INCOME TAX Citation and commencement 1 1 This Order may be cited as the Taxation of Pension Schemes (Transitional Provisions) Order 2006 and shall come into force on 6th April 2006. 2 In this Order— “ Revenue and Customs ” means Her Majesty’s Revenue and Customs (see section 4 of the Commissioners for Revenue and Customs Act 2005 ); “the 2004 Act ” means the Finance Act 2004; “ Part 4 ” means Part 4 of the Finance Act 2004; “ relevant benefit crystallisation event ” has the same meaning as in section 637S of ITEPA 2003 (availability of individual’s lump sum and death benefit allowance); a reference to a numbered section or Schedule (without more) is a reference to the section or Schedule bearing that number in Part 4; and expressions which are defined, or are otherwise explained, in section 280 have the same meaning in this Order as they have in Part 4. Payments made from annuities 2 1 In its application to any pension scheme which by virtue of paragraph 1(1) of Schedule 36 (pension schemes: transitional provisions and savings)— a is to be treated as becoming a registered pension scheme on 6th April 2006; b would have been so treated had it not been wound up before that date; or c would have been so treated if the scheme administrator had not notified Revenue and Customs under paragraph 2 of Schedule 36 (opting out of deemed registration) that the pension scheme was not to become a registered pension scheme on that date, section 161 (meaning of “payment” etc ) is modified as follows. 2 In subsection (3) after the words “of a registered pension scheme” add— or, if the purchase took place before 6th April 2006, a pension scheme which at the time of purchase fell within one of the categories set out in paragraph 1(1)(a) to (g) of Schedule 36. . 3 After subsection (3) add— 3A But subsection (4) does not apply to a payment made or benefit provided under or in connection with an annuity which fulfils the following conditions. Condition 1 The annuity was purchased from an insurance company. Condition 2 The annuity was purchased by a pension scheme which at the time of purchase fell within one of the categories set out in paragraph 1(1)(a) to (g) of Schedule 36. Condition 3 The annuity was purchased in order to secure or provide benefits under the scheme referred to in Condition 2. Condition 4 The terms of the annuity, or of any arrangement or agreement made in connection with that annuity do not permit a payment, the making of which would have given the Board grounds for withdrawing approval of the pension scheme under section 591B of ICTA if it had been made before 6th April 2006. Condition 5 The terms of the annuity contract have not been altered on or after 6th April 2006 to allow a payment that would be an unauthorised payment if it had been made by a registered pension scheme. . 4 In its application to any pension scheme which falls within sub-paragraph (1)(b) section 161(4) is modified as follows. 5 For the words “held for the purpose of the pension scheme” substitute “held for the purposes of a registered pension scheme”. Commencement provisions for unsecured pension funds 3 Part 4 of the 2004 Act shall be modified as set out in articles 4 and 5 in its application to any pension which— a was paid by way of income withdrawal, income drawdown or annuity purchase deferral from a retirement benefits scheme, or a personal pension scheme approved under Part 14 of ICTA immediately before 6th April 2006; and b on 6th April 2006 becomes an unsecured pension or a dependant’s unsecured pension by virtue of a scheme which is treated as becoming a registered pension scheme on that date (see paragraph 1 of Schedule 36). Modification of section 165 4 1 Section 165(1) (pension rules) shall be modified as follows. 2 In pension rule 5 after “basis amount for the unsecured pension year” add “or 100% of that amount during the first reference period as defined in paragraph 10(1A) of Schedule 28.”. 3 Section 167(1) (pension death benefit rules) shall be modified as follows. 4 In pension death benefit rule 4 after “basis amount for the unsecured pension year” add “or 100% of that amount during the first reference period as defined in paragraph 24(1A) of Schedule 28.”. Modification of Schedule 28 5 1 Schedule 28 (registered pension schemes: authorised pensions—supplementary) shall be modified as follows. 2 In paragraph 10— a in sub-paragraph (1) for “The period of five unsecured pension years” substitute “The first reference period as defined in sub-paragraph (1A) below”; b after sub-paragraph (1) insert a new sub-paragraph as follows— 1A The “first reference period” is the period commencing on 6th April 2006 and terminating on the earliest of— a the day immediately before the day fixed by the scheme administrator on which to recalculate the basis amount; b the day immediately before the day on which the basis amount was recalculated following an annuity purchase; c 6th April 2008. ; c in sub-paragraph (2) for “sub-paragraph (5)” substitute “sub-paragraphs (2A) and (5).”; d after sub-paragraph (2) insert the following sub-paragraph— 2A For the first reference period as defined in sub-paragraph (1A), the basis amount is— a the annual amount of the annuity calculated pursuant to section 630 of ICTA; b the maximum annual pension calculated in accordance with the rules set out in Appendix XII Part I of the Occupational Pension Schemes Practice Notes (IR12) published by the Board on 22nd January 2001 (“the Notes”); c the annual amount of pension income which has been paid in accordance with paragraph 20.41 of the Notes in respect of a retirement benefits scheme approved for the purposes of Chapter 1 of Part 14 of ICTA, being paid as a small self-administered pension pursuant to the terms of Memorandum 119 issued on 6th May 1994 by the Board . which could have been purchased by the application of the sums and assets which then represented the member’s pension fund on the nominated date. ; e in sub-paragraph (3)(a) for “the reference date” substitute “the applicable reference date”; f after sub-paragraph (3) insert— 3A “The applicable reference date” is the date on which the pension fund was last valued — a in the case of a personal pension fund, pursuant to section 634A of ICTA (income withdrawal by member), b in the case of a retirement benefits scheme (other than one falling within paragraph (c) below), pursuant to the rules set out in the Notes, or c in the case of a retirement benefits scheme referred to in sub-paragraph (2A)(c), the date of the scheme’s last triennial report as required by paragraph 20.41 of the Notes. . 3 In paragraph 24— a in sub-paragraph (1) for the words “The period of five unsecured pension years” substitute “The first reference period as defined in sub-paragraph (1A) below”; b after sub-paragraph (1) insert a new sub-paragraph as follows— 1A The “first reference period” is the period commencing on 6th April 2006 and terminating on the earliest of— a the day immediately before the day fixed by the scheme administrator on which to recalculate the basis amount; b the day immediately before the day on which the basis amount was recalculated following an annuity purchase; c 6th April 2008. ; c in sub-paragraph (2) for “sub-paragraph (5)” substitute “sub-paragraphs (2A) and (5).”; d after sub-paragraph (2) insert the following sub-paragraph— 2A For the first reference period as defined in sub-paragraph (1A), the basis amount is— a the annual amount of the annuity calculated pursuant to section 630 of ICTA, b the maximum annual pension calculated in accordance with the rules set out in Appendix XII Part I of the Occupational Pension Schemes Practice Notes (IR12) published by the Board on 22nd January 2001 (“the Notes”) or, c the annual amount of pension income that has been paid in accordance with paragraph 20.41 of the Notes in respect of a retirement benefits scheme approved for the purposes of Chapter 1 of Part 14 of ICTA, being paid as a small self-administered pension calculated pursuant to the terms of Memorandum 119 issued by the Board on 6 May 1994 which could have been purchased by the application of the sums and assets which then represented the member’s pension fund on the nominated date. ; e in sub-paragraph (3)(a) for “the reference date” substitute “the applicable reference date”; f after sub-paragraph (3) insert— 3A “The applicable reference date” is the date on which the pension fund was last valued— a in the case of a personal pension fund, pursuant to section 636A of ICTA (income withdrawal after the death of member), b in the case of a retirement benefits scheme (other than one falling within paragraph (c) below), pursuant to the rules set out in the Notes, or c in the case of a retirement benefits scheme referred to in sub-paragraph (2A)(c), the date of the scheme’s last triennial report as required by paragraph 20.41 of the Notes. . Reduction in rate of pension 5A 1 Part 4 of the 2004 Act shall be modified as set out in paragraph (2) in a case where the following conditions are satisfied— a the pension came into payment before 3rd July 2007; b the pension is paid to a person who was a member of the pension scheme on 5th April 2006; c on 5th April 2006 the rules of the pension scheme included provision that there shall or may be a reduction in the rate of the pension (“the rate reduction provisions”); d the pension is paid at a rate required or permitted by the rate reduction provisions; e the rate reduction provisions would not have prejudiced the approval of the pension scheme by the Inland Revenue or by Her Majesty’s Revenue and Customs; f the rate reduction provisions did not change in any material particular between 5th April 2006 and the date at which the pension became payable at the reduced rate. 2 In paragraph 2(4) of Schedule 28 to the 2004 Act insert after paragraph (d)— da a reduction in respect of which an order made under section 283(2) and (3C) makes transitional provision, . 3 For the purposes of this article, whether something would have prejudiced the approval of the pension scheme by the Inland Revenue or by Her Majesty’s Revenue and Customs is to be determined— a in the case of an occupational pension scheme approved for the purposes of Chapter 1 of Part 14 of ICTA , in accordance with the publication IR 12(2001) (known as the Occupational Pension Schemes Practice Notes) published by the former Inland Revenue Pension Schemes Office on 23rd March 2001, and b in the case of a personal pension scheme approved under Chapter 4 of Part 14 of ICTA , in accordance with the publication IR 76(2000) published by the former Inland Revenue Pension Schemes Office on 20th November 2000, as each of those publications stood at 5th April 2006. Transitional protection for continued life cover (75+) 6 The modifications in articles 7 and 8 apply in the case of a member of a registered pension scheme who satisfies the following conditions. Condition A The registered pension scheme was, immediately before 6th April 2006, a retirement benefits scheme approved for the purposes of Chapter 1 of Part 14 of ICTA (retirement benefits schemes). Condition B The member had a right under the pension scheme to a life cover lump sum on 5th April 2006. Condition C The rules of the pension scheme on 10th December 2003 included provision conferring such a right on some or all of the persons who were then members of the pension scheme, and such a right was either then conferred on the member or would have been had the member been a member of the scheme on that date. Condition D The rules of the scheme in relation to life cover lump sums have not been changed since 10th December 2003. Condition E The member was— in receipt of benefits from the scheme on or before 5th April 2006, or entitled to one or more life cover lump sums, amounting in the aggregate, to £2,500 or less. Modification of Chapter 15A of ITEPA 2003 7 Chapter 15A of ITEPA 2003 (lump sums under registered pension schemes) has effect as if, after section 637N, there were inserted— Life cover lump sums 637NA 1 No liability to income tax arises on a life cover lump sum. . Modification of section 168 and Schedule 29 8 1 The 2004 Act is modified as follows. 2 In section 168(1) (lump sum death benefit rule) after paragraph (i) insert— j a life cover lump sum. . 3 In Part 2 of Schedule 29 (registered pension schemes: supplementary provisions about lump sums) after paragraph 21 insert— Life cover lump sum 21A For the purposes of this Part a lump sum death benefit is a life cover lump sum if— a the member had reached the age of 75 before he died; b payment of the sum would not have prejudiced approval of the scheme for the purposes of Chapter 1 of Part 14 of ICTA if it had been made on 5th April 2006. . Valuation of “primary protection” – compensation for poorly performing investments 9 Part 4 of 2004 Act shall be modified as set out in articles 10 and 11 in its application to any individual who has given notice of intention to rely on paragraph 7 Schedule 36 where the following conditions are met— Condition A The pension scheme in respect of which the individual has given notice is either— a money purchase arrangement that is not a cash balance arrangement; or a hybrid arrangement where the benefits that may be provided include money purchase benefits that are not cash balance benefits. Condition B An amount is paid into the pension scheme, or is determined as being so payable, between 6th April 2006 and 5th April 2009, in respect of compensation for the poor performance of an investment owned by that scheme. Condition C The investment in respect of which the compensation is payable was owned by the pension scheme at any time before 6th April 2006 and was offered for sale to the public on the open market. Condition D The amount of compensation paid, or determined as being so payable, is an amount which might reasonably have been expected to be paid between two parties in the same position as the payer and the scheme administrator acting at arm’s length. Modification of section 212 10 1 Section 212 (valuation of uncrystallised rights for the purposes of section 210) is modified, for the purposes of calculating the value of RR in paragraph 7(5) of Schedule 36 , as follows. 2 In subsection (5) (valuation of money purchase arrangements other than cash balance arrangements) after paragraphs (a) and (b) add— together with the value, if any, of any relevant compensation on 5th April 2006. . 3 After subsection (5) add— 5A For the purposes of subsections (5) and (7) relevant compensation is the market value, calculated in accordance with section 278, of any compensation paid or payable in respect of the poor performance of an investment owned by the pension scheme on the earlier of the date of payment of the compensation or 5th April 2009. . 4 In subsection (7) (valuation of hybrid arrangements) after paragraphs (a) and (b) add— together with any hybrid compensation as defined in subsection (7A) below. . 5 After subsection (7) add— 7A For the purposes of subsection (7) hybrid compensation is— a any relevant compensation payable in respect of a money purchase arrangement which forms part of the hybrid arrangement calculated in accordance with subsection (5A); less b the value of the hybrid arrangement calculated in accordance with subsection (7) less the value of any sums or assets representing other money purchase benefits calculated in accordance with subsection (5). If this calculation results in a negative amount, the amount of relevant compensation to be added to the value of the member’s uncrystallised rights under this subsection is nil. . Modification of paragraph 8 of Schedule 36 11 1 Part 2 of Schedule 36 (pre-commencement rights: enhancement of allowances etc ) is modified as follows. 2 In paragraph 8(5) after the words “(valuation of uncrystallised rights for the purposes of section 210)” add— (as modified by article 10 of The Taxation of Pension Schemes (Transitional Provisions) Order 2006) . “Primary protection” and non residents 12 1 Part 4 of the 2004 Act shall have effect subject to the modifications set out in articles 13 and 14 below in its application to any individual to whom either paragraph (2) or (3) applies 2 This paragraph applies if the following conditions are met— Condition A The individual has given the Inland Revenue a notice under sub-paragraph (1)(b) of paragraph 20B of Schedule 36 of the individual’s intention to rely on that paragraph where the active membership period in relation to the arrangement in respect of which the notice was given commenced on 6th April 2006 Condition B The individual would have been a relevant overseas individual in the tax year 2005-06 pursuant to sub-paragraph (5) of paragraph 20B of Schedule 36 had that sub-paragraph been in force during that year. Condition C The individual gives or has already given notice to the Inland Revenue pursuant to paragraph 7(1)(b) of Schedule 36 that he intends to rely on that paragraph. 3 This paragraph applies if the following conditions are met— Condition A The individual has given the Inland Revenue a notice under paragraph 7(1)(b) of Schedule 36 of his intention to rely on that paragraph. Condition B The individual gives or has already given notice to the Inland Revenue pursuant to sub-paragraph (1)(b) of paragraph 20B of Schedule 36 that the individual intends to rely on that paragraph where the active membership period in relation to the arrangement in respect of which the notice was given commenced on 6th April 2006. Condition C The individual would have been a relevant overseas individual in the tax year 2005-06 pursuant to sub-paragraph (5) of paragraph 20B of Schedule 36 had that sub-paragraph been in force during that year. Modification of paragraph 20C of Schedule 36 13 Paragraph 20C of Schedule 36 to the 2004 Act (non-residence: money purchase arrangements) has effect as if— a in sub-paragraph (4), for the definition of B there were substituted— “ B ” is the value of the individual's rights under the arrangement on 5th April 2006 calculated in accordance with sub-paragraph (5)(b) multiplied by 0.7154. ; b for sub-paragraph (5)(b) there were substituted— b the value of the individual's rights under the arrangement on 5th April 2006 is the amount which would, on the valuation assumptions, be available for the provision of benefits to or in respect of the individual under the arrangement if the individual became entitled to the benefits on 5th April 2006. . Modification of paragraph 20D of Schedule 36 14 Paragraph 20D of Schedule 36 to the 2004 Act (non-residence: other arrangements) has effect as if— a in sub-paragraph (4), in the definitions of D and E, for “at the beginning of that part of that period” there were substituted “on 5th April 2006 increased in accordance with sub-paragraph (4A)” ; b after sub-paragraph (4) there were inserted— 4A D and E are increased by multiplying the appropriate figure by 0.7154. . Employers or employees with pre-commencement entitlement to corresponding relief 15 1 This article applies where Revenue and Customs allow contributions made between 1st April 2005 and 5th April 2006 by an employer under a pension scheme for the benefit of an employee (a “qualifying employee”) to be deducted in accordance with section 76(6A) and (6C) of the Finance Act 1989 — a for the purposes of Case I or Case II of Schedule D; b in respect of management expenses under section 75 of ICTA ; or c in respect of the expenses of an insurance company under section 76 of ICTA ; d in respect of profits of a trade, profession or vocation chargeable under section 5 of the Income Tax (Trading and Other Income) Act 2005 . 2 Where, at any time on or after 6th April 2006, the employer makes contributions under the pension scheme referred to in paragraph (1) for the benefit of the qualifying employee, Revenue and Customs may allow the contributions to be treated as if they were relevant migrant member contributions under paragraph 2 of Schedule 33 if— a they are satisfied that the conditions in paragraph (3) are met, and b the scheme manager complies with any prescribed benefit crystallisation information requirements imposed on the scheme manager. 3 The conditions are that— a the contribution consists of the expenses of paying any sum, or of providing benefits, pursuant to a pension scheme which is established outside the United Kingdom; and b Revenue and Customs are satisfied that that scheme corresponds to such a scheme as is registered under Part 4 of the 2004 Act. 4 For the purposes of this article and article 17, “Prescribed benefit crystallisation information requirements“ means requirements imposed by regulation 2 of the Pension Schemes (Information Requirements – Qualifying Overseas Pension Schemes, Qualifying Recognised Overseas Pension Schemes and Corresponding Relief) Regulations 2006 (“the Overseas Information Requirements Regulations”). For the purposes of this article, the provisions of regulation 2 of the Overseas Information Requirements Regulations shall apply to qualifying employees. 5 The references in paragraphs (2), (3) and (4) to a pension scheme include a pension scheme to which there has been a block transfer on or after 6th April 2006 from a pension scheme to which paragraph (2) applies. 6 In this article “block transfer” has the same meaning as in paragraph 22(6) of Schedule 36 but treating the references there to “the member” as references to the qualifying employee. Modification of section 245 16 1 In a case falling within article 15, section 245 (restriction of deduction for contributions by employer) is modified as follows. 2 In subsection (5)— a after the words “(deductions to which Schedule does not apply)” insert “(a)”; and b after the words “relevant migrant member of the pension scheme in relation to the contributions,” insert— and b after paragraph (g) insert— h in respect of contributions which have been given relief under section 196 as applied by paragraph 2 of Schedule 33 and modified by article 15 of The Taxation of Pension Schemes (Transitional Provisions) Order 2006. . . Application of 308A ITEPA 2003 17 1 This article applies where— a Revenue and Customs allow an employee (an “exempt employee”) to be exempted from income tax under section 390 ITEPA 2003 in relation to contributions made between 6th April 2005 and 5th April 2006 by his employer under a pension scheme; and b the conditions in paragraph (2) are met. 2 The conditions are Condition A The scheme manager of the pension scheme referred to in paragraph (1)(a) complies with any prescribed benefit crystallisation information requirements imposed on the scheme manager. Condition B Revenue and Customs are satisfied that the pension scheme corresponds to such a scheme as is registered under Part 4 of this Act. 3 For the purposes of this article, the provisions of regulation 2 of the Overseas Information Requirements Regulations shall apply to exempt employees. 4 Section 308A of ITEPA 2003 (exemption of contributions to overseas pension scheme) shall apply in relation to any contributions made on or after 6th April 2006 for the benefit of the employee by an employer under the pension scheme as if— a the pension scheme were a qualifying overseas pension scheme, and b the contributions were relevant migrant member contributions. 5 The references in paragraphs (1) and (2) to a pension scheme include a pension scheme to which there has been a block transfer on or after 6th April 2006 from a pension scheme to which paragraphs (1) and (2) apply. 6 In this article “block transfer” has the same meaning as in paragraph 22(6) of Schedule 36 but treating the references there to “the member” as references to the exempt employee. “Enhanced protection” and pension commencement lump sums 18 If (and for so long) as paragraph 27 or 29 of Schedule 36 applies in relation to an individual, paragraph 1(1) of Schedule 29 (supplementary provision about authorised lump sums: meaning of “pension commencement lump sum”) shall have effect, in relation to that individual, with the omission of paragraph (b) (requirement that lump sum payable only when all or part of lump sum allowance and all or part of lump sum and death benefit allowance available) , and section 239 has effect in the case of a lump sum paid to that individual as if its subsection (3)(b) did not include a reference to paragraph 1(1)(b) of Schedule 29 . Pre-commencement pension and calculation of the “permitted maximum” pension commencement lump sum 19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pre-commencement lump sum death benefits 20 1 In the case of an individual who dies on or after 6th April 2006 and meets the conditions in paragraph (2) paragraph (3) applies. 2 The conditions are— Condition A The individual had an actual right to one or more pre-commencement pensions immediately before his death. Condition B No benefit crystallisation event within the meaning of Part 4 of FA 2004 as that Part had effect immediately before 6 April 2024, and no relevant benefit crystallisation event, has occurred in relation to the individual before his death. Condition C After the individual’s death a single relevant benefit crystallisation event occurs in relation to that individual by reason of the payment of a lump sum death benefit in respect of that individual. 3 Paragraph 20(2)(b) of Schedule 36 is to be treated as providing that the amount of the lump sum death benefit to which the relevant benefit crystallisation event mentioned in Condition C relates was 25% of the value of the individual’s pre-commencement pension rights immediately before the individual’s death. Transfers and entitlement to lump sums exceeding 25% of uncrystallised rights 21 1 Article 23 applies if— a a person was a member of a pension scheme— i which was in existence on 5th April 2006; and ii which is treated as becoming a registered pension scheme within Part 4 of the Finance Act 2004 on 6th April 2006 (see paragraph 1 of Schedule 36 to that Act); and b on or after 6th April 2006 sums and assets held for the purposes of, or representing accrued rights, under the registered pension scheme are transferred, otherwise than by a block transfer— i to another registered pension scheme; or ii to a registered pension scheme from a registered pension scheme which has received a block transfer of the sums and assets referred to in sub-paragraph 1(b) of this article. 2 In this article “block transfer” has the meaning given in paragraph 31(8) of Schedule 36 (entitlement to lump sums exceeding 25% of uncrystallised rights). Modification of paragraph 31 of Schedule 36 22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Modification of paragraph 34 of Schedule 36 23 1 Paragraph (2) below specifies modifications of paragraph 34 of Schedule 36 (entitlement to lump sums exceeding 25% of uncrystallised rights: definition of “ permitted maximum ” in relation to a pension commencement lump sum) that apply in the circumstances mentioned in article 21. 2 In sub-paragraph (3), for sub-paragraph (1) of the modified paragraph 2 of Schedule 29, substitute— 1 In paragraph 1 “ the permitted maximum ”, in relation to a lump sum, means— A × 1 . 2 + B - T V 4 where— A is the value of the member’s uncrystallised lump sum rights under the pension scheme on 5th April 2006, calculated in accordance with paragraph 32 of Schedule 36; B is the additional lump sum amount (see sub-paragraphs (2) to (5)); TV is the value of all sums and assets held for the purposes of, or representing accrued rights under, the pension scheme that have been transferred from it as mentioned in article 21(1)(b) of the Taxation of Pension Schemes (Transitional Provisions) Order 2006. . Pension commencement lump sums where no pension is paid before death 23ZA 1 Subject to articles 23ZD and 23ZE, in a case where an individual has received a pension commencement lump sum, or part of a pension commencement lump sum, but dies before becoming entitled to the pension in connection with the lump sum, Schedule 36 is modified as follows. 2 For paragraph 31(3) (entitlement to lump sums exceeding 25% of uncrystallised rights – the pension condition) substitute— 3 The pension condition is that, the scheme administrator considers that, had the individual not died— a the individual would have become entitled to all of the pensions payable to the individual under arrangements under the pension scheme (to which the individual did not have an actual entitlement on or before 5th April 2006) on the same date , and b the individual would not have become entitled to more than one pension commencement lump sum in connection with becoming entitled to those pensions. . 3 In determining the amount of the additional lump sum amount under paragraph 2(2) of Schedule 29, as modified by paragraph 34(3) of Schedule 36 (entitlement to lump sums exceeding 25% of uncrystallised rights: definition of “ permitted maximum ” in relation to a pension commencement lump sum), it is to be assumed that the member became entitled immediately before death to the present payment of the relevant pension in connection with which the lump sum in question is paid. Pension commencement lump sums and multiple pensions 23ZB 1 Article 23ZC applies where— a there is a single pension commencement lump sum; b the lump sum is paid in connection with at least two of the three types of pension listed in paragraph (4) from the same registered pension scheme; and c an individual becomes entitled to all of the pensions in connection with which the pension commencement lump sum is paid within the specified period. 2 Article 23ZD applies where— a there is a single pension commencement lump sum; b the scheme administrator anticipated that the lump sum would be paid in connection with at least two of the three types of pension listed in paragraph (4) from the same registered pension scheme; c an individual received the lump sum, or part of the lump sum, but died before becoming entitled to any of the pensions; and d the scheme administrator considers that, had the individual not died, the individual would have become entitled to all of the pensions in connection with the lump sum within the specified period. 3 Article 23ZE applies where— a there is a single pension commencement lump sum; b the scheme administrator anticipated that the lump sum would be paid in connection with at least two of the three types of pension listed in paragraph (4) from the same registered pension scheme; c an individual received the lump sum, or part of the lump sum, but died before the end of the specified period after becoming entitled to at least one but not all of the pensions; and d the scheme administrator considers that, had the individual not died, the individual would have become entitled to all of the pensions in connection with the lump sum within the specified period. 4 The three types of pension are— a a scheme pension under a defined benefits arrangement; b a scheme pension under a money purchase arrangement; c a lifetime annuity. 5 The “specified period” is the period of six months beginning with the earliest date on which the individual becomes entitled to any of the pensions or on which the scheme administrator considers, had the individual not died, that the individual would have become so entitled. Individual becomes entitled to the pensions 23ZC 1 In a case to which this article applies, Part 4 is modified as follows. 2 For section 166(2)(a) (lump sum rule) substitute— a in the case of a pension commencement lump sum or a pension commencement excess lump sum, immediately before the person becomes entitled to the last of the pensions in connection with which it is paid (or, if the person dies before becoming entitled to the last of the pensions in connection with which it was anticipated it would be paid, immediately before death), . 3 In paragraph 31(3) of Schedule 36 for “on the same date” substitute “within a period of six months beginning with the earliest date on which the individual becomes entitled to any of the pensions”. Individual dies before becoming entitled to any of the pensions 23ZD 1 In a case to which this article applies, Schedule 36 is modified as follows. 2 For paragraph 31(3) substitute— 3 The pension condition is that, the scheme administrator considers that, had the individual not died— a the individual would have become entitled to all of the pensions payable to the individual under arrangements under the pension scheme (to which the individual did not have an actual entitlement on or before 5th April 2006) within a period of six months beginning with the earliest date on which the scheme administrator considers that the individual would have become entitled to any of the pensions , and b the individual would not have become entitled to more than one pension commencement lump sum in connection with becoming entitled to those pensions. . 3 In determining the amount of the additional lump sum amount under paragraph 2(2) of Schedule 29, as modified by paragraph 34(3) of Schedule 36 (entitlement to lump sums exceeding 25% of uncrystallised rights: definition of “ permitted maximum ” in relation to a pension commencement lump sum), it is to be assumed that the member became entitled immediately before death to the present payment of each of the pensions in connection with which the lump sum in question is paid. Individual dies after becoming entitled to at least one but not all of the pensions 23ZE 1 In a case to which this article applies, Part 4 is modified as follows. 2 For section 166(2)(a) (lump sum rule) substitute— a in the case of a pension commencement lump sum or a pension commencement excess lump sum, immediately before the person becomes entitled to any of the pensions in connection with which it was anticipated that it would be paid, . 3 For paragraph 31(3) of Schedule 36 substitute— 3 The pension condition is that, the scheme administrator considers that, had the individual not died— a the individual would have become entitled to all of the pensions payable to the individual under arrangements under the pension scheme (to which the individual did not have an actual entitlement on or before 5th April 2006) within a period of six months beginning with the earliest date on which the individual became entitled to any of the pensions , and b the individual would not have become entitled to more than one pension commencement lump sum in connection with becoming entitled to those pensions. . 4 In determining the amount of the additional lump sum amount under paragraph 2(2) of Schedule 29, as modified by paragraph 34(3) of Schedule 36 (entitlement to lump sums exceeding 25% of uncrystallised rights: definition of “ permitted maximum ” in relation to a pension commencement lump sum), it is to be assumed that the member became entitled immediately before death to the present payment of each of the pensions in connection with which the lump sum in question is paid. Modification of trivial commutation lump sum rules 23A Part 4 of the 2004 Act shall be modified as set out in articles 23B to 23D. 23B 1 For subsection (2) (of section 166 (lump sum rule) substitute— a in the case of a pension commencement lump sum, either— i immediately before the person becomes entitled to the pension in connection with which it is paid (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), or ii if the person becomes entitled to a trivial commutation lump sum within paragraph 7A of Schedule 29, immediately before becoming so entitled, . 23C 1 Schedule 29 (registered pension schemes: authorised lump sums - supplementary) is modified as follows. 2 For paragraph (aa) of paragraph 1(1) (pension commencement lump sum) substitute— aa the member becomes entitled to it either— i in connection with becoming entitled to a relevant pension (or dies after becoming entitled to it, but before becoming entitled to the relevant pension in connection with which it was anticipated that the member would become entitled to it), or ii in connection with a trivial commutation lump sum within paragraph 7A, . 3 In paragraph 7(1) (trivial commutation lump sum), after the words “trivial commutation lump sum if” insert “it is a lump sum within paragraph 7A or”. 4 After paragraph 7 insert— 7A 1 A lump sum is within this paragraph if— a it does not exceed £10,000 ; b the member has reached normal minimum pension age (or the ill-health condition is met) ...; c it is paid when all or part of the member’s lump sum allowance is available; d except for any pension to which the member had an actual entitlement on or before 5th April 2006, it extinguishes the member’s entitlement to benefits under the pension scheme; e the PCLS conditions are satisfied. 2 The PCLS conditions are that— a the lump sum is paid in connection with a pension commencement lump sum (“ PCLS ”); b that PCLS would not have been a PCLS had the modifications in paragraph 34 of Schedule 36 not applied; c the lump sum is paid no later than one month after the PCLS ; d since the payment of the PCLS — i no contribution in respect of the member has been made into the scheme, ii no recognised transfer in respect of the member has been made into or out of the scheme, and iii no annuity or scheme pension has been purchased by the application of the sums or assets held by the scheme for the benefit of the member. . 5 After paragraph 9 insert— 9A If a lump sum is a trivial commutation lump sum by virtue of its being within paragraph 7A, the member shall be treated as not having any uncrystallised rights under an arrangement under the pension scheme immediately before it was paid. . 23D 1 Schedule 36 (pension schemes etc : transitional provisions and savings) is modified as follows. 2 For paragraph 31(3) (entitlement to lump sums exceeding 25% of uncrystallised rights) substitute— 3 The pension condition is that either— a the individual— i becomes entitled to all the pensions payable to the individual under arrangements under the pension scheme (to which the individual did not have an actual entitlement on or before 5th April 2006) on the same date, and ii does not become entitled to more than one pension commencement lump sum in connection with becoming entitled to those pensions; or b the individual is paid a trivial commutation lump sum within paragraph 7A of Schedule 29. . 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dependant’s scheme pension limit 24 1 Paragraph (2) applies where the member in respect of whom the dependant’s scheme pension is payable was actually entitled to one or more relevant existing pensions (as defined in paragraph 10(2) of Schedule 36) on 5th April 2006. 2 Paragraph 16A of Schedule 28 shall be modified as follows. 3 After sub-paragraph (2) add— 3 This paragraph shall not apply to a scheme pension where the member was actually entitled to that pension on 5th April 2006. . Stand-alone lump sums: introductory and definition 25 1 This article and articles 25A to 25D deal with stand-alone lump sums. 2 In those articles— this article is introductory and sets out the definition of a stand-alone lump sum; article 25A deals with the conditions that must be met before a lump sum may be classified as a stand-alone lump sum; article 25B deals with the circumstances in which a stand-alone lump sum may be paid; article 25C deals with the tax consequences; and article 25D contains further provisions. 3 In this article and in articles 25A to 25D a “stand-alone lump sum” means a lump sum which— a meets all the conditions A to C set out in article 25A, and b is paid in one of the circumstances A to C set out in article 25B. Conditions to be met by stand-alone lump sums 25A 1 This article sets out the conditions referred to in article 25(3)(a). 2 Condition A is that, on or after 6th April 2006, the lump sum is paid to an individual under a registered pension scheme of which the individual is a member. 3 Condition B is that the lump sum is paid in circumstances where all of the member’s uncrystallised rights under the scheme come into payment on a single relevant benefit crystallisation event . 4 Condition C is that the lump sum is paid when the member has reached normal minimum pension age (or the ill-health condition is satisfied). 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Circumstances in which stand-alone lump sums are paid 25B 1 This article sets out the circumstances referred to in article 25(3)(b). 2 Circumstance A is where paragraph 28 of Schedule 36 (modification of Chapter 15A of Part 9 of ITEPA 2003 in the case of a member of a pension scheme to whom enhanced protection does not apply) applies in relation to the member. 3 Circumstance B is where— a paragraph 29 of Schedule 36 (modification of applicable amount in the case of a member of a pension scheme to whom enhanced protection applies) applies in relation to the member, and b on 5th April 2006, and on the assumptions set out in paragraph (5), all of the member’s rights under all of the member’s pension schemes within paragraphs (a) to (g) of paragraph 1(1) of Schedule 36 could have been paid out to the member in the form of a lump sum. 4 Circumstance C is where— a on 5th April 2006 the member was a member of a pension scheme within paragraphs (a) to (e) of paragraph 1(1) of Schedule 36 and relating to an employment (the “original pension scheme”), b on 5th April 2006, and on the assumptions set out in paragraph (5), all of the member’s rights under the original pension scheme, and all of the member’s rights under any other pension scheme within paragraphs (a) to (e) of paragraph 1(1) of Schedule 36 and relating to the same employment could have been paid out to the member in the form of a lump sum, c on and after 6th April 2006, relevant benefit accrual (as defined in paragraph 13 of Schedule 36) has not occurred under the original pension scheme in relation to the member, d on or after 6th April 2006 the member is paid a lump sum representing all of the member’s rights (to which the member did not have an actual entitlement on or before 5th April 2006) under the original pension scheme, e the circumstances set out in paragraphs (2) and (3) (circumstances A and B) do not apply. 5 The assumptions are that— a the member had retired on 5th April 2006; b the valuation assumptions apply (modified, if appropriate, in accordance with paragraph 25(7) of Schedule 36); and c the payment of the lump sum on 5th April 2006 (on the assumptions set out in paragraph 26(4) of Schedule 36) would not have given the Commissioners of Her Majesty’s Revenue and Customs grounds for withdrawing the approval of the pension scheme. Payment of stand-alone lump sums: tax consequences 25C 1 In subsection (1) of section 166 (lump sum rule), the list of lump sums set out in the paragraphs of that subsection shall be treated as including a stand-alone lump sum. 1A Articles 25CA to 25CC apply for the purposes of determining the tax treatment of a stand-alone lump sum. 4 If— a a stand-alone lump sum is paid— i on or after 6 April 2015, ii to a member of a pension scheme, iii under a money purchase arrangement, and iv in circumstances where article 25B(2) (circumstance A) applies, and b no previous stand-alone lump sum has been paid— i on or after that day, ii to the member, iii under a money purchase arrangement, and iv in circumstances where article 25B(2) applies, subsection (1) of section 227G of the 2004 Act (individual first flexibly accesses pension rights at earliest time given by the following subsections of that section) has effect as if there were a subsequent subsection of that section stating that the member first flexibly accesses pension rights immediately before the stand-alone lump sum is paid. Circumstance A: tax treatment of stand-alone lump sums 25CA 1 Chapter 15A of Part 9 of ITEPA 2003 (pension income: lump sums under registered pension schemes) has effect with the following modifications in relation to a member of a pension scheme to whom a stand-alone lump sum is paid in circumstances where article 25B(2) (circumstance A) applies. 2 That Chapter has effect as if, after section 637G (trivial commutation lump sums and winding-up lump sums) there were inserted— Stand-alone lump sums 637GA 1 Subject to subsection (2), no liability to income tax arises on a stand-alone lump sum paid under a registered pension scheme. 2 If the amount of the stand-alone lump sum exceeds the permitted maximum, section 579A (pensions) applies to the excess as it applies to any pension under a registered pension scheme. 3 In subsection (2) “ the permitted maximum ”, in relation to a stand-alone lump sum, means the lower of— a the maximum amount of a stand-alone lump sum that could have been paid to the individual with no liability to income tax on 5 April 2023, and b so much of the individual’s lump sum and death benefit allowance as is available on the individual becoming entitled to the lump sum (see section 637S). 4 In determining the amount of the individual’s lump sum and death benefit allowance that is available on the individual becoming entitled to the lump sum, paragraph 20H of Schedule 36 of FA 2004 (individual’s enhanced lump sum and death benefit allowance) has effect as if, in sub-paragraph (2) of that paragraph, B (the aggregate of the lump sum and death benefit allowance enhancement factors operating in relation to the individual) were zero. 3 Section 637Q of ITEPA 2003 (availability of individual’s lump sum allowance) has effect as if, in the definition of “relevant lump sum” in subsection (2)(b) of that section, there were included a reference to a stand-alone lump sum. 4 Section 637S of ITEPA 2003 (availability of individual’s lump sum and death benefit allowance) has effect as if, in the definition of “relevant lump sum” in subsection (2)(b) of that section, there were included a reference to a stand-alone lump sum. Circumstance B: tax treatment of stand-alone lump sums 25CB 1 Chapter 15A of Part 9 of ITEPA 2003 (pension income: lump sums under registered pension schemes) has effect with the following modifications in relation to a member of a pension scheme to whom a stand-alone lump sum is paid in circumstances where article 25B(3) (circumstance B) applies. 2 That Chapter has effect as if, after section 637G (trivial commutation lump sums and winding-up lump sums) there were inserted— Stand-alone lump sums 637GA 1 Subject to subsection (2), no liability to income tax arises on a stand-alone lump sum paid under a registered pension scheme. 2 If the amount of the stand-alone lump sum exceeds the permitted maximum, section 579A (pensions) applies to the excess as it applies to any pension under a registered pension scheme. 3 In subsection (2) “ the permitted maximum ”, in relation to a stand-alone lump sum, means— a the amount of a stand-alone lump sum that could have been paid to the individual with no liability to income tax on 5 April 2023 under the arrangement pursuant to which the entitlement to the stand-alone lump sum arises in respect of the individual, less b the aggregate of the amounts of any stand-alone lump sums and pension commencement lump sums previously paid to the individual under that arrangement after that date. 3 Section 637Q of ITEPA 2003 (availability of individual’s lump sum allowance) has effect as if, in the definition of “relevant lump sum” in subsection (2)(b) of that section, there were included a reference to a stand-alone lump sum. 4 Section 637S of ITEPA 2003 (availability of individual’s lump sum and death benefit allowance) has effect as if, in the definition of “relevant lump sum” in subsection (2)(b) of that section, there were included a reference to a stand-alone lump sum. Circumstance C: tax treatment of stand-alone lump sums 25CC 1 Chapter 15A of Part 9 of ITEPA 2003 (pension income: lump sums under registered pension schemes) has effect with the following modifications in relation to a member of a pension scheme to whom a stand-alone lump sum is paid in circumstances where article 25B(4) (circumstance C) applies. 2 That Chapter has effect as if, after section 637G (trivial commutation lump sums and winding-up lump sums) there were inserted— Stand-alone lump sums 637GA 1 Subject to subsection (2), no liability to income tax arises on a stand-alone lump sum paid under a registered pension scheme. 2 If the amount of the stand-alone lump sum exceeds the permitted maximum, section 579A (pensions) applies to the excess as it applies to any pension under a registered pension scheme. 3 In subsection (2) “ the permitted maximum ”, in relation to a stand-alone lump sum, means the lower of— a the maximum amount of a stand-alone lump sum that could have been paid to the individual with no liability to income tax on 5 April 2023, and b so much of the individual’s lump sum and death benefit allowance as is available on the individual becoming entitled to the lump sum (see section 637S). 4 In determining the amount of the individual’s lump sum and death benefit allowance that is available on the individual becoming entitled to the lump sum, paragraph 20H of Schedule 36 of FA 2004 (individual’s enhanced lump sum and death benefit allowance) has effect as if, in sub-paragraph (2) of that paragraph, B (the aggregate of the lump sum and death benefit allowance enhancement factors operating in relation to the individual) were zero. 3 Section 637Q of ITEPA 2003 (availability of individual’s lump sum allowance), has effect as if, in the definition of “relevant lump sum” in subsection (2)(b) of that section, there were included a reference to a stand-alone lump sum. 4 For the purposes of that section, the “non-taxable amount” of a stand-alone lump sum is to be treated as being an amount equal to 25% of the lump sum. 5 Section 637S of ITEPA 2003 (availability of individual’s lump sum and death benefit allowance) has effect as if , in the definition of “relevant lump sum” in subsection (2)(b) of that section, there were included a reference to a stand-alone lump sum. Stand-alone lump sums: further provisions 25D 1 Paragraphs (2) and (3) apply if— a a stand-alone lump sum is paid to a member of a pension scheme in circumstances where article 25B(2) (circumstance A) applies, or b a stand-alone lump sum is paid to a member of a pension scheme, and a pension commencement lump sum is subsequently paid to the member (whether from the same pension scheme or from any other pension scheme) in circumstances where paragraph 28 of Schedule 36 applies to the payment of the pension commencement lump sum. 2 The stand-alone lump sum paid must not exceed the stand-alone lump sum maximum. The “stand-alone lump sum maximum” means the amount given by the formula “ A — B ” in sub-paragraph (3) of paragraph 28 of Schedule 36 .... 3 In sub-paragraph (3) of paragraph 28 of Schedule 36, the term “B” shall be treated as referring to the aggregate of the amounts of each pension commencement lump sum and each stand-alone lump sum to which the individual has previously become entitled, as adjusted under sub-paragraph (7) (or, if the individual has not previously become entitled to a pension commencement lump sum or a stand-alone lump sum, is nil). 4 Paragraph (5) applies if— a an individual was a member of a pension scheme (“the original pension scheme”), b the original pension scheme was entitled to pay a stand-alone lump sum to the member which, if it had been paid, would have been a stand-alone lump sum paid in circumstances where article 25B(4) (circumstance C) applied, c the rights of the member under the original pension scheme are transferred to a new pension scheme (the “transferee pension scheme”) as the result of a block transfer (within the meaning given by paragraph 22(6) of Schedule 36), and d the member had no rights under the transferee pension scheme before the block transfer. 5 The transferee pension scheme is treated as the same pension scheme as the original pension scheme (so that, accordingly, the transferee pension scheme may pay a stand-alone lump sum to the member in circumstances where article 25B(4) (circumstance C) applies). 6 Paragraphs (7) to (9) apply if— a an individual is a member of a pension scheme (a “stand-alone lump sum pension scheme”) which is entitled to pay a stand-alone lump sum to the member in circumstances where article 25B(3) or (4) (circumstance B or C) applies; b on or after 6th April 2006 sums and assets are transferred in relation to the member by another pension scheme under which the member has rights (a “transferor scheme”) to the stand-alone lump sum pension scheme; and c the stand-alone lump sum pension scheme subsequently makes a lump sum payment to the member. 7 The lump sum payment made by the stand-alone lump sum pension scheme to the member is not a stand-alone lump sum unless the lump sum is also made in the circumstances set out in paragraph (8). 8 The circumstances are that— a neither a stand-alone lump sum nor a pension commencement lump sum has previously been paid under the pension scheme to the member, and b the sums and assets transferred (or, if there is more than one transfer, all the sums and assets transferred), as specified in paragraph (6)(b), are stand-alone lump sum transfer sums. 9 In paragraph (8)(b) “stand-alone lump sum transfer sums” means sums and assets transferred by the transferor scheme to the stand-alone lump sum pension scheme in the circumstances specified in paragraph (6)(b) which would have been a stand-alone lump sum on the assumptions that— a the sums and assets had been transferred not to the stand-alone lump sum pension scheme but to the member, and b the condition in article 25A(4) (condition C) is met. Application of paragraph 31 of Schedule 36 26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contracts approved under section 621(1)(b) of ICTA 27 1 This article applies in the case of an individual who, immediately before 6th April 2006, had rights under a contract which had been approved under section 621(1)(b) of ICTA. 2 Schedule 36 shall be modified as follows. 3 In paragraph 1(1) (deemed registration of existing schemes) after paragraph (e) insert— ea a contract approved under section 621(1)(b) of ICTA, . 4 In paragraph 4 after sub-paragraph (4) add 4A If the pension scheme is within paragraph 1(1)(ea) immediately before that date, the trustee or trustees of the pension scheme, or the insurance company which is party to the contract in which the pension scheme is comprised, is or are to be treated as becoming the scheme administrator. . 5 In paragraph 40(3) (members' contributions to pre-commencement retirement annuity contracts) after paragraph (a) insert— aa a contract approved under section 621(1)(b) of ICTA, where article 27(2) of the Taxation of Pension Schemes (Transitional Provisions) Order 2006 applies to the individual in question, or . Pre-existing entitlement to lump sums and deferment 28 1 In the case of an individual who meets the conditions set out in paragraph (2), paragraph (3) applies. 2 The conditions are as follows. Condition A The individual is a member of a scheme which falls within paragraph 1(1)(a), (c), (d) or (e) of Schedule 36. Condition B The individual has become entitled to a tax-free lump sum under that scheme on or before 5th April 2006. Condition C The individual would but for an election to defer entitlement made on or after 27 July 2004, have been entitled to all or part of the pension to which the lump sum in Condition B relates on or before 5th April 2006. Condition D A relevant benefit crystallisation event occurs on or after 6th April 2024 in relation to any of the rights, sums and assets of the scheme in relation to the individual. 3 Paragraph 1 of Schedule 29 shall be modified, as follows. a After sub-paragraph (1) add— 1A Where a member of a scheme has become entitled to a tax free lump sum on or before 5 th April 2006, that lump sum is to be treated as if it were a pension commencement lump sum if— a the member who became entitled to the lump sum is a member of a scheme which falls within paragraph 1(1)(a), (c), (d) or (e) of Schedule 36, b the member has elected to defer entitlement to all or part of the pension to which the lump sum in sub-paragraph (a) relates until after 5th April 2006. The lump sum shall be treated as if the member became entitled to it on 6th April 2006 and the amount to be treated as having been crystallised at that time shall be the amount of the lump sum to which the member became entitled. 1AA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b After sub-paragraph (3) add— 3A But a pension — a which becomes payable under a scheme which falls within paragraph 1(1)(a), (c), (d) or (e) of Schedule 36 in respect of which entitlement to a lump sum has already arisen prior to 6th April 2006, and b entitlement to which has been deferred (in whole or in part) until after 5th April 2006, is not a relevant pension. 3B Sub-paragraph (3A) also applies to a pension payable under any registered pension scheme which has received, (whether directly or through one or more intermediate schemes), a transfer of the sums or assets held for the purposes of the scheme referred to in that sub-paragraph to the extent that the pension is payable in respect of those sums or assets and any investment growth that has been made on them. . Member’s unsecured pension funds 29 1 In the case of an individual who meets the conditions set out in paragraph (2), paragraphs (3) to (5) apply. 2 The conditions are as follows. Condition A The individual had not reached the age of 75 on 6th April 2006. Condition B The individual is a member of a scheme which falls within paragraph 1(1) of Schedule 36. Condition C The individual was, on 5th April 2006 entitled to a pension which was not provided under a defined benefits arrangement and which— took the form of income drawdown under a retirement benefits scheme approved for the purposes of Chapter 1 of Part 14 of ICTA; or was paid from the resources of— a small self-administered scheme as defined in the Retirement Benefits Schemes (Restriction on Discretion to Approve) (Small Self-Administered Schemes) Regulations 1991 , or a small self-administered scheme that had been approved under section 590 of ICTA, and the rules of the scheme on 5th April 2006 did not require the purchase of an annuity in respect of the individual; or took the form of income withdrawal under a personal pension scheme approved under Chapter 4 of Part 14 of ICTA pursuant to section 634A of that Act. 3 Paragraph 8 of Schedule 28 (member’s unsecured pension fund) is modified as follows— a for sub-paragraph (1A) substitute— 1A For the purposes of this Part sums or assets held for the purposes of an arrangement are member-designated funds if they have at any time been applied to provide a pension which— a took the form of income drawdown under a retirement benefits scheme approved for the purposes of Chapter 1 of Part 14 of ICTA; b was paid from the resources of— i a small self-administered scheme as defined in the Retirement Benefits Schemes (Restriction on Discretion to Approve) (Small Self-administered Schemes) Regulations 1991, or ii a small self-administered scheme that had been approved under section 590 of ICTA; and the rules of scheme on 5th April 2006 did not require the purchase of an annuity in respect of the individual; or c took the form of income withdrawal under a personal pension scheme approved under Chapter 4 of Part 14 of ICTA pursuant to section 634A of that Act. . b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 For paragraph 9(1) of Schedule 28 substitute— 9 1 “Unsecured pension year” in relation to an unsecured pension referred to in paragraph 8(1A), means— a the period beginning on 6th April 2006 and ending on the earlier of— i 5th April 2007, or ii the date upon which the first reference period defined in paragraph 10(1A) treated as inserted by Article 5 of the Taxation of Pension Schemes (Transitional Provisions) Order 2006 terminates; and b each succeeding period of 12 months. . 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Member’s unsecured pension funds – further provisions 29A 1 In the case of an individual who meets the conditions set out in paragraph (2), paragraph (3) applies. 2 The conditions are as follows. Condition A The individual is a member of a scheme which falls within paragraph 1(1) of Schedule 36. Condition B The individual was, on 5 th April 2006, entitled to a pension which was not provided under a defined benefits arrangement and which— took the form of income drawdown under a retirement benefits scheme approved for the purposes of Chapter 1 of Part 14 of ICTA ; or was paid from the resources of— a small self-administered scheme as defined in the Retirement Benefits Schemes (Restriction on Discretion to Approve) (Small Self-Administered Schemes) Regulations 1991, or a small self-administered scheme that had been approved under section 590 of ICTA , the rules of which, on 5 th April 2006, did not require the purchase of an annuity in respect of the individual; or took the form of income withdrawal under a personal pension scheme approved under Chapter 4 of Part 14 of ICTA pursuant to section 634A of that Act. 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dependant’s unsecured pension funds 30 1 In the case of an individual who meets the conditions set out in paragraph (2), paragraphs (3) and (4) apply. 2 The conditions are as follows. Condition A The individual had not reached the age of 75 on the 6th April 2006. Condition B The individual is a dependant of a member who was a member of scheme which falls within paragraph 1(1) of Schedule 36. Condition C On 5th April 2006 the individual was, under an arrangement which was not a defined benefits arrangement— entitled to a pension which took the form of income drawdown under a retirement benefits scheme approved for the purposes of Chapter 1 of Part 14 of ICTA; entitled to a pension that was paid from the resources of— small self-administered scheme as defined in the Retirement Benefits Schemes (Restriction on Discretion to Approve) (Small Self-administered Schemes) Regulations 1991, or a small self-administered scheme that had been approved under section 590 of ICTA, and the rules of the scheme on 5th April 2006 did not require the purchase of an annuity in respect of the individual; entitled to a pension which took the form of income withdrawal under a personal pension scheme approved under Chapter 4 of Part 14 of ICTA pursuant to section 636A of that Act; or prospectively entitled to an annuity payment of which has been deferred pursuant to section 636(5) of ICTA. 3 Paragraph 22 of Schedule 28 (dependant’s unsecured pension fund) is modified as follows— a at the end of sub-paragraph (1)(a) omit word “and”, b omit sub-paragraph (1)(b), c in sub-paragraph (2)— i for paragraphs (a) and (b) substitute— a have at any time been applied to provide a pension which —took the form of income drawdown under a retirement benefits scheme approved for the purposes of Chapter 1 of Part 14 of ICTA; b have at any time been applied to provide a pension which was paid from the resources of— i a small self-administered scheme as defined in the Retirement Benefits Schemes (Restriction on Discretion to Approve) (Small Self-administered Schemes) Regulations 1991, or ii a small self-administered scheme that had been approved under section 590 of ICTA and the rules of scheme on 5th April 2006 did not require the purchase of an annuity in respect of the individual; c have at any time been applied to provide a pension which took the form of income withdrawal under a personal pension scheme approved under Chapter 4 of Part 14 of ICTA pursuant to section 636A of that Act; or d have, immediately before the coming into force of this Part,been held for the purpose of providing an annuity, payment of which has been deferred in accordance with section 636(5) of that Act.. . 4 For 23(1) (unsecured pension year and basis amount for unsecured pension year) of Schedule 28 substitute— 23 1 “Unsecured pension year”, in relation to a dependant’s unsecured pension referred to in paragraph 22(2) as modified by article 30 of the Taxation of Pension Schemes (Transitional Provisions) Order 2006, means— a the period beginning on 6th April 2006 and ending on the earlier of— i 5th April 2007 or ii the date that the first reference period defined in paragraph 24(1A), as modified by article 5 of the 2006 Order, terminates, and b each succeeding period of 12 months. . Individuals over the age of 75 and alternatively secured pension funds 31 1 In the case of an individual who meets the conditions set out in paragraph (2), paragraph (3) applies. 2 The conditions are as follows. Condition A The individual had reached the age of 75 before 6th April 2006. Condition B The individual is a member of a scheme which falls within paragraphs 1(1)(a) to (d) of Schedule 36. Condition C The individual has a prospective right to receive a pension under that scheme on 5th April 2006. 3 Paragraph 11 of Schedule 28 (member’s alternatively secured pension fund) is modified as follows— a in sub-paragraph (1)(a) for “Condition A or Condition B” substitute “Condition A, Condition B or Condition C”. b after sub-paragraph (3) add— 3A Condition C is that immediately before the 6th April 2006 — a the sums and assets were part of the member’s pension fund which fell within sub-paragraphs 1(1)(a) to (d) of Schedule 36; b the member had a prospective right to receive a pension under that scheme, and c the member’s pension fund was a money purchase arrangement that was not a cash balance arrangement immediately before 6th April 2006. . 4 In the case of an individual who meets the conditions set out in paragraph (5), paragraph (6) applies. 5 The conditions are as follows. Condition A The individual had reached the age of 75 before 6th April 2006. Condition B The individual is a member of a scheme which falls within sub-paragraph 1(1)(a) of Schedule 36. Condition C On 5 th April 2006, the individual was entitled to a pension which— was paid from the resources of— a small self-administered scheme as defined in regulation 2 of the Retirement Benefits Schemes (Restriction on Discretion to Approve) (Small self-administered Schemes) Regulations 1991, or a small self-administered scheme that had been approved under section 590 of ICTA, and the rules of the scheme on 5th April 2006 did not require the purchase of an annuity in respect of the individual; and is not provided under a defined benefits arrangement. 6 Paragraph 11 of Schedule 28 (member’s alternatively secured pension fund) shall be modified as follows— a after the words “held for the purposes of the arrangement as” add the words “meet condition A, B or C.”. b omit sub-paragraphs (1)(a) and (b). c after sub-paragraph (3) add— 3A Condition C is that immediately before the 6th April 2006 — a the sums and assets were part of the member’s pension fund which fell within sub-paragraph 1(1)(a) of Schedule 36; and b the member was drawing a pension payable from the resources of— i a small self-administered scheme as defined in the Retirement Benefits Schemes (Restriction on Discretion to Approve) (Small Self-administered Schemes) Regulations 1991, or ii a small self-administered scheme that had been approved under section 590 of ICTA, and the rules of scheme on 5th April 2006 did not require the purchase of an annuity in respect of the member. . Dependant’s alternatively secured pension funds 32 1 In the case of an individual who meets the conditions set out in paragraph (2), paragraph (3) applies. 2 The conditions are as follows. Condition A The individual had reached the age of 75 before 6th April 2006. Condition B The individual is a dependant of a member who was a member of a scheme which falls within sub-paragraph 1(1)(a) of Schedule 36. Condition C The individual was, on 5th April 2006, entitled to a pension which was not provided under a defined benefits arrangement and was payable from the resources of— a small self-administered scheme as defined in regulation 2 of the Retirement Benefits Schemes (Restriction on Discretion to Approve) (Small Self-administered Schemes) Regulations 1991, or a small self-administered scheme that had been approved under section 590 of ICTA, and the rules of the scheme on 5th April 2006 did not require the purchase of an annuity in respect of the individual. 3 Paragraph 25(1) of Schedule 28 (dependant’s alternatively secured pension fund) shall be modified as follows— a after the words “held for the purposes of the arrangement as” add the words “meet condition A, B or C.”. b omit sub-paragraphs (1)(a) and (b). c after sub-paragraph (3) add— 3A Condition C is that immediately before the 6th April 2006 — a the sums and assets were part of the dependant’s pension fund which fell within sub-paragraph 1(1)(a)of Schedule 36; and b the dependant was drawing a pension payable from the resources of— i a small self-administered scheme as defined in regulation 2 of the Retirement Benefits Schemes (Restriction on Discretion to Approve) (Small Self-administered Schemes) Regulations 1991, or ii a small self-administered scheme that had been approved under section 590 of ICTA, and the rules of the scheme on 5th April 2006 did not require the purchase of an annuity in respect of the dependant. . Serious ill-health lump sums, pension protection lump sum death benefits and annuity protection lump sum death benefits 33 1 In the case of an individual who meets the conditions set out in paragraph (2), paragraphs (3), (4) and (5) apply. 2 The conditions are as follows. Condition A The individual is a member of a scheme which falls within sub-paragraphs 1(1)(a) to (g) of Schedule 36. Condition B The individual has an actual (rather than a prospective) right to the payment of one or more relevant existing pensions under that scheme on 6th April 2006. 3 In paragraph 4(2) of Schedule 29 (serious ill-health lump sum) for the words “the member has not previously become entitled to any pension or lump sum” substitute— the member has a prospective (rather than an actual) right to the payment of one or more relevant existing pensions. . 4 In paragraph 14(3) of Schedule 29 (pension protection lump sum death benefit)— a in the formula, for “AC” substitute “PCPR” ; b for the definition of AC substitute— PCPR is the value of the individual’s pre-commencement pension rights as defined in paragraph 20(3) to (5) of Schedule 36. . 5 In paragraph 16(3) of Schedule 29 (annuity protection lump sum death benefit)— a in the formula, for “AC” substitute “PCPR” ; b for the definition AC substitute— PCPR is the value of the individual’s pre-commencement pension rights as defined in paragraph 20(3) to (5) of Schedule 36. . c in the definition of “AP”, for “the member becoming entitled to the pension or annuity” substitute “6th April 2006” . Payments to children aged 23 or over 34 1 Paragraph (2) applies to the payment of a pension death benefit by a pension scheme which falls within paragraph 1(1) of Schedule 36 where— a either of Conditions A and B is satisfied and the first scheme rules condition is satisfied; or b Condition C and the second scheme rules condition are satisfied. 2 Paragraph 15(2) of Schedule 28 shall be modified as follows— a at the end of paragraph (a) omit the word “or”; and b after paragraph (b) insert— c has reached that age and is in full time education or undertaking vocational training, or d on reaching that age or, if later, on ceasing full time education or vocational training is, in the opinion of the scheme administrator, suffering from physical or mental deterioration which is sufficiently serious to prevent the individual from following a normal employment or which would seriously impair his earning capacity. . 3 The Conditions A, B and C mentioned in paragraph (1) are: Condition A The pension was in payment to a child (“C”) of the member (“M”) on 5th April 2006 or M had died on or before that date and a pension was due to come into payment to C. Condition B The pension was in payment to M on 5th April 2006 and C was born on or before 5th April 2007. Condition C An election such as is described in the second scheme rules condition had been made by M and accepted by the scheme administrator on or before 5th April 2006. 4 The scheme rules conditions mentioned in paragraph (1) are: First scheme rules condition The rules of the pension scheme allowed a pension to be paid to a child (“C”) of the member (“M”) following M’s death until C ceased full-time education or vocational training. Second scheme rules condition The rules of the pension scheme on 10 December 2003 allowed an irrevocable election to be made designating part of the sums or assets representing M’s rights as available for the payment of a pension to C following M’s death until C ceased full-time education or vocational training. 5 For the purpose of the first scheme rules condition, a rule that the pension would not be paid to C if or after C reached a specified age (even if that is before C ceased full-time education or vocational training) does not prevent the condition being satisfied. 6 Paragraph (2) also applies to the payment of a pension death benefit by a qualifying transferee scheme (as to which see article 34B) where either— a paragraph (2) had applied to payment by the original pension scheme or another transferee pension scheme; or b paragraph (2) would have applied— i if there had been no block transfer on or after 6th April 2006, and ii if payment had been by the original pension scheme. Payments to financially dependent children aged 23 or over 34A 1 Paragraph (2) applies to the payment of a pension death benefit by a pension scheme which falls within paragraph 1(1) of Schedule 36 where— a any of Conditions A to D is satisfied; and b the scheme rules condition is satisfied. 2 Paragraph 15(2) of Schedule 28 shall be modified as follows— a at the end of paragraph (a) omit the word “or”; and b after paragraph (b) insert— c has reached that age and— i is financially dependent on the member at the date of the member’s death, or ii the financial relationship with the member at the date of the member’s death is one of mutual dependence. . 3 The Conditions A to D mentioned in paragraph (1) are: Condition A The member’s (“M’s”) pension was in payment on or before 1st July 2008. Condition B The pension death benefit was in payment on 1st July 2008. Condition C The entitlement to the pension death benefit arose before 1st July 2008. Condition D The entitlement to the pension death benefit was subject to the discretion of the trustees of the scheme and the discretion was capable of being exercised (in favour of the child having such an entitlement) so that the entitlement could have arisen before 1st July 2008. 4 The scheme rules condition mentioned in paragraph (1) is: Scheme rules condition The rules of the pension scheme on 5th April 2006 allowed a pension to be paid to a child (“C”) of the member (“M”) following M’s death if, at the date of M’s death, C was financially dependent on M or C’s financial relationship with M was one of mutual dependence. 5 Paragraph (2) also applies to the payment of a pension death benefit by a qualifying transferee scheme (as to which see article 34B) where— a paragraph (2) had applied to payment by the original pension scheme or another transferee pension scheme; or b paragraph (2) would have applied— i if there had been no block transfer on or after the relevant date, and ii if payment had been by the original pension scheme. 6 For the purposes of paragraph (5), the relevant date is— a in relation to Condition A, the later of— i 6th April 2006, and ii the date on which the member’s pension came into payment; and b in relation to Condition B, C or D, the later of— i 6th April 2006, and ii the date of the member’s death. Meaning of “qualifying transferee scheme” 34B 1 A pension scheme is a qualifying transferee scheme for the purposes of articles 34 and 34A if it is a pension scheme to which there has been a relevant block transfer. 2 A block transfer is relevant if any of Conditions A to C is satisfied as a result of— a a block transfer from a pension scheme within paragraph 1(1) of Schedule 36 (“the original pension scheme”); or b a block transfer to a pension scheme (“a transferee pension scheme”) from a pension scheme that was a transferee pension scheme in relation to the original pension scheme by virtue of the previous application of sub-paragraph (a) or the previous application (on one or more occasions) of this sub-paragraph. 3 The Conditions A to C mentioned in paragraph (2) are: Condition A The member became a member of the transferee pension scheme. Condition B The child is a pensioner member of the transferee pension scheme. Condition C An irrevocable election having been made designating part of the sums or assets representing the member’s rights as available for the payment of a pension to the child, the child is entitled to such payment from the transferee pension scheme. 4 In this article, “block transfer” has the meaning given by paragraph 22(6) of Schedule 36, but with the modification that for “as is prescribed” in paragraph (b) there is substituted “as has been prescribed”. Enhanced protection and transfers made in connection with the winding up of a pension scheme 35 1 In the case of an individual who meets the conditions in paragraph (2), paragraph 12 of Schedule 36 (transitional provisions — “enhanced protection”) is modified in accordance with paragraph (3). 2 The conditions are— Condition A The individual is one to whom paragraph 12 of Schedule 36 applies. Condition B The pension scheme of which the individual is a member makes a recognised transfer of sums or assets to an insurance company pursuant to section 169(1A) (permitted transfers). Condition C The transfer is made in connection with the winding up of the pension scheme from which the transfer is made. 3 Paragraph 12(8) is modified as follows— a after paragraph (a) delete the word “or”; and b after paragraph (b) add— or; c the transfer is a recognised transfer pursuant to section 169(1A). . Transfer of crystallised rights with enhanced protection 36 1 In the case of an individual who meets the conditions in paragraph (2), paragraph 15 of Schedule 36 (definition of the “relevant crystallised amount”) is modified in accordance with paragraph (3). 2 The conditions are— Condition A The individual is one to whom paragraph 12 of Schedule 36 applies. Condition B The individual is in receipt of a scheme pension. Condition C The pension scheme of which the individual is a member makes a recognised transfer of sums or assets in connection with the winding up of the pension scheme. 3 Paragraph 15 is modified as follows— a at the end of sub-paragraph (1) add— This paragraph is subject to sub-paragraph (1A). ; and b after that sub-paragraph insert— 1A If the relevant event is a transfer of sums or assets representing crystallised rights under a scheme pension and made in connection with the winding-up of the pension scheme under which the scheme pension is paid, the relevant crystallised amount shall be nil. . Modification of section 637G ITEPA 2003 37 1 Section 637G of ITEPA 2003 (trivial commutation and winding-up lump sums) is modified as follows in relation to an equivalent pension benefits commutation lump sum pursuant to regulation 2(1A) of— a the Occupational Pension Schemes (Assignment, Forfeiture, Bankruptcy etc) Regulations 1997 ; or b the Occupational Pension Schemes (Assignment, Forfeiture, Bankruptcy etc) Regulations (Northern Ireland) 1997 . 2 In the heading, at the end insert “etc” . 3 In subsection (1)— a at the end of paragraph (a) omit “or”; b at the end of paragraph (b) add “or”; and c after that paragraph insert the following paragraph— c an equivalent pension benefits commutation lump sum, 4 In subsection (4), after “In this section” insert “— “ equivalent pension benefits commutation lump sum ” means a lump sum payment arising from the commutation of equivalent pension benefits pursuant to— regulation 2(1A) of the Occupational Pension Schemes (Assignment, Forfeiture, Bankruptcy etc.) Regulations 1997, or regulation 2(1A) of the Occupational Pension Schemes (Assignment, Forfeiture, Bankruptcy etc.) Regulations (Northern Ireland) 1997; . Lump sum payments — general 38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lump sums — serious ill-health 39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lump sum death benefits— death of member 40 1 This paragraph applies to a lump sum paid— a in respect of the death, occurring before the 6th April 2006, of a member of a pension scheme; b within two years of the date upon which the administrator of the pension scheme could reasonably have known of the member’s death ; c by a scheme which is treated as becoming a registered pension scheme on the 6th April 2006 by virtue of paragraph 1(1) of Schedule 36; d in accordance with the rules of that scheme as they stood— i immediately before the death; or ii immediately before the 6th April 2006; and e in circumstances which would not have led to the Commissioners withdrawing the approval of the scheme. 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 A lump sum to which paragraph (1) applies shall be chargeable to income tax in accordance with section 648B of ICTA as if— a that section had not been repealed; b references in that section to the administrator of the scheme were references to the scheme administrator of the registered pension scheme which is treated as coming into being by virtue of paragraph 1(1)(g) of Schedule 36; c subsection (3) were omitted; and d the reference in subsection (4) to the rules of the scheme were a reference to the rules of the personal pension scheme as they stood immediately before the 6th April 2006. 4 For the purposes of a lump sum payment to which paragraph (1) applies, regulation 5 of the Personal Pension Schemes (Information Powers) Regulations 2000 (“the 2000 Regulations ”) shall continue to have effect, subject to the following modifications— a references to the scheme administrator of the personal pension scheme are to be read as references to the scheme administrator of the registered pension scheme which is treated as coming into being by virtue of paragraph 1(1)(g) of Schedule 36; and b in paragraph (2) of that regulation for “an approved personal pension scheme” substitute “the registered pension scheme”. 5 In section 98(5) of the Taxes Management Act 1970 the entry in Table 1 relating to regulations under section 651A(1)(b) to (d) of ICTA shall continue to have effect, so far as it relates to regulation 5 of the 2000 Regulations as saved, with modifications, by paragraph (4). 6 In this article and article 41— “ the Commissioners ” means the Commissioners for His Majesty’s Revenue and Customs and, in relation to times before 18th April 2005, includes the Commissioners of Inland Revenue; “ existing scheme ” means a scheme which becomes a registered pension scheme by virtue of paragraph 1(1) of Schedule 36 (pension schemes etc.: transitional provisions and savings — deemed registration of existing schemes); “ member ” means a member of an existing scheme. Lump sum death benefits — death of a dependant 41 1 This paragraph applies to a lump sum paid— a in respect of the death, occurring before the 6th April 2006, of a dependant of a former member of a pension scheme; b by a scheme which is treated as becoming a registered pension scheme on the 6th April 2006 by virtue of paragraph 1(1)(g) of Schedule 36 (personal pension schemes); c within two years of the date upon which the administrator of the pension scheme could reasonably have known of the dependant’s death ; d in accordance with the rules of that scheme as they stood— i immediately before the dependant’s death; or ii immediately before the 6th April 2006; and e in circumstances which would not have led to the Commissioners withdrawing the approval of the scheme. 2 Paragraphs (3) to (5) of article 40 apply for the purposes of paragraph (1) as they apply for the purposes of paragraph (1) of that article. Protected pension age and multiple pensions 42 1 In the case of a member who has a protected pension age in connection with at least two of the three types of pension listed in paragraph (2) from the same registered pension scheme, Schedule 36 is modified in accordance with paragraph (3). 2 The three types of pension are— a a scheme pension under a defined benefits arrangement; b a scheme pension under a money purchase arrangement; c a lifetime annuity. 3 In paragraphs 22(7)(a) and 23(7) for “on the same date” substitute “within a period of six months beginning with the earliest date on which the individual becomes entitled to any of the benefits.”. Protected pension age and multiple pensions - member dies before receiving all pensions 43 1 Schedule 36 is modified in accordance with paragraphs (3) and (4) where— a a member has a protected pension age in connection with at least two of the three types of pension listed in regulation 42(2) from the same registered pension scheme; b the member dies before the end of the specified period after becoming entitled to at least one but not all of the benefits in respect of the pensions; and c the scheme administrator considers that, had the individual not died, the individual would have become entitled to all of the benefits in respect of the pensions within the specified period. 2 The “specified period” is the period of six months beginning with the earliest date on which the individual became entitled to any of the benefits in respect of the pensions. 3 For paragraph 22(7)(a) substitute— a the scheme administrator considers that, had the individual not died, the member would have become entitled to all the benefits payable to the member under arrangements under the pension scheme (to which the member did not have an actual entitlement on or before 5th April 2006) within a period of six months beginning with the earliest date on which the individual became entitled to any of the benefits, and . 4 For paragraph 23(7) substitute— 7 The retirement condition is met in relation to the member and the pension scheme if the scheme administrator considers that, had the individual not died, the member would have become entitled to all the benefits payable to the member under arrangements under the pension scheme (to which the member did not have an actual entitlement on or before 5th April 2006) within a period of six months beginning with the earliest date on which the individual became entitled to any of the benefits. . Normal minimum pension age – modification of section 165 (payment of pension rules) 44 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Normal minimum pension age – modification of paragraph 1 of Schedule 29 (lump sum rule) 45 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vernon Coaker Tom Watson Two of the Lords Commissioners of Her Majesty’s Treasury 9th March 2006