PART 2Modifications of Part 4 of the Finance Act 2004
CHAPTER 3Benefits
Protected pension age in Chapter 1 legacy scheme unaffected by new scheme benefits electionI1016
1
Paragraph (2) applies for the purposes of determining whether the relevant protected pension age condition is met in relation to an individual and a Chapter 1 legacy scheme.
2
The effect of any election made in relation to the individual by virtue of section 6 or 10 of PSPJOA 2022 (election for new scheme benefits under Chapter 1 legacy scheme) on the time at which benefits become payable under the scheme is to be ignored.
Protected pension age in Chapter 1 new scheme unaffected by roll-backI1117
1
Paragraph (2) applies for the purposes of determining whether the relevant protected pension age condition is met in relation to an individual and a Chapter 1 new scheme.
2
The effect, in relation to the individual, of section 2(1) of PSPJOA 2022 (roll-back of remediable service to Chapter 1 legacy scheme) on the existence of any actual or prospective right under the scheme immediately before 4 November 2021 is to be ignored.
3
In this regulation “the relevant protected pension age condition” means the condition in sub-paragraph (3)(a) of paragraph 23ZB of Schedule 36 to FA 2004 (protected pension age available under pension scheme only if individual has right under scheme immediately before 4 November 2021)22.
Pension commencement lump sum: additional lump sum paid to memberI1218
1
Paragraph (2) applies where—
a
as a result of a relevant rectification provision, an amount by way of lump sum (“the additional lump sum”) has become payable to an individual under a pension scheme, and
b
the additional lump sum—
i
ii
could not reasonably have been paid within that period, and
iii
would, if it had been paid within that period, have been a pension commencement lump sum.
2
The additional lump sum is a pension commencement lump sum.
Trivial commutation lump sum: lump sum already paidI1319
1
Paragraph (2) applies where—
a
an individual has been paid a lump sum which, disregarding the relevant rectification provisions, is a trivial commutation lump sum25, and
b
as a result of the operation of a relevant rectification provision—
i
the condition in paragraph 7(1)(b) of Schedule 29 to FA 2004 (commutation limit)26 has ceased to be met in relation to the lump sum, or
ii
the condition in paragraph 7(1)(d) of that Schedule (extinguishment of rights) has ceased to be met in relation to the lump sum.
2
The lump sum is, and is treated as always having been, a trivial commutation lump sum.
Trivial commutation lump sum: additional lump sum paid to memberI820
1
Paragraphs (2) to (4) apply where—
a
an individual has been paid a trivial commutation lump sum (“the original TCLS”),
b
as a result of a relevant rectification provision, the individual has acquired rights under a registered pension scheme, and
c
the individual is paid a lump sum (“the top-up lump sum”) which, disregarding—
i
paragraph 7(1)(a) of Schedule 29 to FA 2004 (requirement that no previous trivial commutation lump sum has been paid), and
ii
paragraph 7(1)(b) of that Schedule (maximum value on commutation date),
would be a trivial commutation lump sum.
2
Subject to paragraph (3), the top-up lump sum is to be treated as a trivial commutation lump sum.
3
Paragraph (2) does not apply if—
a
the top-up lump sum exceeds £10,000, and
b
the aggregate of—
i
the top-up lump sum, and
ii
the value of the individual’s pension rights on the nominated date27 in relation to the original TCLS (as determined under paragraph 7(5) of Schedule 29 to FA 2004),
exceeds £30,000.
4
Regulation 3 of RPS(AP)R 2009 (commutation payments) does not apply in relation to the top-up lump sum.
Serious ill-health lump sum already paid: status unaffectedI1421
1
Paragraph (2) applies where—
a
an individual has been paid a lump sum which, disregarding the relevant rectification provisions, is a serious ill-health lump sum28, and
b
as a result of the operation of a relevant rectification provision, the condition in paragraph 4(1)(ca) of Schedule 29 to FA 2004 (extinguishment of rights)29 has ceased to be met in relation to the lump sum.
2
The lump sum is, and is to be treated as always having been, a serious ill-health lump sum.
Serious ill-health lump sum: additional lump sum paid to memberI922
1
Paragraphs (2) and (3) apply where—
a
an individual has been paid a serious ill-health lump sum in respect of an arrangement30,
b
as a result of a relevant rectification provision, the individual has acquired rights under the arrangement (“the retrospective entitlement”),
c
the individual is paid a lump sum (“the top-up SIHLS”) in respect of that arrangement which, disregarding paragraph 4(1)(ca) of Schedule 29 to FA 2004 (requirement that lump sum extinguish uncrystallised rights), would be a serious ill-health lump sum in respect of that arrangement, and
d
the top-up SIHLS extinguishes the retrospective entitlement.
2
The top-up SIHLS is to be treated as a serious ill-health lump sum.
3
Regulation 3 of RPS(AP)R 2009 (commutation payments) does not apply in relation to the payment.
Scheme pension: additional scheme pension paid in respect of deceased memberI123
1
Paragraphs (2) and (3) apply where—
a
as a result of a relevant rectification provision, an amount or amounts by way of scheme pension31 (“the scheme pension arrears”) have become payable to a member (“P”) or to P’s personal representatives,
b
P dies without having been paid the scheme pension arrears, and
c
the scheme pension arrears are paid instead to P’s personal representatives.
2
The payment—
a
is to be treated as falling within section 164(1) of FA 2004 (authorised member payments)32;
b
is to be treated as pension paid under a registered pension scheme for the purposes of Part 9 of ITEPA 200333;
c
is to be treated for those purposes as pension accruing in the tax year in which it is paid.
3
Regulation 4 of RPS(AP)R 2009 (pension errors) does not apply in relation to the payment.
Pension commencement lump sum: additional lump sum paid for deceased memberI224
1
Paragraphs (2) to (5) apply where—
a
as a result of a relevant rectification provision, an amount by way of lump sum (“the additional lump sum”) has become payable to a member (“P”), or to P’s personal representatives, under a pension scheme,
b
the additional lump sum would have been a pension commencement lump sum if it had been paid to P within the period specified in paragraph 1(1)(c) of Schedule 29 to FA 2004 (time period within which pension commencement lump sum must be paid),
c
P dies without having been paid the additional lump sum, and
d
the additional lump sum is paid to P’s personal representatives.
2
The payment—
a
is to be treated as falling within section 164(1) of FA 2004 (authorised member payments);
b
is to be treated as a pension commencement lump sum paid under a registered pension scheme for the purposes of Part 9 of ITEPA 200334.
3
4
The amount crystallised for the purposes of that benefit crystallisation event is the amount of the payment.
5
Regulation 5 of RPS(AP)R 2009 (lump sum errors) does not apply in relation to the payment.
Trivial commutation lump sum: additional lump sum paid for deceased memberI525
1
Paragraphs (2) to (5) apply where—
a
an individual (“P”) has been paid a trivial commutation lump sum (“the original TCLS”);
b
as a result of a relevant rectification provision P, or P’s personal representatives, have acquired rights under a registered pension scheme,
c
P dies without having received benefits in respect of the rights,
d
a lump sum (“the top-up lump sum”) is paid to P’s personal representatives, and
e
the top-up lump sum would have been a trivial commutation lump sum if—
i
P had still been living when it was paid, and
ii
it had been paid to P.
2
In determining whether the condition in paragraph (1)(e) is met, the following provisions of paragraph 7 of Schedule 29 to FA 2004 (trivial commutation lump sum) are to be disregarded—
a
sub-paragraph (1)(a) (requirement that no previous trivial commutation lump sum has been paid), and
b
sub-paragraph (1)(b) (maximum value on nominated date).
3
Subject to paragraph (4), the top-up lump sum is to be treated as a trivial commutation lump sum.
4
Paragraph (3) does not apply if—
a
the top-up lump sum exceeds £10,000, and
b
the aggregate of—
i
the top-up lump sum, and
ii
the value of the individual’s pension rights on the nominated date in relation to the original TCLS (as determined under paragraph 7(5) of Schedule 29 to FA 2004),
exceeds £30,000.
5
Regulation 3 of RPS(AP)R 2009 (commutation payments) does not apply in relation to the top-up lump sum.
Serious ill-health lump sum: additional lump sum paid for deceased memberI326
1
Paragraphs (2) to (6) apply where—
a
an individual (“P”) has been paid a serious ill-health lump sum in respect of an arrangement,
b
as a result of a relevant rectification provision P, or P’s personal representatives, have acquired rights under the arrangement (“the retrospective entitlement”),
c
P dies without having received benefits in respect of the retrospective entitlement,
d
a lump sum (“the top-up SIHLS”) is paid to P’s personal representatives at a time at which some of P’s lifetime allowance37 is available, and
e
the top-up SIHLS extinguishes the retrospective entitlement.
2
The payment—
a
is to be treated as falling within section 164(1) of FA 2004 (authorised member payments);
b
is to be treated as a serious ill-health lump sum paid under a registered pension scheme for the purposes of Part 9 of ITEPA 2003.
3
The making of the payment is to be treated as a benefit crystallisation event in relation to P for the purposes of the lifetime allowance charge.
4
The amount crystallised for the purposes of that benefit crystallisation event is the amount of the payment.
5
Any lifetime allowance charge arising as a result of that benefit crystallisation event is to be charged at the rate of 55%.
6
Regulation 3 of RPS(AP)R 2009 (commutation payments) does not apply in relation to the payment.
Recovery of underpaid lifetime allowance charge by reduction of scheme pensionI627
1
Paragraph (3) applies where—
a
an individual (“P”) has become entitled to a scheme pension,
b
in a subsequent tax year, as a result of a relevant rectification provision—
i
a lifetime allowance charge retrospectively arises in respect of the benefit crystallisation event mentioned in sub-paragraph (a), or
ii
the amount of a lifetime allowance charge that arose in respect of that benefit crystallisation event retrospectively increases,
c
the scheme administrator38 of the scheme under which the scheme pension is payable pays the new charge or (as the case may be) the increase in the charge, and
d
as a result of that payment, the rate of the scheme pension payable to P reduces.
2
Paragraph (3) also applies where—
a
an individual (“P”) has become entitled to a scheme pension,
b
the scheme administrator of the scheme under which the scheme pension is payable pays a liability arising under regulation 36 (liability for lifetime allowance charge where private sector scheme discharged from liability), and
c
as a result of that payment, the rate of the scheme pension payable to P reduces.
3
The reduction of the rate of the scheme pension does not prevent the scheme pension satisfying the condition in paragraph 2(3) of Schedule 28 to FA 2004 (requirement that rate of scheme pension does not reduce)39.
Scheme pension already paid: status of overpaid amount unaffectedI428
1
Paragraph (2) applies where—
a
an individual has at any time become entitled to a scheme pension, and
b
at a later time, as a result of a relevant rectification provision, one or more payments of scheme pension made to the individual before the later time include amounts (“overpaid pension amounts”) to which the individual was not entitled.
2
The payments of overpaid pension amounts—
a
are to be treated as falling, and are to be treated as always having fallen, within section 164(1) of FA 2004 (authorised member payments);
b
are to be treated as, and are to be treated as always having been, pension paid under a registered pension scheme for the purposes of Part 9 of ITEPA 2003;
c
are to be treated for those purposes as, and are to be treated as always having been, pension accruing in the tax year in which they are paid.
Pension commencement lump sum already paid: status of overpaid amount unaffectedI1529
1
Paragraph (2) applies where—
a
an individual has at any time been paid a pension commencement lump sum, and
b
as a result of a relevant rectification provision, the payment includes an amount (“the overpaid lump sum amount”) which (disregarding this regulation) has ceased to be a pension commencement lump sum.
2
The overpaid lump sum amount is to be treated as, and is to be treated as always having been, a pension commencement lump sum.
Pension commencement lump sum already paid: repayment of overpaid amountI1630
1
Paragraph (2) applies where—
a
an individual has at any time been paid a pension commencement lump sum under a Chapter 1 scheme or a judicial scheme,
b
the payment includes an amount (“the overpayment”) which, as a result of a relevant rectification provision, was not payable to the individual, and
c
the liability under section 14(5) or 51(4) of PSPJOA 2022 owed to the scheme in respect of the overpayment has been discharged in full.
2
The amount crystallised by the benefit crystallisation event in connection with the individual’s entitlement to the pension commencement lump sum is to be treated as not including, and is to be treated as never having included, the overpayment.
Top-up defined benefits lump sum death benefit treated in same way as original paymentI731
1
Paragraph (2) applies where—
a
a defined benefits lump sum death benefit40 is at any time paid under a registered pension scheme in respect of the death of an individual,
b
the payment is made before the end of the relevant two-year period,
c
as a result of a relevant rectification provision the amount of the defined benefits lump sum death benefit payable under the scheme in respect of the death increases,
d
an amount (“the top-up DBLSDB”) is paid in respect of the increase, and
e
the top-up DBLSDB is not paid before the end of the relevant two-year period.
2
The top-up DBLSDB is to be treated for the purposes of the provisions listed in paragraph (3) as having been paid before the end of the relevant two-year period.
3
The provisions referred to in paragraph (2) are—
a
section 636AA(3) of ITEPA 2003 (circumstances in which payment of defined benefits lump sum death benefit is taxable)41;
b
section 206(1B) of FA 2004 (circumstances in which payment of defined benefits lump sum death benefit is subject to the special lump sum death benefits charge)42;
c
paragraph 16(a) of Schedule 32 to FA 2004 (circumstances in which payment of defined benefits lump sum death benefit constitutes a benefit crystallisation event 7)43.
4
In this regulation “the relevant two-year period” means the period of two years beginning with the earlier of the day on which the scheme administrator of the scheme first knew of the individual’s death and the day on which the scheme administrator could first reasonably have been expected to have known of it.