

(11) For the purposes of sub-paragraph (9)—

(a) member money purchase funds are subject to a relevant surrender if they are surrendered and, in consequence of the surrender, there is a corresponding increase in the sums or assets held for the purposes of, or representing rights under, a defined benefits arrangement relating to the member under the pension scheme (or such an arrangement is established), and

(b) member money purchase funds are subject to a relevant transfer if they are transferred so as to become held for the purposes of, or to represent rights under, a defined benefits arrangement relating to the member under any other registered pension scheme.

(12) In sub-paragraphs (9) and (10) “relevant defined benefits arrangement” means—

(a) the defined benefits arrangement mentioned in paragraph (a) or (b) of sub-paragraph (11), or

(b) any other defined benefits arrangement relating to the member (under the pension scheme or any other registered pension scheme) in the case of which any of the sums or assets held for the purposes of, or representing accrued rights under, the arrangement directly or indirectly represent sums or assets previously held for the purposes of, or representing accrued rights under, the defined benefits arrangement so mentioned.”

23 (1) Paragraph 2 of that Schedule (the permitted maximum) is amended as follows. U.K.

(2) In sub-paragraph (6), in the definition of AAC, for “amounts crystallised by” substitute “ relevant amount in the case of ”.

(3) After that sub-paragraph insert—

“(6A) Subject to sub-paragraph (6B), the relevant amount in the case of a benefit crystallisation event is the amount crystallised by it.

(6B) If the benefit crystallisation event is becoming entitled to a scheme pension under a money purchase arrangement, the relevant amount in the case of the benefit crystallisation event 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 or provision of the scheme pension and any related dependants' scheme pension.”

(4) In sub-paragraph (7), for “an amount crystallised by” substitute “ the relevant amount in the case of ”.

24 (1) Paragraph 29 of Schedule 36 (transitional provisions: applicable amount in cases of enhanced protection) is amended as follows. U.K.

(2) In sub-paragraph (3), for “(7)” substitute “ (7A) ”.

(3) In the sub-paragraph (6) of paragraph 3 of Schedule 29 substituted by sub-paragraph (3), after “pension” insert “ under a defined benefits arrangement ”.

(4) After the sub-paragraph (7) of that paragraph so substituted insert—

“(7A) Where the member becomes entitled to a scheme pension under a money purchase arrangement, the applicable amount is (subject to sub-paragraph (8))—

where—

VULSR, VUR and LS have the same meaning as in sub-paragraph (1), and

SPPP is the scheme pension purchase price.”

25 (1) Paragraph 34 of that Schedule (transitional provisions: entitlement to lump sums exceeding 25% of uncrystallised rights) is amended as follows. U.K.

(2) In the sub-paragraph (7A) of paragraph 2 of Schedule 29 substituted by sub-paragraph (2), in the definition of AC, for “sub-paragraph (7B)” substitute “ sub-paragraphs (7AA) and (7B) ”.

(3) After that substituted sub-paragraph insert—

“(7AA) Where the pension in connection with which the lump sum is paid is a scheme pension under a money purchase arrangement, AC is the scheme pension purchase price, as it would be defined by paragraph 3 if the words “but subject to sub-paragraph (8)” in sub-paragraph (7A) and sub-paragraph (8) were omitted.”

(4) In the sub-paragraph (7B) so substituted, for “the lump sum and the amount crystallised” substitute “ what would otherwise be LS or AC ”.

(5) In sub-paragraph (3), insert at the end “ (but without prejudice to its operation for the purposes of paragraph 2(7AA) of Schedule 29 as inserted by sub-paragraph (2)). ”

26 U.K. In section 280(2) (general index), after the entry relating to “related dependants' annuity” insert—

“related dependants' scheme pension

paragraph 3(7C) of Schedule 29”.