Finance Act 2004

3 (1) Where the member becomes entitled to income withdrawal, the applicable amount is one third of the aggregate of— U.K.

(a) the amount of the sums designated as available for the payment of [F1 drawdown pension] on that occasion, and

(b) the market value of the assets so designated,

but subject to sub-paragraph (2).

(2) Any of the sums and assets so designated which represent rights attributable to a disqualifying pension credit are to be disregarded.

(3) Where the member becomes entitled to a lifetime annuity, the applicable amount is one third of the annuity purchase price.

(4) “The annuity purchase price” is the aggregate of—

(a) the amount of such of the sums held for the purposes of the pension scheme, and

(b) the market value of such of the assets held for the purposes of the pension scheme,

as are applied in (or in connection with) the purchase [F2 of the lifetime annuity and any related dependants' annuity] [F3 and any related nominees' annuity] but subject to sub-paragraph (5).

[F4 (4A) For the purposes of this Part a dependants' annuity is related to a lifetime annuity payable to a member of a registered pension scheme—

(a) if they are purchased either in the form of a joint life annuity or separately in circumstances in which the day on which the one is purchased is no earlier than seven days before, and no later than seven days after, the day on which the other is purchased, and

(b) the dependant's annuity will be payable to a dependant of the member.]

[F5 (4B) For the purposes of this Part a nominees' annuity is related to a lifetime annuity payable to a member of a registered pension scheme—

(a) if they are purchased either in the form of a joint life annuity or separately in circumstances in which the day on which the one is purchased is no earlier than seven days before, and no later than seven days after, the day on which the other is purchased, and

(b) the nominees' annuity will be payable to a nominee of the member.]

[F6 (5) There is to be deducted from that aggregate—

(a) if the sums or assets applied in (or in connection with) the purchase of the annuity or any related dependants' annuity [F7 or any related nominees' annuity] consist of or include sums or assets representing the whole or part of the [F8 member's drawdown pension fund] [F9 or of the member's flexi-access drawdown fund], the aggregate of the amount of those sums and the market value of those assets, and

(b) in any case, so much (if any) of the sums or assets applied in (or in connection with) the purchase of the annuity or any related dependants' annuity [F7 or any related nominees' annuity] as represents rights which are attributable to a disqualifying pension credit.]

(6) Where the member becomes entitled to a scheme pension [F10 under a defined benefits arrangement] [F11 or a collective money purchase arrangement], the applicable amount is—

but subject to sub-paragraph (8).

(7) In sub-paragraph (6)—

• LS is the amount of the lump sum, and

• [F12 AC is—

(a) in a case where the member becomes entitled to the pension before reaching the age of 75, the amount crystallised by reason of the member becoming entitled to the pension, disregarding paragraph 3 of Schedule 32, and

(b) in a case where the member becomes entitled to the pension after reaching that age, the amount that would have been so crystallised (disregarding that paragraph) but for paragraph 2 of that Schedule.]

[F13 (7A) Where the member becomes entitled to a scheme pension under a money purchase arrangement [F14 that is not a collective money purchase arrangement], the applicable amount is one third of the scheme pension purchase price.

(7B) “The scheme pension purchase price” is the aggregate of—

(a) the amount of such of the sums held for the purposes of the pension scheme, and

(b) the market value of such of the assets held for the purposes of the pension scheme,

as are applied in (or in connection with) the purchase or provision of the scheme pension and any related dependants' scheme pension, but subject to sub-paragraph (8).

(7C) For the purposes of this Part a dependants' scheme pension is related to a scheme pension payable to a member of a registered pension scheme if—

(a) the day on which one is purchased or sums or assets are applied for its provision is no earlier than seven days before, and no later than seven days after, the day on which the other is purchased or sums or assets are applied for its provision, and

(b) the dependants' scheme pension will be payable to a dependant of the member.]

(8) There is to be deducted from the aggregate of the amount of the lump sum and the amount crystallised [F15 or from the scheme pension purchase price]—

(a) if the scheme pension is funded (in whole or in part) by the [F16 application] of sums or assets representing the whole or part of the [F17 member's drawdown pension fund] [F18 or of the member's flexi-access drawdown fund], the aggregate of the amount of those sums and the market value of those assets, and

(b) in any case, so much (if any) of the aggregate of the lump sum and the amount crystallised [F19 or of the scheme pension purchase price] as represents rights which are attributable to a disqualifying pension credit.

[F20 (8A) Sub-paragraphs (1) to (8) have effect subject to the following—

(a) if—

(i) paragraph 1A or 1B applies to the lump sum,

(ii) the lump sum is paid more than 6 months before the day on which the member becomes entitled to it,

(iii) a contract for a lifetime annuity is entered into to provide the pension in connection with which the lump sum is paid, and

(iv) on or after 19 March 2014 the contract is cancelled,

the applicable amount is one third of the annuity purchase price that would have been given by sub-paragraphs (4) to (5) in the case of that annuity had the contract not been cancelled, and

(b) if—

(i) paragraph 1A or 1B applies to the lump sum,

(ii) the lump sum is paid more than 6 months before the day on which the member becomes entitled to it, and

(iii) paragraph (a) does not apply,

the applicable amount is one third of the sums, plus one third of the then market value of the assets, held at the time the lump sum is paid for the purpose of providing the pension at that time expected to be the pension in connection with which the lump sum is paid.

(8B) For the purposes of sub-paragraph (8A)(a)(ii), the member is treated as not having become entitled to a pension as a result of the cancelled contract having been entered into.]

[F21 (9) Sub-paragraph (10) applies if—

(a) sums or assets held for the purposes of, or representing accrued rights under, a money purchase arrangement relating to the member under a registered pension scheme (“member money purchase funds”) are subject to a relevant surrender or a relevant transfer,

(b) the sole or main purpose of the relevant surrender or relevant transfer is to increase the applicable amount on the member becoming entitled to a scheme pension, and

(c) the member becomes entitled to a scheme pension under a relevant defined benefits arrangement.

(10) The pension scheme under which the relevant defined benefits arrangement is an arrangement is to be treated as making an unauthorised payment to the member of any amount by which—

(a) the applicable amount in relation to the scheme pension under sub-paragraph (6), exceeds

(b) the amount which would be that applicable amount under sub-paragraph (7A) if the arrangement were a money purchase arrangement.

(11) For the purposes of sub-paragraph (9)—

(a) member money purchase funds are subject to a relevant surrender if they are surrendered and, in consequence of the surrender, there is a corresponding increase in the sums or assets held for the purposes of, or representing rights under, a defined benefits arrangement relating to the member under the pension scheme (or such an arrangement is established), and

(b) member money purchase funds are subject to a relevant transfer if they are transferred so as to become held for the purposes of, or to represent rights under, a defined benefits arrangement relating to the member under any other registered pension scheme.

(12) In sub-paragraphs (9) and (10) “relevant defined benefits arrangement” means—

(a) the defined benefits arrangement mentioned in paragraph (a) or (b) of sub-paragraph (11), or

(b) any other defined benefits arrangement relating to the member (under the pension scheme or any other registered pension scheme) in the case of which any of the sums or assets held for the purposes of, or representing accrued rights under, the arrangement directly or indirectly represent sums or assets previously held for the purposes of, or representing accrued rights under, the defined benefits arrangement so mentioned.]

Textual Amendments

F1 Words in Sch. 29 para. 3(1)(a) substituted (with effect in accordance with Sch. 16 paras. 85, 101 of the amending Act) by Finance Act 2011 (c. 11), Sch. 16 para. 79(3)(a)

F2 Words in Sch. 29 para. 3(4) substituted (6.4.2006) by Finance Act 2005 (c. 7), Sch. 10 paras. 30(2), 64(1)

F3 Words in Sch. 29 para. 3(4) inserted (26.3.2015) by Finance Act 2015 (c. 11), Sch. 4 para. 14(2)

F4 Sch. 29 para. 3(4A) inserted (6.4.2006) by Finance Act 2005 (c. 7), Sch. 10 paras. 30(3), 64(1)

F5 Sch. 29 para. 3(4B) inserted (26.3.2015) by Finance Act 2015 (c. 11), Sch. 4 para. 14(3)

F6 Sch. 29 para. 3(5) substituted (6.4.2006) by Finance Act 2005 (c. 7), Sch. 10 paras. 35(2), 64(1)

F7 Words in Sch. 29 para. 3(5) inserted (26.3.2015) by Finance Act 2015 (c. 11), Sch. 4 para. 14(4)

F8 Words in Sch. 29 para. 3(5)(a) substituted (with effect in accordance with Sch. 16 paras. 85, 101 of the amending Act) by Finance Act 2011 (c. 11), Sch. 16 para. 79(3)(b)

F9 Words in Sch. 29 para. 3(5)(a) inserted (17.12.2014) by Taxation of Pensions Act 2014 (c. 30), Sch. 1 para. 22

F10 Words in Sch. 29 para. 3(6) inserted (retrospective to 6.4.2006) by Finance Act 2006 (c. 25), s. 161(2), Sch. 23 para. 22(2)

F11 Words in Sch. 29 para. 3(6) inserted (1.8.2022) by Finance Act 2021 (c. 26), Sch. 5 paras. 21(4)(a), 25(1); S.I. 2022/874, reg. 2

F12 Words in Sch. 29 para. 3(7) substituted (with effect in accordance with Sch. 16 paras. 85, 101 of the amending Act) by Finance Act 2011 (c. 11), Sch. 16 para. 26

F13 Sch. 29 para. 3(7A)-(7C) inserted (retrospective to 6.4.2006) by Finance Act 2006 (c. 25), s. 161(2), Sch. 23 para. 22(3)

F14 Words in Sch. 29 para. 3(7A) inserted (1.8.2022) by Finance Act 2021 (c. 26), Sch. 5 paras. 21(4)(b), 25(1); S.I. 2022/874, reg. 2

F15 Words in Sch. 29 para. 3(8) inserted (retrospective to 6.4.2006) by Finance Act 2006 (c. 25), s. 161(2), Sch. 23 para. 22(4)(a)

F16 Word in Sch. 29 para. 3(8) substituted (6.4.2006) by Finance Act 2005 (c. 7), Sch. 10 paras. 24, 64(1)

F17 Words in Sch. 29 para. 3(8)(a) substituted (with effect in accordance with Sch. 16 paras. 85, 101 of the amending Act) by Finance Act 2011 (c. 11), Sch. 16 para. 79(3)(c)

F18 Words in Sch. 29 para. 3(8)(a) inserted (17.12.2014) by Taxation of Pensions Act 2014 (c. 30), Sch. 1 para. 22

F19 Words in Sch. 29 para. 3(8) inserted (retrospective to 6.4.2006) by Finance Act 2006 (c. 25), s. 161(2), Sch. 23 para. 22(4)(b)

F20 Sch. 29 para. 3(8A)(8B) inserted (19.3.2014) by Finance Act 2014 (c. 26), Sch. 5 paras. 4, 15

F21 Sch. 29 para. 3(9)-(12) inserted (retrospective to 6.4.2006) by Finance Act 2006 (c. 25), s. 161(2), Sch. 23 para. 22(5)

Modifications etc. (not altering text)

C5 Sch. 29 para. 3(4A)(4B) applied by 2003 c. 1, s. 646B(7) (as inserted (with effect in accordance with Sch. 4 para. 17(2) of the amending Act) by Finance Act 2015 (c. 11), Sch. 4 para. 17(1))