Finance Act 2004

Lump sum rights exceeding £375,000: primary and enhanced protectionU.K.

24(1)If the lump sum condition and the registration condition are met in relation to an individual—U.K.

(a)paragraphs 27 to 29 (which modify Schedule 29 in relation to pension commencement lump sums), and

(b)paragraph 30 (which makes provision about scheme chargeable payments),

apply in relation to the individual.

(2)The lump sum condition is met if on 5th April 2006 the amount of an individual’s total lump sum rights exceeds £375,000 (25% of the standard lifetime allowance for the tax year 2006-07).

(3)Paragraph 25 defines the amount of an individual’s total lump sum rights on that date.

(4)The registration condition is met if either or both of the notice requirements is met.

(5)The first notice requirement is met if notice of intention to rely on paragraph 7 (primary protection) is given to the Inland Revenue in accordance with regulations under that paragraph in relation to the individual.

(6)The second notice requirement is met if notice of intention to rely on paragraph 12 (enhanced protection) is given to the Inland Revenue in accordance with regulations under that paragraph in relation to the individual.

25(1)The amount of an individual’s total lump sum rights on 5th April 2006 is—U.K.

(2)The value of the individual’s relevant uncrystallised lump sum rights on 5th April 2006 is the aggregate value of the individual’s uncrystallised lump sum rights on that date under each relevant pension arrangement relating to the individual.

(3)An uncrystallised lump sum right is a right to a lump sum which on 5th April 2006 is prospective (rather than actual).

(4)An arrangement is a “relevant pension arrangement”if it is an arrangement under a pension scheme within paragraph 1(1).

(5)The value of the individual’s uncrystallised lump sum rights under an arrangement on 5th April 2006—

(a)in the case of an arrangement under a pension scheme falling within paragraph 1(1)(f), is 25% of the value of the funds held for the purposes of the arrangement on that date, and

(b)in the case of any other arrangement, is an amount calculated in accordance with sub-paragraph (6).

(6)The amount is the amount of any lump sum to which the individual would have been entitled under the arrangement on 5th April 2006 on the assumption that the individual became entitled to the present payment of a lump sum under the arrangement on that date.

(7)In calculating an amount in accordance with sub-paragraph (6) the valuation assumptions apply but as if the reference to such age (if any) as must have been reached to avoid any reduction in benefits on account of age in paragraph (a) of section 277 were to the relevant age; and for this purpose “the relevant age” is—

(a)if on 10th December 2003 the terms of the arrangement made provision for a reduction in the amount of benefits payable in respect of rights under the arrangement on account of the holder of the rights being below a particular age, that age, and

(b)otherwise, 60.

26(1)This paragraph applies if any of the individual’s uncrystallised lump sum rights on 5th April 2006 are rights under one or more arrangements under a pension scheme or schemes within paragraph 1(1)(a) to (d).U.K.

(2)The value of the individual’s uncrystallised lump sum rights on 5th April 2006 under the arrangement, or the aggregate of the values of the individual’s uncrystallised lump sum rights on 5th April 2006 under such of the arrangements as relate to a particular employment, is F1...—

(a)the value, or the aggregate of the values, calculated under paragraph 25, [F2or (if lower)]

(b)the maximum permitted lump sum.

(3)“The maximum permitted lump sum” means

[F3(a)in the case of an arrangement under a pension scheme which immediately before 6th April 2006 was within section [F4611A(1)(a)] of ICTA, the maximum lump sum that could be paid to the individual under the pension scheme on 5th April 2006, and

(b)in any other case,]

the maximum lump sum that could be paid to the individual on 5th April 2006 under the arrangement or arrangements if it or they were made under a pension scheme within paragraph 1(1)(a) without giving the Board of Inland Revenue grounds for withdrawing approval of the pension scheme under section 591B of ICTA.

(4)For the purposes of sub-paragraph (3) it is to be assumed—

(a)[F5in the case of any arrangement, that] if the individual was in the employment to which the arrangement or arrangements relates or relate on 5th April [F62006] the individual left the employment on that date, and

[F7(aa)in the case of an arrangement within sub-paragraph (3)(a), that the valuation assumptions apply (see section 277),]

(b)[F8in the case of any other arrangement, that] if the individual had not reached the lowest age at which a lump sum may be paid under a pension scheme within paragraph 1(1)(a) to a person in good health without giving the Board of Inland Revenue grounds for withdrawing the approval of the pension [F9scheme] that fact would not give the Board such grounds.

(5)Whether an arrangement relating to an individual relates to an employment is to be determined in accordance with paragraph 9(6).

27(1)If (and for so long as) paragraph 12 (enhanced protection) applies in relation to the individual, paragraph 2 of Schedule 29 applies in relation to the individual with the following modifications.U.K.

(2)If the value of the individual’s relevant uncrystallised lump sum rights on 5th April 2006 (calculated in accordance with paragraphs 25 and 26) was nil, the permitted maximum under paragraph 2 is nil.

(3)Otherwise, paragraph 2 applies as if for sub-paragraphs (5) to (8) there were substituted—

“(5)If sub-paragraph (2) does not apply, the permitted maximum is [F10the lower of—

(a)the applicable amount calculated in accordance with paragraph 3, and

(b)the amount that would have been the applicable amount calculated in accordance with paragraph 3 if the lump sum had been paid on 5 April 2023.”]

28(1)If paragraph 12 (enhanced protection) does not apply in relation to the individual, paragraph 2 of Schedule 29 applies in relation to the individual with the following modifications.U.K.

(2)If the value of the individual’s relevant uncrystallised lump sum rights on 5th April 2006 (calculated in accordance with paragraphs 25 and 26) was nil, the permitted maximum under paragraph 2 is nil.

(3)Otherwise, paragraph 2 applies as if for [F11sub-paragraphs (5) to (7A)] there were substituted—

“(5)If sub-paragraph (2) does not apply, 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—

[F12(6A)The adjustment referred to in the definition of VULSR is the multiplication of the value of the individual’s relevant uncrystallised lump sum rights on 5th April 2006 by—

[F12(7)The adjustment of the amount of a pension commencement lump sum to which the individual has previously become entitled referred to in the definition of APCLS is the multiplication of the amount by—

[F15(7A)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).”]

29(1)If (and for so long as) paragraph 12 (enhanced protection) applies in relation to the individual, paragraph 3 of Schedule 29 (applicable amount) applies with the following modifications.U.K.

(2)Paragraph 3 applies as if for sub-paragraphs (1) to (3) there were substituted—

“(1)Where the member becomes entitled to income withdrawal, the applicable amount is—

(2)For the purposes of sub-paragraph (1) there is to be deducted from the aggregate of the lump sum and the amount of the sums and the market value of the assets designated as available for the payment of [F16drawdown pension] so much (if any) of that amount as represents rights which are attributable to a disqualifying pension credit.

(3)Where the member becomes entitled to a lifetime annuity, the applicable amount is—

(3)Paragraph 3 applies as if for sub-paragraphs (5) to [F17(7A)] there were substituted—

“(5)There is to be deducted from the aggregate of the amount of the lump sum and the annuity purchase price—

(a)if the annuity is purchased (in whole or in part) by the application of sums or assets representing the whole or part of the [F18member's drawdown pension fund] [F19or flexi-access drawdown 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 annuity purchase price as represents rights which are attributable to a disqualifying pension credit.

(6)Where the member becomes entitled to a scheme pension [F20under a defined benefits arrangement] [F21or a collective money purchase arrangement], the applicable amount is—

but subject to sub-paragraph (8).

(7)In sub-paragraph (6)—

[F23(7A)Where the member becomes entitled to a scheme pension under a money purchase arrangement [F24that is not a collective money purchase arrangement], the applicable amount is (subject to sub-paragraph (8))—

[F25(4)Paragraph 3 applies as if in sub-paragraph (8A)(a) for “is one third of” there were substituted “is—

(5)Paragraph 3 applies as if in sub-paragraph (8A)(b) for “is one third of the sums, plus one third of” there were substituted “is—

30(1)Any part of a lump sum falling within paragraph 1 (1) of Schedule 29 which—U.K.

(a)under paragraph 1(2) of that Schedule is not a pension commencement lump sum (because the lump sum exceeds the permitted maximum), and

(b)is an unauthorised payment,

is to be treated as exempt from being scheme chargeable (under section 241(2)) if the condition in sub-paragraph (2) is met.

(2)The condition is that it would not have been an unauthorised payment if—

(a)paragraphs 27 and 29 (in the case of an individual in relation to whom paragraph 12 applies), or

(b)paragraph 28 (in the case of an individual in relation to whom paragraph 12 does not apply),

had not applied.