PART 1 INTRODUCTION

Citation, commencement and effect

1. —(1) These Regulations may be cited as the Registered Pension Schemes (Authorised Payments) Regulations 2009 and shall come into force on 1st June 2009.

(2) These Regulations shall have effect—

(a) for payments of a description within Part 2, in relation to payments made on or after 1st December 2009; and

(b) for payments of a description within Part 3 or Part 4, in relation to payments made on or after 6th April 2006( 3 ).

Interpretation

2. —(1) Any reference in these Regulations to a numbered section or a paragraph of a Schedule, without more, is a reference to the section or paragraph of the Finance Act 2004 bearing that number.

(2) Any reference in these Regulations to a person’s being entitled to a payment—

(a) if it is a payment of pension (or intended to be such a payment), shall be construed in accordance with section 165(3) (pension rules)( 4 ), and related expressions shall be construed accordingly;

(b) if it is a payment of a lump sum (or intended to be such a payment), shall be construed in accordance with section 166(2) (lump sum rule)( 5 ), and related expressions shall be construed accordingly.

(3) For the purpose of these Regulations, whether a person is connected with another person is determined in accordance with section 993 of the ITA 2007 (meaning of “connected” persons)( 6 ).

(4) For the purpose of these Regulations,

(a) a pension scheme is related to another pension scheme if each of them is—

(i) a registered pension scheme( 7 ) that is an occupational pension scheme( 8 ) or a public service pension scheme( 9 ), and

(ii) a pension scheme relating to the same employment; but

(b) if the context is whether a person is or is not a controlling director of a sponsoring employer( 10 ) of a pension scheme, only registered pension schemes that are occupational pension schemes are related to other such pension schemes.

(5) In these Regulations—

“controlling director” has the meaning given by section 273(9) (members liable as scheme administrator);

“excluded transfer” means—

Prescribed payments and taxation

3. A payment by a registered pension scheme to or in respect of a member that is described in Part 2 of these Regulations—

(a) is a payment of a prescribed description for the purposes of section 164(1)(f) (authorised member payments);

(b) if paid to the member, shall be treated as a trivial commutation lump sum paid to the member for the purposes of Part 9 of ITEPA 2003 (pension income)( 12 ); and

(c) if not paid to the member, shall be treated as a trivial commutation lump sum death benefit paid to the recipient for the purposes of Part 9 of ITEPA 2003( 13 ).

4. A payment by a registered pension scheme that is described in Part 3 of these Regulations, to the extent specified in the regulation concerned—

(a) is a payment of a prescribed description for the purposes of section 164(1)(f) of the Finance Act 2004;

(b) shall be treated as pension paid to the recipient under a registered pension scheme for the purposes of Part 9 of ITEPA 2003; and

(c) shall be treated for those purposes as pension accruing in the tax year in which it is paid.

5. A payment by a registered pension scheme that is described in Part 4 of these Regulations—

(a) is a payment of a prescribed description for the purposes of section 164(1)(f) of the Finance Act 2004; and

(b) shall be treated as a pension commencement lump sum paid under a registered pension scheme for the purposes of Part 9 of ITEPA 2003( 14 ).

PART 2 COMMUTATION PAYMENTS

Payment after relevant accretion

6. —(1) A payment made after there has been a relevant accretion in respect of the member if—

(a) the payment extinguishes the member’s entitlement to benefits under the pension scheme;

(b) it does not exceed £2,000;

(c) it does not exceed the value of the accretion; and

(d) it is made no later than the relevant date.

(2) Regulation 7 defines “relevant accretion”.

(3) In a case where the accretion is a relevant accretion by virtue of having occurred after the event described in regulation 7(2)(b), the scheme pension or annuity concerned shall be ignored in determining whether the member’s entitlement to benefits under the scheme has been extinguished.

(4) For the purposes of paragraph (1)(d) the relevant date is—

(a) if the accretion has occurred before 1st December 2009, 1st June 2010, otherwise

(b) six months after the date the accretion occurs.

Meaning of “relevant accretion”

7. —(1) The following are relevant accretions for the purposes of regulation 6 if they occur after either of the events mentioned in paragraph (2)—

(a) a payment (“the payment in”) is received by the scheme in respect of the member, other than a contribution into the pension scheme or an excluded transfer into the pension scheme;

(b) there is an allocation to the arrangement( 15 ) in the amount by which the value of the sums and assets held for the purposes of the arrangement exceeds the value the scheme administrator( 16 ) had believed they had; and

(c) the scheme administrator becomes aware that the member is entitled to a benefit under the pension scheme, provided—

(i) the scheme administrator had not been aware of the entitlement before the event in paragraph (2), and

(ii) the scheme administator could not reasonably have been expected to be aware of it before that event.

(2) The events are—

(a) there is a recognised transfer to another registered pension scheme or to a qualifying recognised overseas pension scheme( 17 ) in respect of the member; and

(b) a scheme pension( 18 ) or annuity is purchased for the member by the pension scheme from an insurance company( 19 ).

(3) In order for the purchase of a scheme pension or annuity on or after 6th April 2006 to be an event within paragraph (2)(b), all or a part of the member’s lifetime allowance( 20 ) must be available at the time of the purchase.

(4) The value of a relevant accretion is—

(a) in the case of a payment in within paragraph (1)(a), the amount of the payment; or

(b) in the case of an allocation within paragraph (1)(b), the amount by which the value of the sums and assets exceeds the value they had been believed to have;

(c) in the case described in paragraph (1)(c), the value of the benefit to which the member is entitled.

(5) In paragraph (1)(a), “contribution” does not include any amount mentioned in section 188(3) (c) (rebates and minimum contributions paid by the Board of Inland Revenue( 21 )).

Payments under the Financial Services Compensation Scheme

8. —(1) A payment made by way of compensation under the Financial Services Compensation Scheme if—

(a) the payment does not exceed £2,000; and

(b) it extinguishes the member’s entitlement to benefits under the pension scheme.

(2) The reference in paragraph (1) to the Financial Services Compensation Scheme is to the scheme established by Part 15 of the Financial Services and Markets Act 2000( 22 ).

Payments to or in respect of members who were untraceable

9. —(1) A payment made to or in respect of a member who has reached the age of 75 if—

(a) at the time the member reached the age of 75 the scheme administrator had been unable to ascertain the member’s whereabouts despite having taken reasonable steps to do so;

(b) the scheme administrator had received no communication from the member for at least 5 years before the date on which the scheme administrator had discovered the member’s whereabouts or, if the member had died, had learned of the death;

(c) either of the conditions in paragraph (2) is satisfied;

(d) the payment is made no later than the relevant date;

(e) the payment does not exceed £2,000; and

(f) the payment—

(i) extinguishes the member’s entitlement to benefits under the pension scheme, or

(ii) if made after the member’s death, represents the total value of all sums and assets held for the purposes of the scheme in respect of the member.

(2) The conditions mentioned in paragraph (1)(c) are—

(a) paragraph 8(2) of Schedule 28 (member’s unsecured pension fund) applies in relation to the member and the arrangement and none of the sums or assets held for the purposes of the arrangement are member-designated funds( 23 ) immediately before it applies;

(b) the arrangement is a defined benefits arrangement( 24 ) and no scheme pension is being paid to the member by the scheme making the payment or any related scheme.

(3) For the purposes of paragraph (1)(d) the relevant date is the later of—

(a) 1st June 2010; and

(b) 12 months after the date on which the scheme administrator had discovered the member’s whereabouts or, if the member had died, had learned of the death.

Payments to members receiving annuities

10. —(1) A payment to a member which would be a trivial commutation lump sum( 25 ) but for the continuance after the payment of an annuity if—

(a) the condition in paragraph (2) is satisfied; or

(b) if the member is not a member of any other registered pension scheme, the conditions in paragraph (3) are satisfied.

(2) The condition mentioned in paragraph (1)(a) is that the payment is made before the end of the commutation period, as determined in accordance with paragraph 7(2) of Schedule 29.

(3) The conditions mentioned in paragraph (1)(b) are that—

(a) the member had not previously received either a trivial commutation lump sum or a payment that was an authorised payment by virtue of this regulation; and

(b) the value of the member’s pension rights immediately before the payment, calculated in accordance with paragraph 7(5) of Schedule 29, does not exceed 1% of the standard lifetime allowance( 26 ).

De minimis rule for pension schemes

11. —(1) A payment by a public service pension scheme or an occupational pension scheme if—

(a) the member has reached the age of 60, but has not reached the age of 75;

(b) the member—

(i) is not a controlling director of a sponsoring employer of this or of any related scheme, and

(ii) is not a person connected to such a person;

(c) the payment does not exceed £2,000;

(d) the commutation value of the benefits to which the member is entitled under this and any related scheme does not exceed £2,000 in total;

(e) the payment extinguishes the member’s entitlement to benefits under this scheme; and

(f) no recognised transfer was made out of this or any related scheme in respect of the member during the 3 years preceding the date of the payment.

(2) For the purposes of paragraph (1)(d), the commutation value is equal to the amount of the lump sum that, if paid, would extinguish the member’s entitlement to benefits under the scheme concerned.

Payments by larger pension schemes

12. —(1) A payment by a public service pension scheme or an occupational pension scheme if—

(a) there are at least 50 members;

(b) any of conditions A, B or C is satisfied;

(c) the member has reached the age of 60, but has not reached the age of 75;

(d) the member—

(i) is not a controlling director of a sponsoring employer of this or any related scheme, and

(ii) is not a person connected to such a person;

(e) the payment does not exceed £2,000;

(f) the payment extinguishes the member’s entitlement to benefits under this scheme;

(g) ignoring any transfer within paragraph (5), no excluded transfer was made into this scheme in relation to the member during the 5 years preceding the date of the payment; and

(h) no recognised transfer was made out of this scheme in respect of the member during the 3 years preceding the date of the payment.

(2) Condition A is that the scheme was in existence on 1st July 2008.

(3) Condition B is that—

(a) the payment is in respect of a defined benefits arrangement; and

(b) the aggregate amount of the sums and assets held for the purposes of defined benefits arrangements is more than half of the aggregate amount of all the sums and assets held for the purposes of this scheme.

(4) Condition C is that in respect of at least 20 members the aggregate amount of the sums and assets held for the purpose of the arrangement exceed £2,000.

(5) A transfer is within this paragraph if it is a transfer of sums and assets described in paragraph 12(8)(b), (c) or (d) of Schedule 36( 27 ) (enhanced protection – permitted transfers).

(6) In paragraphs (3) and (4), the “aggregate amount” is an amount equal to the aggregate of the amount of the sums and the market value( 28 ) of the assets concerned.

PART 3 PENSION ERRORS

Pensions paid in error

13. —(1) A payment made in error which is intended to represent a payment permitted by the pension rules or the pension death benefit rules( 29 ) to or in respect of a member, if the scheme administrator or insurance company making the payment (in either case, “the payer”) believed that—

(a) the recipient was entitled to the payment, and

(b) the recipient was entitled to it in that amount.

(2) A payment is not within paragraph (1) if the error is that the recipient is no longer alive (as to which see regulation 15).

(3) Regulation 4 applies to—

(a) the whole of the payment; or

(b) if the recipient was entitled to an authorised payment apart from under this regulation, the amount by which the payment exceeds the amount of the authorised payment.

Pensions paid after discovery of error

14. —(1) A payment made after the discovery of an error if either—

(a) it is made after there is a payment within regulation 13 to the same person and (apart from the discovery of the error) is of a similar nature to that payment; or

(b) if the error had not been discovered until after the payment, it would have been a payment within regulation 13.

(2) A payment is not within paragraph (1) unless it falls within paragraph (3), (4) or (5).

(3) A payment is within this paragraph if it is made even though the payer took reasonable steps to prevent its being made or its being made in that amount.

(4) A payment is within this paragraph if it is made while the scheme administrator is considering whether the rules of the scheme should be amended so that such payments or payments in such amounts will be permitted by the pension rules or the pension death benefit rules (as the case may be), provided the scheme administrator has not taken an unreasonable amount of time to decide.

(5) A payment is within this paragraph if it is made while the scheme administrator is in the process of amending the rules of the scheme so that such payments or payments in such amounts will be permitted by the pension rules or the pension death benefit rules (as the case may be), provided the scheme administrator has not taken an unreasonable amount of time to amend the rules.

(6) Regulation 4 applies to—

(a) the whole of the payment; or

(b) if the recipient was entitled to an authorised payment apart from under this regulation, the amount by which the payment exceeds the amount of the authorised payment.

Pensions continuing to be paid after death

15. —(1) A payment which is intended to represent the payment of a pension permitted by the pension rules or the pension death benefit rules to or in respect of a member if—

(a) the member or dependant concerned (“the person”) has died;

(b) the payment is made no later than six months after the date of the person’s death;

(c) the payment would not have been an unauthorised payment if it had been made on the day before the person died; and

(d) either of the conditions in paragraph (2) is satisfied.

(2) The conditions mentioned in paragraph (1)(d) are—

(a) the scheme administrator or insurance company making the payment (in either case, “the payer”) did not know, and could not reasonably have been expected to know, that the person had died before the payment was made;

(b) where the payer knew of the person’s death before the payment was made, the payer took reasonable steps to prevent the payment’s being made or its being made in that amount.

(3) Regulation 4 applies to the whole of the payment.

Payments of arrears of pension after death

16. —(1) A payment of pension under the pension scheme to or in respect of a member who has died if—

(a) the payment is in respect of a defined benefits arrangement;

(b) the member had not reached the age of 75;

(c) the member—

(i) was not a controlling director of a sponsoring employer of this or any related scheme, and

(ii) was not a person connected to such a person; and

(d) either—

(i) the conditions in paragraph (2) are satisfied, or

(ii) where the member died on or after 6th April 2006, the conditions in paragraph (3) are satisfied.

(2) The conditions where the member died before 6th April 2006 are that—

(a) the payment represents accrued arrears of pension;

(b) the payment was allowed or required by the rules of this scheme as they stood immediately before the member died; and

(c) the existence of the rule or rules concerned would not have prejudiced approval of the scheme by the Inland Revenue or Her Majesty’s Revenue and Customs.

(3) The conditions where the member died on or after 6th April 2006 are that—

(a) the payment represents accrued arrears of scheme pension the member’s entitlement to which the scheme administrator had not established until after the member’s death;

(b) the payment would not have been an unauthorised payment if the payment had been made immediately before the member’s death and the member had been entitled to it; and

(c) the scheme administrator could not reasonably have been expected to make the payment before the member’s death.

(4) Regulation 4 applies to so much of the payment as does not exceed the amount accrued during the period—

(a) beginning with the earliest date from which the member could have required the scheme administrator to make the payment if the member had been entitled to it; and

(b) ending with the member’s death.

(5) If the member died on or after 6th April 2006, the making of the payment shall be treated as a benefit crystallisation event for the purposes of the lifetime allowance charge( 30 ), namely benefit crystallisation event 9( 31 ).

(6) The amount crystallised for the purposes of benefit crystallisation event 9 is the amount of the payment to which regulation 4 applies.

(7) For the purpose of paragraph (2)(c), whether something would have prejudiced the approval of a scheme by the Inland Revenue or by Her Majesty’s Revenue and Customs is to be determined 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, as that publication stood—

(a) if the member died before 23rd March 2001, on that date,

(b) otherwise, on the date of the member’s death.

PART 4 LUMP SUM ERRORS

Commencement lump sums based on pension errors

17. —(1) A payment of a lump sum the whole of which is intended to represent a pension commencement lump sum( 32 ), but which exceeds the permitted maximum( 33 ), if—

(a) the lump sum exceeds the permitted maximum only because it has been calculated by reference to the amount of a relevant pension( 34 ); and

(b) either—

(i) the payment of the pension is a payment within regulation 13 or 14 (1)(b), or

(ii) paragraph (3) applies.

(2) The discovery that the lump sum exceeds the permitted maximum before the payment is made does not prevent the payment’s being within paragraph (1) if the payer took reasonable steps to prevent its being made or its being made in that amount.

(3) This paragraph applies where—

(a) the lump sum is paid before the pension by reference to which its amount was calculated;

(b) the pension is not in the event paid, or paid in the amount originally intended, because an error is discovered; and

(c) if the error had not been discovered and the pension had been paid as intended, its payment would have been a payment within regulation 13.

(4) The member’s becoming entitled to the pension commencement lump sum that forms part of the payment within paragraph (1) shall be treated as a benefit crystallisation event for the purposes of the lifetime allowance charge, namely benefit crystallisation event 9 (and this does not prevent the member’s becoming so entitled from also having effect for the purposes of benefit crystallisation event 6).

(5) The amount crystallised for the purposes of benefit crystallisation event 9 is the amount by which the lump sum exceeds the permitted maximum.

Commencement lump sums paid in error – money purchase arrangements

18. —(1) A payment of a lump sum the whole of which is intended to represent a pension commencement lump sum, but which exceeds the permitted maximum, if—

(a) the lump sum exceeds the permitted maximum only because it has been calculated by reference to the annuity purchase price( 35 ) or the scheme pension purchase price( 36 );

(b) an error in that calculation means that the amount concerned is greater than it would have been; and

(c) paragraph (3) applies.

(2) The discovery that the lump sum exceeds the permitted maximum before the payment is made does not prevent the payment’s being within paragraph (1) if the payer took reasonable steps to prevent its being made or its being made in that amount.

(3) This paragraph applies where—

(a) the lump sum is paid before the lifetime annuity or scheme pension is purchased; and

(b) the lifetime annuity or scheme pension is not in the event purchased, or purchased for the amount originally intended, because the error is discovered.

(4) The member’s becoming entitled to the pension commencement lump sum that forms part of the payment within paragraph (1) shall be treated as a benefit crystallisation event for the purposes of the lifetime allowance charge, namely benefit crystallisation event 9 (and this does not prevent the member’s becoming so entitled from also having effect for the purposes of benefit crystallisation event 6).

(5) The amount crystallised for the purposes of benefit crystallisation event 9 is the amount by which the lump sum exceeds the permitted maximum.

Commencement lump sums paid after death

19. —(1) A payment of a lump sum under the pension scheme to or in respect of a member who has died if—

(a) the payment is in respect of a defined benefits arrangement;

(b) the scheme administrator had not established the member’s entitlement to the payment until after the member’s death;

(c) the scheme administrator could not reasonably have been expected to make the payment before the member died;

(d) the payment would have been a pension commencement lump sum if it had been made immediately before the member’s death and the member had been entitled to it;

(e) it is made no later than the end of the period of one year beginning with the earlier of—

(i) the day on which the scheme administrator first knew of the member’s death, and

(ii) the day on which the scheme administrator could first reasonably be expected to have known of it; and

(f) the member was neither—

(i) a controlling director of a sponsoring employer of this or any related scheme, nor

(ii) a person connected to such a person.

(2) The making of the payment shall be treated as a benefit crystallisation event for the purposes of the lifetime allowance charge, namely benefit crystallisation event 9.

(3) The amount crystallised for the purposes of benefit crystallisation event 9 is the amount of the payment.