Finance Act 2004

“Enhanced protection” U.K.

12(1)This paragraph applies on and after 6th April 2006 in the case of an individual who has one or more relevant existing arrangements if notice of intention to rely on it is given to the Inland Revenue in accordance with regulations made by the Board of Inland Revenue.U.K.

(2)But this paragraph ceases to apply if [F1the notice under sub-paragraph (1) is given on or after 15 March 2023 and]—

(a)relevant benefit accrual occurs under the arrangement, or any of the arrangements (see paragraph 13),

[F2(aa)there is an impermissible transfer into the arrangement or any of the arrangements (see paragraph 17A),]

(b)a transfer of sums or assets held for the purposes of, or representing accrued rights under, the arrangement or any of the arrangements is made that is not a permitted transfer, or

(c)an arrangement relating to the individual is made under a registered pension scheme otherwise than [F3in permitted circumstances].

[F4(2A)An arrangement is made in permitted circumstances if it is made—

(a)for the purposes of a permitted transfer,

(b)as part of a retirement-benefit activities compliance exercise, or

(c)as part of an age-equality compliance exercise.

(2B)For the purposes of sub-paragraph (2A)(b) an arrangement (“the new arrangement”) relating to an individual is made as part of a retirement-benefit activities compliance exercise if—

(a)it is made in connection with the cancellation of rights under another arrangement relating to the individual (“the old arrangement”),

(b)the old arrangement and the new arrangement relate to the same employment,

(c)there is a prospective entitlement to pension death benefits within section 167(1) or lump sum death benefits within section 168(1) (or both) under both the old arrangement and the new arrangement,

(d)the making of the new arrangement and the cancellation of the old arrangement constitute or form part of a transaction the purpose of which is to secure that the activities of the pension scheme under which the arrangement is made are limited to retirement-benefit activities within the meaning of section 255 of the Pensions Act 2004 or Article 232 of the Pensions (Northern Ireland) Order 2005, and

(e)the rights cancelled under the old arrangement and the rights conferred under the new arrangement are not significantly different.

(2C)For the purposes of sub-paragraph (2A)(c) an arrangement (“the new arrangement”) is made as part of an age-equality compliance exercise if—

(a)it is made in connection with the cancellation of rights under another arrangement relating to the individual (“the old arrangement”),

(b)the old arrangement and the new arrangement relate to the same employment,

(c)there is a prospective entitlement to pension death benefits within section 167(1) or lump sum death benefits within section 168(1) (or both) under both the old arrangement and the new arrangement, and

(d)the new arrangement is made, and the old arrangement cancelled, in order to comply with the [F5Part 5 of the Equality Act 2010, so far as relating to age, or the] or Employment Equality (Age) Regulations (Northern Ireland) 2006 (or any regulations amending or replacing [F6those Regulations]).]

(3)Where this paragraph applies in the case of an individual

[F7(a)there is no liability to the lifetime allowance charge in respect of the individual, and

(b)the payment of a lifetime allowance excess lump sum to the individual is not permitted by the lump sum rule (see section 166).]

(4)An individual has a relevant existing arrangement if—

(a)before 6th April 2006 an arrangement relating to the individual has been made under a pension scheme within paragraph 1(1), and

(b)the pension scheme becomes a registered pension scheme on that date.

(5)Notice of intention to rely on this paragraph in relation to the individual may not be given in a case where—

(a)the value of the uncrystallised rights of the individual on 5th April 2006 under an arrangement, or

(b)the aggregate of the values of the uncrystallised rights of the individual on 5th April 2006 under arrangements,

is arrived at in accordance with paragraph [F89(3)] unless such rights as, in accordance with regulations made by the Board of Inland Revenue, are to be treated as representing the relevant excess have been surrendered.

(6)In sub-paragraph (5) “the relevant excess” means the amount by which the value of—

(a)the individual’s uncrystallised rights, or

(b)the aggregate of the values of the individual’s uncrystallised rights,

as arrived at in accordance with paragraph 8 exceeds what it would be if arrived at under paragraph [F99(3)].

(7)For the purposes of this paragraph and paragraphs 13 and 15, a transfer of sums or assets held for the purposes of, or representing accrued rights under, an arrangement is a permitted transfer if—

(a)F10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b)the sums or assets F11. . . are transferred so that sub-paragraph (8) applies in relation to them, and

(c)the aggregate of the amount of [F12the] sums and the market value of [F12the] assets is, applying normal actuarial practice, equivalent before and after the transfer.

(8)This sub-paragraph applies in relation to sums or assets held for the purposes of, or representing accrued rights under, the arrangement if—

(a)they are transferred so as to become held for the purposes of a money purchase arrangement that is not a cash balance arrangement F13. . . F13. . .

(b)where the transfer occurs in connection with the winding up of the pension scheme under which the arrangement is made and the arrangement is a cash balance arrangement or a defined benefits arrangement, they are transferred so as to become held for the purposes of, or to represent rights under, a cash balance arrangement or defined benefits arrangement relating to the same employment as the arrangement and made under a registered pension scheme or recognised overseas pension scheme.

[F14(c)where the arrangement is a cash balance arrangement or a defined benefits arrangement relating to a present or former employment, they are transferred in connection with a relevant business transfer so as to become held for the purposes of, or to represent rights under, a cash balance arrangement or defined benefits arrangement made under a registered pension scheme or recognised overseas pension scheme, or

(d)where the arrangement (“the old arrangement”) is a cash balance arrangement or a defined benefits arrangement, they are transferred as part of a retirement-benefit activities compliance exercise so as to become held for the purposes of, or to represent rights under, a cash balance arrangement or defined benefits arrangement (“the new arrangement”) relating to the same employment as the old arrangement and made under a registered pension scheme or recognised overseas pension scheme.]

[F15(8A)For the purposes of sub-paragraph (8)(c) “relevant business transfer” means a transfer of an undertaking or a business (or part of an undertaking or a business) from one person to another—

(a)which involves the transfer of at least 20 employees, and

(b)in the case of which, if the transferor and the transferee are bodies corporate, they would not be treated as members of the same group for the purposes of [F16Part 5 of the Corporation Tax Act 2010] .

(8B)For the purposes of sub-paragraph (8)(d) sums or assets held for the purposes of, or representing accrued rights under, the old arrangement are transferred as part of a retirement-benefit activities compliance exercise if—

(a)there is a prospective entitlement to pension death benefits within section 167(1) or lump sum death benefits within section 168(1) (or both) under both the old arrangement and the new arrangement, and

(b)the transfer constitutes or forms part of a transaction the purpose of which is to secure that the activities of the pension scheme under which the old arrangement was made are limited to retirement-benefit activities within the meaning of section 255 of the Pensions Act 2004 or Article 232 of the Pensions (Northern Ireland) Order 2005.]

(9)Where there is a permitted transfer—

(a)if the transfer is a permitted transfer by virtue of sub-paragraph (8)(a), this paragraph (and paragraphs 13 [F17, 14 and 17A(1) and (2)]) apply in relation to the arrangement F18. . . to which the transfer is made, and

(b)if the transfer is a permitted transfer by virtue of sub-paragraph (8)(b) [F19or (d)], this paragraph (and paragraphs 13 [F20, 15 and 17A(3)] [F21to 17]) apply as if the arrangement to which the transfer is made were the same as that from which it is made, [F22and

(c)if the transfer is a permitted transfer by virtue of sub-paragraph (8)(c), this paragraph (and paragraphs 13, 15 to 17 and 17A(3)) apply as if the arrangement to which the transfer is made were the same as that from which it is made and (if the employment is transferred) as if the employment with the transferee were the employment with the transferor.]

[F23(10)The Treasury may by order amend sub-paragraph (8) (and make other amendments consequential on any amendment of that sub-paragraph).]

13U.K.Relevant benefit accrual occurs in relation to an individual under an arrangement—

(a)in the case of a money purchase arrangement that is not a cash balance arrangement, if a relevant contribution is paid under the arrangement [F24or, where the arrangement has been a hybrid arrangement, if a relevant contribution was so paid at any time after 5th April 2006,] (see paragraph 14), and

(b)in the case of a cash balance arrangement or defined benefits arrangement, if, when a benefit crystallisation event or transfer that is a permitted transfer by virtue of paragraph 12(8)(a) (a “relevant event”) occurs in relation to the individual and the arrangement, the relevant crystallised amount exceeds the appropriate limit (see paragraph 15).

14(1)For the purposes of paragraph 13(a) a relevant contribution is paid under the arrangement if—U.K.

(a)a relievable pension contribution is paid by or on behalf of the individual under the arrangement,

(b)a contribution is paid in respect of the individual under the arrangement by an employer of the individual, or

(c)a contribution paid [F25otherwise than by or on behalf of the individual or by an employer of the individual] in respect of the individual subsequently becomes held for the purposes of the provision under the arrangement of benefits to or in respect of the individual.

F26(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F27(3)A contribution is not a relevant contribution for the purposes of paragraph 13(a) if—

(a)it may only be applied for or towards the payment of premiums under a policy of insurance on the life of the individual,

(b)the policy is issued, or issued in respect of insurances made, before 6th April 2006,

(c)there is no right to surrender any rights under the policy,

(d)the terms of the policy are not varied significantly during the period beginning with 6th April 2006 and ending with the individual's actual death so as to increase the benefits payable under the policy or extend the period during which benefits are so payable, and

(e)no benefits are paid, or other payments made, under (or on the surrender of rights under) the policy except by reason of the individual's death;

and any exercise of rights conferred by the policy is to be regarded for this purpose as a variation.

[F28(3A)A variation of the terms of a policy made in order to comply with the [F29Part 5 of the Equality Act 2010, so far as relating to age, or the] Employment Equality (Age) Regulations (Northern Ireland) 2006 (or any regulations amending or replacing [F30those Regulations]) is to be ignored for the purposes of sub-paragraph (3).

(3B)Where a policy of insurance on the life of the individual issued, or issued in respect of insurances made, before 6th April 2006 is surrendered and a new one is taken out—

(a)as part of a retirement-benefit activities compliance exercise, or

(b)as part of an age-equality compliance exercise.

the new policy is to be treated for the purposes of sub-paragraph (3) as if it were the same as the old.

(3C)For the purposes of sub-paragraph (3B)(a) a policy is surrendered, and a new policy of life insurance is taken out, as part of a retirement-benefit activities compliance exercise if—

(a)the surrender of the old policy and the taking out of the new policy constitute or form part of a transaction the purpose of which is to secure that the activities of the pension scheme under which the arrangement is made are limited to retirement-benefit activities within the meaning of section 255 of the Pensions Act 2004 or Article 232 of the Pensions (Northern Ireland) Order 2005, and

(b)the rights under the old policy and the new policy are not significantly different.

(3D)For the purposes of sub-paragraph (3B)(b) a policy is surrendered, and a new policy of life insurance is taken out, as part of an age-equality compliance exercise if—

(a)the old policy is surrendered, and the new policy is taken out, in order to comply with [F31Part 5 of the Equality Act 2010, so far as relating to age, or the] or Employment Equality (Age) Regulations (Northern Ireland) 2006 (or any regulations amending or replacing [F32those Regulations]), and

(b)any significant difference between the rights under the old policy and the rights under the new policy is attributable to the need to comply with those Regulations (or any regulations amending or replacing them).]

(4)A contribution is not a relevant contribution for the purposes of paragraph 13(a) if it is paid—

(a)by a sponsoring employer,

(b)under a relevant hybrid arrangement, and

(c)solely in respect of the provision in respect of the individual of lump sum death benefits which are defined benefits or cash balance benefits.

(5)A “relevant hybrid arrangement” is a hybrid arrangement under an occupational pension scheme—

(a)which subsequently becomes a money purchase arrangement that is not a cash balance arrangement, and

(b)under which lump sum death benefits would have been payable in respect of the individual if the individual had died on 5th April 2006.]

15(1)For the purposes of paragraph 13(b) “the relevant crystallised amount”is—U.K.

(a)if the relevant event is the first relevant event occurring in relation to the individual and to the arrangement or any other cash balance arrangement or defined benefits arrangement related to the arrangement (“the first relevant event”), the amount crystallised by that event, and

(b)otherwise, the aggregate of the amount crystallised by the relevant event and the amount crystallised by the relevant event, or by each of the relevant events, which has or have previously occurred in relation to the individual and to the arrangement or any other cash balance arrangement or defined benefits arrangement related to the arrangement.

(2)If the relevant event is a permitted transfer which is not a benefit crystallisation event, sub-paragraph (1) applies as if the amount crystallised by the event were the aggregate of—

(a)the amount of any sums held for the purposes of, or representing accrued rights under, the arrangement [F33which are transferred], and

(b)the market value of any assets held for the purposes of, or representing accrued rights under, the arrangement [F33which are transferred].

(3)For the purposes of this paragraph (and [F34paragraphs 15A and 16]) another arrangement is related to the arrangement if—

(a)the other arrangement relates to the individual, and

(b)both the arrangement and the other arrangement relate to the same employment;

and whether an arrangement relates to an employment is to be determined in accordance with paragraph 9(6).

(4)For the purposes of paragraph 13(b) “the appropriate limit”, in relation to a relevant event, [F35is (subject to paragraph 15A) the greater] of—

(a)the value of the individual’s rights on 5th April 2006 under the arrangement, or (where there is or are one or more other cash balance arrangements or defined benefits arrangements related to the arrangement) the aggregate of the value of the individual’s rights under the arrangement and the other arrangement or arrangements, arrived at in accordance with paragraphs 8 and 9, as increased by the relevant indexation percentage (see sub-paragraph (5)), and

(b)what would be the value of those rights, so arrived at, on the assumptions specified in sub-paragraph (6).

(5)For the purposes of sub-paragraph (4)(a) [F36and paragraph 15A(2)(a)] “the relevant indexation percentage”, in relation to a relevant event, means whichever is the greatest of—

(a)the percentage by which an amount would be increased if it were increased for the period beginning with 6th April 2006 and ending with the date on which the relevant event occurs at an annual rate of 5%,

(b)the percentage by which an amount would be increased if it were increased for that period at an annual percentage rate referred to in regulations made by the Board of Inland Revenue, and

(c)the percentage by which the retail prices index for the month in which the relevant event occurs is higher than that for April 2006.

(6)The assumptions referred to in sub-paragraph (4)(b) [F37and paragraph 15A(2)(b)] are—

(a)that the individual’s age on 5th April 2006 were what it is at the time of the first relevant event (so that neither paragraph 8(6) nor section 277(a) applies in arriving at what would be the value of the rights under paragraph 8), and

(b)that the amount of the earnings which would have fallen to be taken into account under the arrangement for calculating the amount of benefits payable to or in respect of the individual (if the individual became entitled to the present payment of benefits in respect of the rights under the arrangement on that date) were the lesser of the two amounts specified in sub-paragraph (7).

(7)The amounts referred to in sub-paragraph (6)(b) are—

(a)the current amount of the relevant pensionable earnings immediately before the first relevant event, and

(b)the post-commencement earnings limit (see paragraphs 16 and 17).

(8)But sub-paragraph (6)(b) applies in relation to an arrangement under a pension scheme within paragraph 1(1)(c) or (e) as if for “the lesser of the two amounts specified in sub-paragraph (7)” there were substituted “ the amount specified in sub-paragraph (7)(a) ”.

(9)In this paragraph “the relevant pensionable earnings” means the description of earnings (or the portion of the description of earnings) of the individual by reference to which the amount of benefits payable to or in respect of the individual would have fallen to be calculated if the individual became entitled to the present payment of benefits in respect of the rights under the arrangement on 5th April 2006.

(10)For the purposes of sub-paragraph (7)(a) “the current amount”of the relevant pensionable earnings immediately before the first relevant event is the amount of the relevant pensionable earnings which, at that time, would fall to be taken into account in calculating the amount of benefits payable to or in respect of the individual under the arrangement if the individual became entitled to the present payment of benefits at that time (but subject to sub-paragraph (11)).

(11)If at that time the individual is absent from work in connection with pregnancy, maternity, paternity or adoption, the current amount of the relevant pensionable earnings at that time includes what would be likely to be included in that amount if the individual were not so absent.

[F3815A(1)This paragraph applies where—U.K.

(a)a person is paid a defined benefits lump sum death benefit or an uncrystallised funds lump sum death benefit in respect of the individual under the arrangement, and

(b)notice of intention to rely on this paragraph is given to an officer of Revenue and Customs by that person in accordance with regulations made by the Commissioners for Her Majesty's Revenue and Customs.

(2)For the purposes of paragraph 13(b), if the amount yielded by sub-paragraph (3) is greater than what would otherwise be the appropriate limit in relation to a relevant event which consists of—

(a)the payment of the lump sum death benefit, or

(b)the payment of any other lump sum death benefit in respect of the individual under the arrangement or another cash balance arrangement or defined benefits arrangement related to the arrangement,

that greater amount is the appropriate limit in relation to such a relevant event.

(3)The amount yielded by this sub-paragraph is the greater of—

(a)the value of the individual's pre-commencement rights to death benefits, as increased by the relevant indexation percentage (see sub-paragraph (5) of paragraph 15), or

(b)what would be the value of the individual's pre-commencement rights to death benefits on the assumptions specified in sub-paragraph (6) of that paragraph (but subject to the modifications in sub-paragraph (7) of this paragraph).

(4)The value of the individual's pre-commencement rights to death benefits is the aggregate of the maximum amounts that could have been paid in respect of the individual as uncrystallised rights lump sum death benefits under—

(a)the arrangement, or

(b)any other cash balance arrangement or defined benefits arrangement related to the arrangement,

if the individual had died on 5th April 2006.

(5)Lump sum death benefits are “uncrystallised rights lump sum death benefits” if they are attributable to rights in respect of which the individual had not, on 5th April 2006, become entitled to the present payment of benefits.

(6)Paragraphs 11C and 11D apply in arriving at the aggregate mentioned in sub-paragraph (4) as in arriving at that mentioned in paragraph 11B(2) but as if—

(a)each of the references to paragraph 11B(2) were to sub-paragraph (4) of this paragraph, and

(b)in paragraph 11D(1), for “of a pension scheme” there were substituted “ of any arrangement within paragraph 15A(4) under a pension scheme ”.

(7)In their operation for the purposes of this paragraph sub-paragraphs (6) to (11) of paragraph 15 have effect as if—

(a)for the references in sub-paragraphs (6)(a) and (7)(a) and (10) to the time of the first relevant event there were substituted a reference to the time immediately before the individual's death, and

(b)the words in parentheses in sub-paragraph (6)(a) were omitted.]

16(1)This paragraph specifies the post-commencement earnings limit if the individual was on 5th April 2006 a person in relation to [F39whom—U.K.

(a)section 590C of ICTA or paragraph 20 of Schedule 6 to FA 1989 (earnings cap) had effect, or

(b)provision similar to section 590C of ICTA had effect by virtue of conditions imposed under section 591 of that Act (discretionary approval),

in] relation to any pension scheme under which the arrangement or any other arrangement related to the arrangement was made.

(2)The post-commencement earnings limit is the lesser of amount A and amount B.

(3)Amount A is 7.5% of the [F40underpinned lifetime allowance when the first relevant event occurs; and “the underpinned lifetime allowance” is the greater of the current standard lifetime allowance and £1,800,000 (the standard lifetime allowance for the tax year 2011-12).]

(4)Amount B is the amount of the individual’s employment income from the employment to which the arrangement relates for the best period of 12 months during the appropriate three year period.

(5)The appropriate three year period is the period of three years ending with [F41the earliest of—

(a)the first relevant event,

(b)the individual leaving the employment to which the arrangement relates, and

(c)the individual's death].

[F42(5A)Where the appropriate three year period ends otherwise than with the first relevant event, Amount B is what it would be apart from this sub-paragraph increased by whichever is the greatest of—

(a)the percentage by which an amount would be increased if it were increased for the period beginning with the date on which it ends and ending with the date on which the relevant event occurs at an annual rate of 5%,

(b)the percentage by which an amount would be increased if it were increased for that period at an annual percentage rate referred to in regulations made by the Board of Inland Revenue, or

(c)the percentage by which the retail prices index for the month in which the first relevant event occurs is higher than that for the month in which the appropriate period ends.]

(6)A period of 12 months during the appropriate three year period is the best period of 12 months during the appropriate three year period if the amount of the individual’s employment income from the employment to which the arrangement relates is greater for that period of 12 months than for any other period of 12 months during the appropriate three year period.

(7)For the purposes of this paragraph and paragraph 17 the amount of the individual’s employment income includes, in relation to any time when the individual is absent from work in connection with pregnancy, maternity, paternity or adoption, what would be likely to be included in that amount if the individual were not so absent.

17(1)This paragraph specifies the post-commencement earnings limit in any other case.U.K.

(2)The post-commencement earnings limit is—

(a)if amount B is not greater than amount A, amount B, and

(b)otherwise, amount C.

(3)Amount A and amount B have the same meanings as in paragraph 16.

(4)Amount C is the greater of—

(a)amount A, and

(b)amount D.

(5)Amount D is—

[F43(6)Where the appropriate three year period ends otherwise than with the first relevant event, Amount D is what it would be apart from this sub-paragraph increased by whichever is the greatest of—

(a)the percentage by which an amount would be increased if it were increased for the period beginning with the date on which it ends and ending with the date on which the relevant event occurs at an annual rate of 5%,

(b)the percentage by which an amount would be increased if it were increased for that period at an annual percentage rate referred to in regulations made by the Board of Inland Revenue, or

(c)the percentage by which the retail prices index for the month in which the first relevant event occurs is higher than that for the month in which the appropriate period ends.]

[F4417A(1)There is an impermissible transfer into a relevant existing arrangement relating to an individual under a pension scheme in a case where the relevant existing arrangement is a money purchase arrangement that is not a cash balance arrangement if—U.K.

(a)sums or assets held for the purposes of, or representing rights under, an arrangement relating otherwise than to the individual are transferred so as to become held for the purposes of the relevant existing arrangement, otherwise than pursuant to a pension sharing order or provision, [F45or]

(b)sums or assets which are neither held for the purposes of, nor represent rights under, a pension scheme are so transferred, F46...

F46(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2)Sub-paragraph (1) applies where the relevant existing arrangement has been a hybrid arrangement as if the references to sums or assets being transferred F47... were to transfer or payment at any time after 5th April 2006.

(3)There is an impermissible transfer into a relevant existing arrangement relating to an individual under a pension scheme in a case where the relevant existing arrangement is a cash balance arrangement or a defined benefits arrangement if it becomes a money purchase arrangement that is not a cash balance arrangement.]