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PART 7Commutation of periodic compensation

Circumstances in which periodic compensation may be commuted

25.—(1) The circumstances prescribed for the purposes of paragraph 9(1) of Schedule 4 (commutation of periodic compensation) are specified in paragraph (2).

(2) The circumstances are that—

(a)the transferor must not have previously exercised an option to commute for a lump sum either—

(i)a portion of the pension from which the pension compensation credit was derived, or

(ii)a portion of the relevant pension compensation from which the pension compensation credit was derived;

(b)the transferee must not have previously exercised an option to commute for a lump sum a portion of the pension compensation credit in respect of which the transferee is entitled to periodic compensation, and

(c)the transferee exercises the option to commute within the period of 6 months beginning with the day on which payment of periodic compensation commences.

Circumstances in which the portion of compensation to be commuted may exceed 25%

26.—(1) The prescribed circumstances for the purposes of paragraph 9(2) of Schedule 4 (commutation of periodic compensation) are that—

(a)the transferee must have attained the age of 60 but not have attained the age of 75 on the date specified in paragraph (4), and

(b)the portion to be commuted is a PPF trivial commutation lump sum.

(2) A payment is a PPF trivial commutation lump sum if—

(a)either—

(i)no trivial commutation lump sum or PPF trivial commutation lump sum has previously been paid to the transferee by either a registered pension scheme, or the Board, or

(ii)if such a lump sum has previously been paid, the PPF trivial commutation lump sum is paid before the end of the commutation period;

(b)on the nominated date the value of the transferee’s pension rights and entitlement to PPF compensation does not exceed the commutation limit;

(c)it is paid when all or part of the transferee’s standard lifetime allowance is available, and

(d)it extinguishes the transferee’s entitlement to PPF compensation.

(3) “The commutation period” is the period beginning with the day on which a trivial commutation lump sum or PPF trivial commutation lump sum was first paid to the transferee and ending 12 months after that day.

(4) The nominated date is—

(a)a date nominated by the transferee which is within the period of 3 months ending with the day on which the transferee proposes to exercise the option to commute, or

(b)if no date is nominated by the transferee, a date within that period nominated by the Board.

(5) The commutation limit is 1% of the standard lifetime allowance on the nominated date.

(6) For the purposes of paragraph (2)(b)—

(a)the value of the transferee’s pension rights is the aggregate of—

(i)the value of the transferee’s relevant crystallised pension rights (calculated in accordance with paragraph 8 of Schedule 29 to the Finance Act), and

(ii)the value of the transferee’s uncrystallised rights (calculated in accordance with paragraph 9 of Schedule 29 to the Finance Act), and

(b)the value of the transferee’s entitlement to PPF compensation is the aggregate of—

(i)any entitlement to lump sum compensation under the pension compensation provisions, and

(ii)any entitlement to periodic compensation under the pension compensation provisions.

(7) For the purposes of paragraph (6)(b)—

(a)the value of any entitlement to lump sum compensation is the full amount of lump sum compensation to which the transferee is entitled on the nominated date, and

(b)the value of periodic compensation is to be calculated by multiplying the annual periodic compensation to which the transferee would be entitled on the nominated date by 20.

(8) In this regulation—

“the Finance Act” means the Finance Act 2004(1);

“registered pension scheme” has the same meaning as in section 150(2) of the Finance Act (meaning of “pension scheme”);

“standard lifetime allowance” means the amount specified in the relevant order for the tax year, made under section 218(3) of the Finance Act (individual’s lifetime allowance and standard lifetime allowance);

“tax year” has the same meaning as section 279(1) of the Finance Act (other definitions);

“trivial commutation lump sum” has the same meaning as in paragraph 7 of Schedule 29 to the Finance Act.

Manner in which an option to commute may be exercised

27.—(1) The manner in which an option to commute periodic compensation under paragraph 9 of Schedule 4 may be exercised is specified in paragraphs (2) to (4).

(2) A transferee may only exercise an option to commute a portion of the periodic compensation to which the transferee is entitled by giving notice to the Board in writing.

(3) A notice given under paragraph (2) must include—

(a)the name, address, date of birth and national insurance number of the transferee, and

(b)the percentage of the periodic compensation which the transferee opts to commute.

(4) The Board may require a transferee exercising an option to commute to produce any document or provide any other information relevant to the Board’s functions in relation to the transferee’s request for commutation.