Part 4U.K.Pension schemes etc

Chapter 3U.K.Payments by registered pension schemes

Authorised member paymentsU.K.

164Authorised member paymentsU.K.

[F1(1)]The only payments a registered pension scheme is authorised to make to or in respect of a [F2person who is or has been a] member of the pension scheme are—

(a)pensions permitted by the pension rules or the pension death benefit rules [F3to be paid to or in respect of a member] (see sections 165 and 167),

(b)lump sums permitted by the lump sum rule or the lump sum death benefit rule [F4to be paid to or in respect of a member] (see sections 166 and 168),

(c)recognised transfers (see section 169),

(d)scheme administration member payments (see section 171),

(e)payments pursuant to a pension sharing order or provision, and

(f)payments of a description prescribed by regulations made by the Board of Inland Revenue.

[F5(2)Regulations under subsection (1)(f) may—

(a)provide that for the purposes of Part 9 of ITEPA 2003 all or part of a prescribed payment is to be treated as pension under a registered pension scheme, or as a lump sum of a prescribed description,

(b)provide that all or part of a prescribed payment is subject to the short service refund lump sum charge[F6, the serious ill-health lump sum charge] or the special lump sum death benefits charge,

(c)provide that a prescribed event in relation to a prescribed payment is to be treated for the purposes of the lifetime allowance charge as a benefit crystallisation event, and make provision as to the amount crystallised by that event,

F7(d). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

and “prescribed” means prescribed in regulations under subsection (1)(f).]

165Pension rulesU.K.

(1)These are the rules relating to the payment of pensions by a registered pension scheme to a member of the pension scheme (“the pension rules”).

• Pension rule 1

  No payment of pension may be made before the day on which the member reaches normal minimum pension age, unless the ill-health condition was met immediately before the member became entitled to a pension under the pension scheme.

• Pension rule 2

  If the member dies before the end of the period of ten years beginning with the day on which the member became entitled to a scheme pension [F8or an annuity], payment of the scheme pension [F9or annuity] may continue to be made (to any person) until the end of that period.

  But no other payment of the member’s pension may be made after the member’s death.

• Pension rule 3

  No payment of pension other than a scheme pension may be made in respect of a defined benefits arrangement.

• Pension rule 4

  [F10No payment of pension] other than—

  (a)

  a scheme pension,

  (b)

  a lifetime annuity, or

  (c)

  [F11drawdown pension]

  may be made in respect of a money purchase arrangement; but a scheme pension may only be paid if the member had an opportunity to select a lifetime annuity instead.

• [F12Pension rule 5

  The total amount of drawdown pension paid in each drawdown pension year in respect of a money purchase arrangement must not exceed [F13120%] of the basis amount for the drawdown pension year.]

• F14. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• F14. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2)In this Part “pension”, in relation to a registered pension scheme, includes—

(a)an annuity, and

(b)income withdrawal.

(3)For the purposes of this Part, a person becomes entitled to a pension under a registered pension scheme—

(a)in the case of income withdrawal under the pension scheme, whenever sums or assets held for the purposes of an arrangement under the pension scheme are designated as available for the payment of [F15drawdown pension], and

(b)in any other case, when the person first acquires an actual (rather than a prospective) right to receive the pension

[F16and, for this purpose, the abatement of a scheme pension under a public service pension scheme is not to be taken to affect the right to receive it].

[F17(3A)This subsection applies to an arrangement if—

(a)the member meets the flexible drawdown conditions,

(b)the member makes a valid declaration to the scheme administrator to that effect, and

(c)the declaration is accepted by the scheme administrator.

(3B)The member meets the flexible drawdown conditions if—

(a)the member satisfied the minimum income requirement on the relevant day,

(b)no relevant contributions are paid under any money purchase arrangement (other than a cash balance arrangement) relating to the member under a registered pension scheme in the tax year in which the declaration is made, and

(c)at the time of the declaration the member is not an active member of any registered pension scheme under which there is a defined benefits or cash balance arrangement relating to the member.]

(4)Part 1 of Schedule 28 gives the meaning of expressions used in the pension rules.

166Lump sum ruleU.K.

(1)This is the rule relating to the payment of lump sums by a registered pension scheme to a member of the pension scheme (“the lump sum rule”).

Lump sum rule

No lump sum may be paid other than—

(a)a pension commencement lump sum,

(b)a serious ill-health lump sum,

(c)a short service refund lump sum,

(d)a refund of excess contributions lump sum,

(e)a trivial commutation lump sum,

(f)a winding-up lump sum, or

(g)a lifetime allowance excess lump sum.

(2)For the purposes of this Part, a person becomes entitled to a lump sum under a registered pension scheme—

(a)in the case of a pension commencement lump sum, immediately before the person becomes entitled to the pension in connection with which it is paid [F18(or, if the person dies before becoming entitled to the pension in connection with which it was anticipated it would be paid, immediately before death)], and

(b)in any other case, when the person acquires an actual (rather than a prospective) right to receive the lump sum.

(3)Part 1 of Schedule 29 gives the meaning of expressions used in the lump sum rule.

(4)Schedule 36 contains (in Part 3) transitional provisions about lump sums.

167Pension death benefit rulesU.K.

(1)These are the rules relating to the payment of pension death benefits by a registered pension scheme in respect of a member of the pension scheme (“the pension death benefit rules”).

Pension death benefit rule 1

No payment of pension death benefit may be made otherwise than to a dependant of the member.

Pension death benefit rule 2

No payment of pension death benefit other than a dependants' scheme pension may be made in respect of a defined benefits arrangement.

Pension death benefit rule 3

[F19No payment of pension death benefit] other than—

(a)a dependants' scheme pension,

(b)a dependants' annuity, or

[F20(c) dependants’ drawdown pension,]

may be made to [F21a dependant] in respect of a money purchase arrangement; but a dependants' scheme pension may only be paid if the member or dependant had an opportunity to select a dependants' annuity instead.

[F22Pension death benefit rule 4

The total amount of dependants’ drawdown pension paid to a dependant in each drawdown pension year in respect of a money purchase arrangement must not exceed [F23120%] of the basis amount for the drawdown pension year.

But this limit does not apply in relation to an arrangement to which subsection (2A) applies.]

F24. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F24. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2)[F25In this part “pension] death benefit” means a pension payable on the death of the member (other than a member’s pension payable after the member’s death under pension rule 2: see section 165).

[F26(2A)This subsection applies to an arrangement if—

(a)the dependant meets the flexible drawdown conditions,

(b)the dependant makes a valid declaration to the scheme administrator to that effect, and

(c)the declaration is accepted by the scheme administrator.

(2B)The dependant meets the flexible drawdown conditions if—

(a)the dependant satisfied the minimum income requirement on the relevant day,

(b)no relevant contributions are paid under any money purchase arrangement (other than a cash balance arrangement) relating to the dependant under a registered pension scheme in the tax year in which the declaration is made, and

(c)at the time of the declaration the dependant is not an active member of any registered pension scheme under which there is a defined benefits or cash balance arrangement relating to the dependant.]

(3)Part 2 of Schedule 28 gives the meaning of expressions used in the pension death benefit rules.

168Lump sum death benefit ruleU.K.

(1)This is the rule relating to the payment of lump sum death benefits by a registered pension scheme in respect of a member of the pension scheme (“the lump sum death benefit rule”).

Lump sum death benefit rule

No lump sum death benefit may be paid other than—

(a)a defined benefits lump sum death benefit,

(b)a pension protection lump sum death benefit,

(c)an uncrystallised funds lump sum death benefit,

(d)an annuity protection lump sum death benefit,

[F27(e)a drawdown pension fund lump sum death benefit,]

(f)a charity lump sum death benefit,

F28(g). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(h)a trivial commutation lump sum death benefit, or

(i)a winding-up lump sum death benefit.

(2)In this Part “lump sum death benefit” means a lump sum payable on the death of the member.

(3)Part 2 of Schedule 29 gives the meaning of expressions used in the lump sum death benefit rule.

(4)Schedule 36 contains (in Part 3) transitional provision about lump sum death benefits.

169Recognised transfersU.K.

(1)A “recognised transfer” is a transfer of sums or assets held for the purposes of, or representing accrued rights under, a registered pension scheme so as to become held for the purposes of, or to represent rights under—

(a)another registered pension scheme, or

(b)a qualifying recognised overseas pension scheme,

in connection with a member of that pension scheme.

[F29(1A)A transfer of sums or assets held for the purposes of, or representing accrued rights under, a registered pension scheme to an insurance company is to be treated as a recognised transfer if the sums or assets had been applied by the pension scheme towards the provision of a scheme pension or a dependants' scheme pension (but subject to regulations under subsections (1B) and (1C)).

(1B)The Board of Inland Revenue may by regulations provide that, where any of the sums or assets transferred represent rights in respect of a scheme pension to which a member of a registered pension scheme has become entitled (“the original scheme pension”)—

(a)the transfer is not a recognised transfer unless those sums and assets are, after the transfer, applied towards the provision of a scheme pension (a “new scheme pension”), and

(b)if they are so applied, the new scheme pension is to be treated, to such extent as is prescribed by the regulations and for such of the purposes of this Part as are so prescribed, as if it were the original scheme pension.

(1C)The Board of Inland Revenue may by regulations provide that, where any of the sums or assets transferred represent rights in respect of a dependants' scheme pension to which a dependant of a member of a registered pension scheme has become entitled in respect of the member (“the original dependants' scheme pension”)—

(a)the transfer is not a recognised transfer unless those sums and assets are, after the transfer, applied towards the provision of a dependants' scheme pension (a “new dependants' scheme pension”), and

(b)if they are so applied, the new dependants' scheme pension is to be treated, to such extent as is prescribed by the regulations and for such of the purposes of this Part as are so prescribed, as if it were the original dependants' scheme pension.

(1D)The Board of Inland Revenue may by regulations provide that, where any of the sums or assets transferred represent—

(a)a [F30member's drawdown pension fund or dependant's drawdown pension fund] , F31...

F31(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

under an arrangement (“the old arrangement”), the transfer is not a recognised transfer unless all of those sums and assets become held under an arrangement under which no other sums or assets are held (“the new arrangement”).

(1E)If regulations so provide they may make in relation to cases in which the sums and assets become so held provision as to the treatment for the purposes of any provision of this Part of—

(a)the sums and assets transferred, and

(b)the new arrangement,

including provision for treating the sums and assets transferred as remaining, to such extent as is prescribed by the regulations and for such of the purposes of this Part as are so prescribed, sums and assets held under the old arrangement.]

(2)For the purposes of this Part a recognised overseas pension scheme is a qualifying recognised overseas pension scheme if—

(a)the scheme manager has given to the Inland Revenue notification that it is a recognised overseas pension scheme and has provided any such evidence that it is a recognised overseas pension scheme as the Inland Revenue may require,

(b)the scheme manager has undertaken to the Inland Revenue to inform the Inland Revenue if it ceases to be a recognised overseas pension scheme,

(c)the scheme manager has undertaken to the Inland Revenue to comply with [F32any requirements imposed under subsection (4)], and

(d)the recognised overseas pension scheme is not excluded from being a qualifying recognised overseas pension scheme by subsection (5).

(3)In this Part “scheme manager”, in relation to a pension scheme, means the person or persons administering, or responsible for the management of, the pension scheme.

[F33(4)Regulations may require the scheme manager of a QROPS or former QROPS to—

(a)give the Commissioners information of a prescribed description,

(b)give the Commissioners such evidence as they may require of a prescribed matter, and

(c)give a prescribed authority, in prescribed circumstances, information of a prescribed description.

(4A)Regulations under subsection (4) may make provision as to—

(a)the way and form in which information or evidence is to be given, and

(b)the times or intervals at which information or evidence is to be given.

(4B)The regulations may apply any provision of Part 7 of Schedule 36 to FA 2008 (penalties), with or without modifications, in relation to requirements imposed under the regulations on a former QROPS.]

(5)A recognised overseas pension scheme is excluded from being a qualifying recognised overseas pension scheme by this subsection if [F34the Commissioners have] decided that—

(a)[F35any of the following conditions is met in relation to the scheme—

(i)there has been a failure to comply with a relevant requirement and the failure is significant,

(ii)any information given pursuant to a relevant requirement is incorrect in a material respect,

(iii)any declaration given pursuant to a relevant requirement is false in a material respect,

(iv)there is no scheme manager,] and

(b)by reason of [F36that condition being met] it is not appropriate that transfers of sums or assets held for the purposes of, or representing accrued rights under, registered pension schemes so as to become held for the purposes of, or to represent rights under, the recognised overseas pension scheme should be recognised transfers,

and has notified the person or persons appearing to be the scheme manager of that decision (but subject to subsection (7) and section 170).

[F37(6)A failure to comply with a requirement is significant if—

(a)it is a failure to give information or evidence that is (or may be) of significance, or

(b)there are reasonable grounds for believing that the failure prejudices (or might prejudice) the assessment or collection of tax by the Commissioners.]

(7)The Inland Revenue—

(a)may at any time after a recognised overseas pension scheme becomes excluded from being a qualifying recognised overseas pension scheme decide that the pension scheme is to cease to be so excluded, and

(b)must notify the scheme manager of the decision.

[F38(8)In subsections (4) to (6) and this subsection—

• “the Commissioners” means the Commissioners for Her Majesty's Revenue and Customs;

• “prescribed” means prescribed by regulations;

• “QROPS” means a qualifying recognised overseas pension scheme, and “former QROPS” means a scheme that has at any time been a QROPS;

• “regulations” means regulations made by the Commissioners;

• “relevant requirement” means—

  (a)

  a requirement imposed by regulations under subsection (4), or

  (b)

  a requirement imposed by virtue of Part 1 of Schedule 36 to FA 2008 (powers to obtain information and documents).]

170Appeal against decision to exclude recognised overseas pension schemeU.K.

(1)This section applies where a recognised overseas pension scheme is excluded from being a qualifying recognised overseas pension scheme by a decision of the Inland Revenue under section 169(5).

(2)The scheme manager may appeal against the decision.

F39(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F39(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5)An appeal under this section against a decision must be brought within the period of 30 days beginning with the day on which the notification of the decision was given.

(6)[F40On an appeal that is notified to the tribunal, the tribunal] must consider whether the recognised overseas pension scheme ought to have been excluded from being a qualifying recognised overseas pension scheme.

(7)If [F41the tribunal decides] that the recognised overseas pension scheme ought to have been excluded from being a qualifying recognised overseas pension scheme, [F42the tribunal must] dismiss the appeal.

(8)If [F43the tribunal decides] that the recognised overseas pension scheme ought not to have been excluded from being a qualifying recognised overseas pension scheme, the recognised overseas pension scheme is to be treated as having remained a qualifying recognised overseas pension scheme (but subject to any further appeal F44...).

171Scheme administration member paymentsU.K.

(1)A “scheme administration member payment” is a payment by a registered pension scheme to or in respect of a [F45person who is or has been a] member of the pension scheme which is made for the purposes of the administration or management of the pension scheme.

(2)But if a payment falling within subsection (1) exceeds the amount which might be expected to be paid to a person who was at arm’s length, the excess is not a scheme administration member payment.

(3)Scheme administration member payments include in particular—

(a)the payment of wages, salaries or fees to persons engaged in administering the pension scheme, and

(b)payments made for the purchase of assets to be held for the purposes of the pension scheme.

(4)A loan to or in respect of a [F46person who is or has been a] member of the pension scheme is not a scheme administration member payment.

(5)Regulations made by the Board of Inland Revenue may provide that payments of a description specified in the regulations are, or are not, scheme administration member payments.