The Taxation of Pension Schemes (Consequential Amendments of Occupational and Personal Pension Schemes Legislation) Order 2006

Explanatory Note

(This note is not part of the Order)

This Order amends various Regulations as a consequence of changes to the tax system in relation to pension schemes made by Part 4 of the Finance Act 2004 (c. 12) which is due to come into force on 6th April 2006.

This Order applies to Great Britain and Northern Ireland. It makes provision for the tax registration of occupational and personal pension schemes and prescribes the circumstances in which an occupational pension may be commuted.

Part 2 of this Order, which consists of articles 2 to 21, applies to Great Britain.

Article 2 amends the Occupational Pension Schemes (Managers) Regulations 1986 (S.I. 1986/1718) to prescribe the person who is to be treated as the manager of a scheme established outside the United Kingdom.

Article 3 amends the Personal Pension Schemes (Disclosure of Information) Regulations 1987 (S.I. 1987/1110) to make provision for the registration of schemes.

Article 4 amends the Personal Pension Schemes (Transfer Values) Regulations 1987 (S.I. 1987/1112) to prescribe that a member’s transfer credits and rights must be acquired under a registered scheme.

Article 5 amends the Personal and Occupational Pension Schemes (Perpetuities) Regulations 1990 (S.I. 1990/1143) to substitute new regulations 3 and 4. The new regulations prescribe the schemes excepted from the rules of law relating to perpetuities.

Article 6 amends the Occupational Pension Schemes (Preservation of Benefit) Regulations 1991 (S.I. 1991/167) so as to revoke regulation 23.

Article 7 substitutes a new regulation 5 in the Occupational Pension Schemes (Discharge of Protected Rights on Winding Up) Regulations 1996 (S.I. 1996/775) enabling the amount secured by a policy of insurance in respect of a member’s protected rights to be commuted where the payment satisfies requirements contained in the Finance Act 2004 for lump sum payments by pension schemes.

Article 8 amends the Occupational Pension Schemes (Contracting-out) Regulations 1996 (S.I. 1996/1172) to prescribe that an unregistered scheme cannot be a contracted-out scheme or certified as a salary-related contracted-out scheme. Also, it enables benefits which are payable under an occupational pension scheme to be commuted into lump sum payments in certain circumstances.

Article 9 amends the interpretation provision of the Contracting-out (Transfer and Transfer Payment) Regulations 1996 (S.I. 1996/1462).

Article 10 amends the Personal and Occupational Pension Schemes (Protected Rights) Regulations 1996 (S.I. 1996/1537) to substitute new definitions of “employee share” and “grossed-up equivalent”. The amendment further enables a member’s protected rights to be commuted into a lump sum payment if the payment satisfies the requirements for lump sum payments by pension schemes contained in the Finance Act 2004.

Article 11 amends the interpretation provision of the Occupational Pension Schemes (Indexation) Regulations 1996 (S.I. 1996/1679).

Article 12 amends the Occupational Pension Schemes (Transfer Values) Regulations 1996 (S.I. 1996/1847) to provide for registered schemes and prescribe the requirement an annuity must satisfy.

Article 13 amends the Occupational Pension Schemes (Discharge of Liability) Regulations 1997 (S.I. 1997/784) and prescribes the requirements which must be satisfied before the amount secured by a policy of insurance or annuity contract may be commuted.

Article 14 amends the Occupational Pension Schemes (Assignment, Forfeiture and Bankruptcy etc.) Regulations 1997 (S.I. 1997/785) to modify the interpretation provision and prescribe a further exception from the inalienability provisions and the circumstances in which an occupational pension may be commuted.

Article 15 amends the interpretation provision of the Pensions on Divorce etc. (Provision of Information) Regulations 2000 (S.I. 2000/1048).

Article 16 amends the Pension Sharing (Valuation) Regulations 2000 (S.I. 2000/1052) to modify the interpretation provision and prescribe the rights which are not shareable.

Article 17 amends the Pension Sharing (Implementation and Discharge of Liability) Regulations 2000 (S.I. 2000/1053) to prescribe a further condition on which liability may be discharged in relation to pension credit benefit and to enable an occupational pension to be commuted. For an annuity contract or insurance policy to be a destination for a pension credit, it must provide that benefits secured by the contract or policy may be commuted if the payment qualifies as a trivial commutation lump sum payment under the Finance Act 2004.

Article 18 amends the Pension Sharing (Pension Credit Benefit) Regulations 2000 (S.I. 2000/1054) to make provision for the registration of schemes. In addition, it enables schemes to provide for the payment of pension credit benefit in the form of a lump sum before normal benefit age where the payment qualifies as either a serious ill-health lump sum payment or a trivial commutation lump sum payment under the Finance Act 2004.

Article 19 amends the Pension Sharing (Safeguarded Rights) Regulations 2000 (S.I. 2000/1055) to substitute new regulation 10 which specifies the circumstances in which pension credit benefit arising from safeguarded rights can be paid by a registered scheme. Also, it requires benefits payable in consequence of serious ill-health to have satisfied provisions of the Finance Act 2004 for the commutation of lump sum payments.

Article 20 amends the Stakeholder Pension Schemes Regulations 2000 (S.I. 2000/1403) to make provision for registered schemes.

Article 21 amends the Occupational and Personal Pension Schemes (Bankruptcy) (No. 2) Regulations 2002 (S.I. 2002/836) to substitute new arrangements which qualify as “approved pension arrangements” and “unapproved pension arrangements”.

Part 3, which consists of articles 22 to 41, applies to Northern Ireland.

Articles 22 to 41 provide for the tax registration of schemes and prescribes the circumstances in which occupational pension may be commuted in like manner to the provisions which apply to Great Britain by virtue of articles 2 to 21.

A full regulatory impact assessment of the effect that the provisions relating to the tax registration of schemes will have on the cost of businesses, charities and the voluntary sector has been prepared. Copies may be obtained from the Pensions Correspondence Unit, HM Revenue and Customs, 1st Floor, Ferrers House, PO Box 38, Castle Meadow Road, Nottingham NG2 1BB.

An assessment of the impact on business, charities or the voluntary sector of the provisions relating to the commutation of occupational pensions was included in the Regulatory Impact Assessment relating to the Pensions Act 2004 (c. 35). A copy of that assessment has been placed in the libraries of both Houses of Parliament. Copies may be obtained from the Department for Work and Pensions, Regulatory Impact Unit, level 3, Adelphi, 1-11 John Adam Street, London WC2N 6HT.