The Pension Protection Fund (Tax) (2005-06) Regulations 2005

Explanatory Note

(This note is not part of the Regulations)

In the Pensions Act 2004 (c. 35), Part 2 establishes and deals with the Board of the Pension Protection Fund. The Board is a body corporate, and has two main functions. First, the Board administers the Pension Protection Fund, from which compensation will be paid to members of certain pension schemes which are underfunded and no longer have a solvent sponsoring employer; and (secondly) the Board is to administer the Fraud Compensation Fund, from which compensation will be paid to certain pension schemes which no longer have a solvent sponsoring employer in cases of fraud and misappropriation of scheme assets.

The Finance Act 2004 (c. 12), in Part 4, made new provision relating to pension schemes; but this new provision does not take effect until 6th April 2006.

These Regulations, made under powers conferred by section 102 of the Finance Act 2005 (c. 7), make provision for the application of income tax, corporation tax and capital gains tax in relation to the Board, the Pension Protection Fund and the Fraud Compensation Fund during the period beginning on 6th April 2005 and ending on 5th April 2006: that is to say, during the period before the new provision made by the Finance Act 2004 takes effect.

These Regulations deal with various preliminary matters in regulations 1 to 3. Regulation 4 then contains the principal provision, stating that the Tax Acts apply to the Pension Protection Fund and the Fraud Compensation Fund in the same way as they apply to an exempt approved scheme: a particular type of pension scheme dealt with in section 592(1) of the Income and Corporation Taxes Act 1988 (c. 1).

Regulations 5 to 10 and 13 to 15 then make further detailed modifications of the Tax Acts with the object of ensuring that the tax treatment of the Pension Protection Fund is equivalent to the tax treatment of an exempt approved scheme, and that the tax treatment of the income of the Fraud Compensation Fund is also equivalent to the tax treatment of the income of an exempt approved scheme.

Regulation 11 ensures that gains and losses accruing on disposals of investments held by the Board of the Pension Protection Fund for the purposes of the Pension Protection Fund or the Fraud Compensation Fund are not chargeable gains or allowable losses.

Regulation 12 ensures that the transfer of the loan relationships held by the Pensions Compensation Board to the Board of the Pension Protection Fund has no tax consequences.

Regulation 16 eliminates any possibility that receipt of a fraud compensation payment or of one of a number of related payments may be liable to capital gains tax or to corporation tax on chargeable gains.

Authority for the retrospective effect of these Regulations is given by section 102(6) of the Finance Act 2005.

No regulatory impact assessment has been prepared for these Regulations, since the effect on business will be negligible. However, information about the impact of the Pension Protection Fund on business can be found in the Regulatory Impact Assessment for the Pensions Bill 2004, published at www.dwp.gov.uk/resourcecentre/ria.