INCOME TAX Citation and commencement 1 These Regulations may be cited as the Registered Pension Schemes (Transfer of Sums and Assets) Regulations 2006 and shall come into force on 6th April 2006. Interpretation 2 In these Regulations “Part”, “section” or “Schedule”, without more, means a Part, section or Schedule of the Finance Act 2004. Scheme pension payable by registered pension scheme - recognised transfers 3 1 A transfer within section 169(1) or (1A) (recognised transfer) of sums or assets which represent rights in respect of a scheme pension to which a member of a registered pension scheme has become entitled (“the original scheme pension”) 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”). 2 If the sums and assets are so applied, the new scheme pension is to be treated as if it were the original scheme pension for the purposes of Part 4 prescribed in table 1. 3 Paragraphs (1) and (2) do not apply in relation to a transfer within section 169(1) or (1A) of sums or assets which, before the transfer, were held for the purposes of paying CMP periodic income. 4 Such a transfer is not a recognised transfer unless the sums and assets transferred are, after the transfer, applied towards the provision of a drawdown pension (within the meaning given by paragraph 4 of Schedule 28). Scheme pension payable by insurance company 4 If— a a scheme pension payable by an insurance company selected by the scheme administrator of a registered pension scheme (“the original scheme pension”) ceases to be payable, and b in consequence of the transfer of sums or assets (or both) from the insurance company to another insurance company in connection with the original scheme pension ceasing to be payable, another scheme pension becomes payable by the other insurance company (“the new scheme pension”), the new scheme pension is to be treated as if it were the original scheme pension for the purposes of Part 4 prescribed in table 1. Table 1 Prescribed purposes – scheme pensions Provision Purpose Section 165(1), pension rule 1 To determine whether the individual has reached the normal minimum pension age by reference to the day on which the original scheme pension was first paid. Section 216(1), benefit crystallisation event 2 (benefit crystallisation event on becoming entitled to a scheme pension) To determine whether the individual has become entitled to a scheme pension by reference to the original scheme pension (to prevent a benefit crystallisation event occurring in relation to the individual becoming entitled to the new scheme pension). Section 216(1), benefit crystallisation event 3 (benefit crystallisation event on becoming entitled to a scheme pension at an increased rate) To determine the rate at which the scheme pension was payable on the day on which the individual became entitled to it by reference to the rate payable in relation to the original scheme pension. Paragraph 2A(3) and (5) of Schedule 28 (unauthorised payments) To determine— the rate payable when the member became entitled to the pension, and the amount of any lump sum on which there is no liability to tax to which the member became entitled in conjunction with the pension, by reference to the original scheme pension. Paragraph 1(1) and (3)(a) of Schedule 29 (pension commencement lump sum) To determine whether the member has become entitled to a lump sum in connection with the member becoming entitled to the scheme pension by reference to the original scheme pension (to prevent a lump sum to which a member becomes entitled in connection with becoming entitled to the new scheme pension being a pension commencement lump sum). Paragraph 14(3) of Schedule 29 (pension protection lump sum death benefit) To determine— the amount crystallised by reason of the member becoming entitled to the pension ( AC ) by reference to the member becoming entitled to the original scheme pension, the amount of pension paid ( AP ) as that paid in respect of the original scheme pension and the new scheme pension in respect of the period between the member becoming entitled to the original scheme pension and the member’s death, the total amount of pension protection lump sum death benefit ( TPLS ) by reference to that paid in respect of the original scheme pension and the new scheme pension. Paragraph 16(3) of Schedule 29 (annuity protection lump sum death benefit) To determine— the amount crystallised by reason of the member becoming entitled to the pension (AC) by reference to the member becoming entitled to the original scheme pension, the amount of pension paid (AP) as that paid in respect of the original scheme pension and the new scheme pension in respect of the period between the member becoming entitled to the original scheme pension and the member’s death, and the total amount of annuity protection lump sum death benefit (TPLS) by reference to that paid in respect of the original scheme pension and the new scheme pension. Paragraph 20(2), (3) and (5) of Schedule 36 (pre-commencement pensions) To determine— (i) whether an individual has pre-commencement pension rights, (ii) whether an individual has a relevant existing pension. Term and reduction in the rate of scheme pension 5 1 In a case within regulation 3(1) or (2) or regulation 4, a reduction of the original scheme pension is a prescribed circumstance for the purposes of paragraph 2(4) of Schedule 28 (scheme pension: satisfying conditions) if— a the rate of the pension payable under the new scheme pension on the day on which the member becomes entitled to it is not less than the rate payable under the original scheme pension immediately before the original scheme pension ceased to be payable save to the extent that any reduction reflects the reasonable administration costs of the transfer of sums or assets; and b where the new scheme pension is payable until the later of the member’s death and the end of a term certain, that term ends on or before the date on which the term certain under the original scheme pension would have ended. 2 In paragraph (1)(a) “ administration costs ” includes, in particular, payments of overseas transfer charge. Lifetime annuity – unauthorised payments and prescribed purposes 6 1 In a case within paragraph 3(2B)(a) of Schedule 28 (transfer of sums or assets on cessation of lifetime annuity) where a new lifetime annuity becomes payable, the new lifetime annuity is to be treated as if it were the original lifetime annuity for the purposes of Part 4 prescribed in table 2 to the extent that the amount of the sums and the value of the assets applied to purchase the new lifetime annuity are equal to the amount of the sums and the value of the assets transferred. 2 In any other case within paragraph 3(2B), the relevant registered pension scheme is to be treated as making an unauthorised payment to the member of an amount equal to the aggregate of the amount of the sums and the market value of the assets transferred. Table 2 Prescribed purposes – lifetime annuities Provision Purpose Section 165(1), pension rule 1 To determine whether the individual has reached the normal minimum pension age by reference to the day on which the original lifetime annuity was first paid. Section 172A (surrender) To determine for the purposes of section 172A(1) and (2) whether a surrender of (or agreement to surrender) rights to payments under a lifetime annuity has occurred. Section 216(1), benefit crystallisation event 4 (benefit crystallisation event on becoming entitled to a lifetime annuity) To determine whether the individual has become entitled to a lifetime annuity by reference to the original annuity (to prevent a benefit crystallisation event occurring in relation to the individual becoming entitled to the new lifetime annuity). Paragraph 1(1) and (3)(a) of Schedule 29 (pension commencement lump sum) To determine whether the member has become entitled to a lump sum in connection with the member becoming entitled to a lifetime annuity by reference to the original annuity (to prevent a lump sum to which a member becomes entitled in connection with becoming entitled to the new lifetime annuity being a pension commencement lump sum). Paragraph 16(3) of Schedule 29 (annuity protection lump sum death benefit) To determine— the amount crystallised by reason of the member becoming entitled to the annuity (AC) by reference to the member becoming entitled to the original lifetime annuity, the amount of pension paid (AP) as that paid in respect of the original lifetime annuity and the new lifetime annuity in respect of the period between the member becoming entitled to the original lifetime annuity and the member’s death, the total amount of annuity protection lump sum death benefit (TPLS) by reference to that paid in respect of the original lifetime annuity and the new lifetime annuity. Short–term annuity – unauthorised payments 7 1 In any case within paragraph 6(1B) of Schedule 28 (transfer of sums and assets on cessation of short-term annuity) except where a new short-term annuity becomes payable, the relevant registered pension scheme is to be treated as making an unauthorised payment to the member of an amount equal to the aggregate of the amount of the sums and the market value of the assets transferred. 2 In any case within paragraph 6(1B) where a new short-term annuity becomes payable, the new short-term annuity is to be treated as if it were the original short-term annuity for the purposes prescribed in paragraph (3). 3 The prescribed purposes are to determine, in relation to pension rule 1 in section 165(1), whether the individual has reached the normal minimum pension age by reference to the day on which the original short-term annuity was first paid. Dependants' scheme pension payable by registered pension scheme - recognised transfers 8 A transfer within section 169(1) or (1A) of sums or assets which 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”) 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”). Dependants' scheme pension payable by an insurance company - unauthorised payments 9 In any case within paragraph 16(2A) of Schedule 28 (transfer of sums or assets on cessation of payment of a dependants' scheme pension by an insurance company) except where a new dependants' scheme pension becomes payable, the relevant registered pension scheme is to be treated as making an unauthorised payment in respect of the member of an amount equal to the aggregate of the amount of the sums and the market value of the assets transferred. Dependants’ annuity - unauthorised payments 10 1 In any case within paragraph 17(3) of Schedule 28 (transfer of sums or assets on cessation of dependants’ annuity) where a new dependants’ annuity becomes payable, the new dependants’ annuity is to be treated as if it were the original dependants’ annuity for the purposes of Part 4 prescribed in table 2A to the extent that the amount of the sums and the value of the assets applied to purchase the new dependants’ annuity are equal to the amount of the sums and the value of the assets transferred. 2 In any other case within paragraph 17(3), except where a new dependants’ annuity becomes payable, the relevant registered pension scheme is to be treated as making an unauthorised payment in respect of the member of an amount equal to the aggregate of the amount of the sums and the market value of the assets transferred. Table 2A Provision Purpose Section 172A (surrender) To determine for the purposes of section 172A(1) and (2) whether a surrender of (or agreement to surrender) rights to payments under a dependants’ annuity has occurred. Dependants' short-term annuity - unauthorised payments 11 In any case within paragraph 20(1B) of Schedule 28 (transfer of sums or assets on cessation of dependants' short-term annuity) except where a new dependant' short-term annuity becomes payable, the relevant registered pension scheme is to be treated as making an unauthorised payment in respect of the member of an amount equal to the aggregate of the amount of the sums and the market value of the assets transferred. Member’s drawdown pension fund or flexi-access drawdown fund and dependant’s drawdown pension fund or flexi-access drawdown fund and nominee's flexi-access drawdown fund and successor's flexi-access drawdown fund – recognised transfers and prescribed purposes 12 1 A transfer within section 169(1) of sums or assets which represent a member's flexi-access drawdown fund, dependant's flexi-access drawdown fund, nominee's flexi-access drawdown fund, successor's flexi-access drawdown fund, member’s drawdown pension fund or dependant’s drawdown pension fund under an arrangement (“the old arrangement”), 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”). 2 In a case where the sums and assets become so held, the sums and assets transferred are to be treated as remaining sums and assets held under the old arrangement for the purposes prescribed— za in the case of a member's flexi-access drawdown fund, in the entries in table 3 for provisions not in Schedule 28, a in table 3 in the case of a member’s drawdown pension fund, and b in table 4 in the case of a dependant’s drawdown pension fund. Table 3 Prescribed purposes – member's flexi-access drawdown fund or member’s drawdown pension fund Provision Purpose Section 165(1), pension rule 1 (normal minimum pension age) To determine whether the individual has reached the normal minimum pension age by reference to the day on which, in the case of income withdrawal, the first payment of drawdown pension was made under the old arrangement. . . . . . . Section 216(1), benefit crystallisation event 1 (benefit crystallisation event on designation of sums or assets held as available for payment of drawdown pension to the individual) To determine whether there has been a designation of sums or assets held as available for payment of drawdown pension to the individual by reference to the designation of sums or assets held under the old arrangement (to prevent a benefit crystallisation event occurring in relation to the sums or assets becoming held under a new arrangement). Section 216(1), benefit crystallisation event 5A (benefit crystallisation event on individual reaching the age of 75, having sums or assets designated as available for the payment of a drawdown pension) To determine, for the purposes of benefit crystallisation event 5A, the aggregate of amounts crystallised by benefit crystallisation event 1 by reference to the old arrangement (so that, in an appropriate case, paragraph 14ZB of Schedule 32 applies). Paragraph 9(1) of Schedule 28 (definition of drawdown pension year) To determine the drawdown pension year for the purpose of paragraphs 9, 10 and 10A of Schedule 28 by reference to the day on which the member first became entitled to a drawdown pension in respect of the old arrangement, except where a determination has been made under paragraph 10B(3) in which case the drawdown pension year is to be determined by reference to that determination. Paragraph 10(2) and (4)(a) of Schedule 28 (calculation of basis amount for drawdown pension year) To determine, for the reference period in which the transfer is made, the annual amount of the relevant annuity which could have been purchased by the application of the sums and assets representing the member’s drawdown pension fund on the nominated date, by reference to the sums and assets held under the old arrangement. Paragraph 10A(2) of Schedule 28 (calculation of basis amount for drawdown pension year beginning after the member’s 75th birthday) To determine, for the drawdown pension year in which the transfer is made, the annual amount of the relevant annuity which could have been purchased by the application of the sums and assets representing the member’s drawdown pension fund on the nominated date, by reference to the sums and assets held under the old arrangement. Paragraph 1(1) and (3)(a) of Schedule 29 (pension commencement lump sum) To determine whether the member has become entitled to a lump sum in connection with the member becoming entitled under an arrangement by reference to the old arrangement (to prevent a lump sum to which a member becomes entitled in connection with becoming entitled under the new arrangement being a pension commencement lump sum). Table 4 Prescribed purposes – dependant’s drawdown pension fund Provision Purpose . . . . . . Paragraph 23(1) of Schedule 28 (definition of drawdown pension year) To determine the drawdown pension year for the purpose of paragraphs 23, 24 and 24A of Schedule 28 by reference to the day on which the dependant first became entitled to a dependant’s drawdown pension in respect of the old arrangement, except where a determination has been made under paragraph 24B(3) in which case the drawdown pension year is to be determined by reference to that determination. Paragraph 24(2) and (4)(a) of Schedule 28 (calculation of basis amount for drawdown pension year) To determine, for the reference period in which the transfer is made, the annual amount of the relevant annuity which could have been purchased by the application of the sums and assets representing the dependant’s drawdown pension fund on the nominated date, by reference to the sums and assets held under the old arrangement. Paragraph 24A(2) of Schedule 28 (calculation of basis amount for drawdown pension year beginning after the dependant’s 75th birthday) To determine, for the drawdown pension year in which the transfer is made, the annual amount of the relevant annuity which could have been purchased by the application of the sums and assets representing the dependant’s drawdown pension fund on the nominated date, by reference to the sums and assets held under the old arrangement. Lifetime annuity — new annuity not a lifetime annuity for the purposes of Part 4 13 In a case within paragraph 3(2B)(a) of Schedule 28 (transfer of sums or assets on cessation of lifetime annuity) where— a a new annuity becomes payable, b the member becomes entitled to it on or after 6th April 2015, c it would be a lifetime annuity but for this regulation, d the terms of the contract for it are such that there will or could be decreases in its amount other than allowed decreases, and e the member became entitled to the original lifetime annuity before 6th April 2015, or sums or assets (or both) derived from a transfer or a series of transfers of sums or assets (or both) from an insurance company in respect of a lifetime annuity to which the member became entitled before 6th April 2015 were applied towards the provision of the original lifetime annuity, the new annuity is not a lifetime annuity for the purposes of Part 4. Short-term annuity: new annuity not a short-term annuity for the purposes of Part 4 14 In any case within paragraph 6(1B) of Schedule 28 (transfer of sums or assets on cessation of short-term annuity) where— a a new annuity becomes payable, b the member becomes entitled to it on or after 6th April 2015, c it would be a short-term annuity but for this regulation, d the terms of the contract for it are such that there will or could be decreases in its amount other than allowed decreases, and e the member became entitled to the original short-term annuity before 6th April 2015, or sums or assets (or both) derived from a transfer or a series of transfers of sums or assets (or both) from an insurance company in respect of a short-term annuity to which the member became entitled before 6th April 2015 were applied towards the provision of the original short-term annuity, the new annuity is not a short-term annuity for the purposes of Part 4. Dependants’ annuity: new annuity not a dependants’ annuity for the purposes of Part 4 15 1 In any case within paragraph 17(3) of Schedule 28 (transfer of sums or assets on cessation of dependants’ annuity) where— a a new annuity becomes payable, b the dependant becomes entitled to it on or after 6th April 2015, c it would be a dependants’ annuity but for this regulation, d the terms of the contract for it are such that there will or could be decreases in its amount other than allowed decreases, and e condition A, B, C or D is met, the new annuity is not a dependants’ annuity for the purposes of Part 4. 2 Condition A is that the dependant became entitled to the original dependants’ annuity before 6th April 2015. 3 Condition B is that sums or assets (or both) derived from a transfer or a series of transfers of sums or assets (or both) from an insurance company, in respect of a dependants’ annuity to which the dependant became entitled before 6th April 2015, were applied towards the provision of the original dependants’ annuity. 4 Condition C is that the original dependants’ annuity was purchased together with a lifetime annuity payable to the member and the member became entitled to that lifetime annuity before 6th April 2015. 5 Condition D is that sums or assets (or both) derived from a transfer or a series of transfers of sums or assets (or both) from an insurance company, in respect of a dependants’ annuity that was purchased together with a lifetime annuity payable to the member and the member became entitled to that lifetime annuity before 6th April 2015, were applied towards the provision of the original dependants’ annuity. 6 For the purposes of paragraphs (4) and (5) a dependants’ annuity is purchased together with a lifetime annuity if the dependants’ annuity is related to the lifetime annuity. Dependants’ short-term annuity: new annuity not a dependants’ short-term annuity for the purposes of Part 4 16 In any case within paragraph 20(1B) of Schedule 28 (transfer of sums or assets on cessation of dependants’ short-term annuity) where— a a new annuity becomes payable, b the dependant becomes entitled to it on or after 6th April 2015, c it would be a dependants’ short-term annuity but for this regulation, d the terms of the contract for it are such that there will or could be decreases in its amount other than allowed decreases, and e the dependant became entitled to the original dependants’ short-term annuity before 6th April 2015, or sums or assets (or both) derived from a transfer or a series of transfers of sums or assets (or both) from an insurance company in respect of a dependants’ short-term annuity to which the dependant became entitled before 6th April 2015 were applied towards the provision of the original dependants’ short-term annuity, the new annuity is not a dependants’ short-term annuity for the purposes of Part 4. Nominees’ short-term annuity — unauthorised payments 17 In any case within paragraph 27C(2) of Schedule 28 (transfer of sums or assets on cessation of nominees’ short-term annuity) except where a new nominees’ short-term annuity becomes payable, the relevant registered pension scheme is to be treated as making an unauthorised payment in respect of the member of an amount equal to the aggregate of the amount of the sums and the market value of the assets transferred. Successors’ short-term annuity — unauthorised payments 18 In any case within paragraph 27H(2) of Schedule 28 (transfer of sums or assets on cessation of successors’ short-term annuity) except where a new successors’ short-term annuity becomes payable, the relevant registered pension scheme is to be treated as making an unauthorised payment in respect of the member of an amount equal to the aggregate of the amount of the sums and the market value of the assets transferred. Nominees’ annuity — unauthorised payments 19 1 In any case within paragraph 27AA(3) of Schedule 28 (transfer of sums or assets on cessation of a nominees’ annuity) where a new nominees’ annuity becomes payable, to the extent that the amount of the sums and the value of the assets applied to purchase the new nominees’ annuity are equal to the amount of the sums and the value of the assets transferred, the new nominees’ annuity is to be treated as if it were the original nominees’ annuity to determine for the purposes of section 172A(1) and (2) (surrender of benefits or rights under a registered pension scheme) whether a surrender of (or agreement to surrender) rights to payments under a nominees’ annuity has occurred. 2 In any other case within paragraph 27AA(3) the relevant registered pension scheme is to be treated as making an unauthorised payment in respect of the member of an amount equal to the aggregate of the amount of the sums, and the market value of the assets, transferred. Successors’ annuity — unauthorised payments 20 1 In any case within paragraph 27FA(3) of Schedule 28 (transfer of sums or assets on cessation of a successors’ annuity) where a new successors’ annuity becomes payable, to the extent that the amount of the sums and the value of the assets applied to purchase the new successors’ annuity are equal to the amount of the sums and the value of the assets transferred, the new successors’ annuity is to be treated as if it were the original successors’ annuity to determine for the purposes of section 172A(1) and (2) whether a surrender of (or agreement to surrender) rights to payments under a successors’ annuity has occurred. 2 In any other case within paragraph 27FA(3) the relevant registered pension scheme is to be treated as making an unauthorised payment in respect of the member of an amount equal to the aggregate of the amount of the sums, and the market value of the assets, transferred. Paul Gray Mike Hanson Two of the Commissioners for Her Majesty’s Revenue and Customs 28th February 2006