Introduction Details of the Schedule Part 1
3.Part 1 of the Schedule sets out when annuities, paid following the death of a member, can be paid as an authorised payment to anyone other than a dependant. It also sets out when these payments are taxed against the member’s lifetime allowance.
4.Paragraph 2 amends section 167(1) of Finance Act 2004 (FA2004) to allow nominees, and successors, to receive payments of annuities from money purchase arrangements as an authorised pension death benefit, in consequence of the death of a member or a previous beneficiary.
5.Paragraph 3 amends Part 2 of Schedule 28 to FA2004 (Schedule 28). Part 2 of Schedule 28 provides the details of the various authorised pension death benefits that may be paid on the death of a member or the death of a beneficiary of the member.
6.Paragraph 3(2) inserts new paragraph 27AA into Schedule 28 which provides the conditions that must be met for the payment of a nominees’ annuity on the death of a member to be an authorised pension death benefit.
7.New paragraph 27AA(1) and (2) provides that a nominees’ annuity can be purchased as a joint life annuity with the members’ lifetime annuity on or after 6 April 2015. It can also be purchased after the member’s death providing the member died on or after 3 December 2014 (the day these changes were announced) and the nominee did not become entitled to the annuity before 6 April 2015. Under changes made last year, a nominee will from 6 April 2015 be able to receive certain pension death benefits as authorised payments. Therefore a nominee cannot become entitled to any pension death benefit before 6 April 2015. Paragraph 27AA(1) also provides that the annuity must be payable by an insurance company and the circumstances when it can cease before the death of the nominee.
8.New paragraph 27AA(3) to (5) provides a power for regulations to be made in connection with the transfer of the sums and assets that were used to provide the nominees’ annuity to another insurance company to provide a new nominees’ annuity. The regulations may provide the circumstances when the new nominees’ annuity is treated as if it were the original nominees’ annuity and when the transfer will be an unauthorised payment.
9.Paragraph 3(3) inserts new paragraph 27FA into Schedule 28 which provides the conditions that must be met for the payment of a successors’ annuity on the death of a dependant, a nominee or a previous successor to be an authorised pension death benefit.
10.New paragraph 27FA(1) provides that to be a successors’ annuity it must be purchased after the member’s death providing this was on or after 3 December 2014. In addition the successor cannot become entitled to the annuity before 6 April 2015. A successor will from 6 April 2015 be able to receive pension death. Therefore a successor cannot become entitled to any pension death benefit before 6 April 2015. Paragraph 27FA(1) also provides that the annuity must be purchased using undrawn funds, as defined in new paragraph 27FA(2), payable by an insurance company and the circumstances when it can cease before the death of the successor.
11.New paragraph 27FA(2) defines undrawn funds as funds that come from either a dependant’s, a nominee’s or a previous successors’ drawdown fund and had not been drawn down at the time of that earlier beneficiary’s death.
12.New paragraph 27FA(3) to (5) provides a power for regulations to be made in connection with the transfer of the sums and assets that were used to provide the successors’ annuity to another insurance company to provide a new successors’ annuity. The regulations may provide the circumstances when the new successors’ annuity is treated as if it were the original successors’ annuity and when the transfer will be an unauthorised payment.
13.Paragraph 3(4) provides that regulations made under 27AA or 27FA can have retrospective effect where the transfer concerned occurs on or after 6 April 2015, providing that the regulations are made before 25 December 2015.
14.Paragraph 4 amends section 216 of FA2004 which provides when a benefit crystallisation event (BCE) occurs and the value of that BCE which is tested against the individual’s lifetime allowance.
15.Paragraph 4(2) amends BCE4 which occurs when a member becomes entitled to a lifetime annuity, to provide that the value of the BCE4 includes any nominees’ annuity purchased as a joint annuity with the member’s lifetime annuity.
16.Paragraph 4(3) inserts new BCE5D into section 216. A BCE5D occurs when a person becomes entitled to a dependants’ or a nominees’ annuity on or after 6 April 2015 and where the member dies on or after 3 December 2014. It applies where the funds used to purchase that annuity include relevant unused uncrystallised funds as defined in paragraph 14C(1) of Schedule 32 to FA2004 (Schedule 32). The amount of any BCE5D is the total of the relevant unused uncrystallised funds used to purchase the dependants’ or nominees’ annuity.
17.Paragraph 5 amends section 217 of FA2004 to provide that where a BCE5D occurs, then if as a consequence there is a lifetime allowance charge arising, the liability for that charge rests with the recipient of the annuity.
18.Paragraph 6 amends section 219(7A) of FA2004, which defines a relevant post-death benefit crystallisation event, to include new BCE5D in this definition.
19.Paragraph 7 makes a number of amendments to Schedule 32, which provides further information about BCEs, as a consequence of the changes made by paragraph 4 of this Schedule to section 216 of FA04.
20.Paragraphs 8 to 10, 12, 15 and 16 make further consequential changes to Part 4 of FA2004 in connection with this Schedule.
21.Paragraph 11 amends section 273B(1) of FA2004, to include the purchase of a nominees’ annuity and a successors’ annuity in the list of payments that the statutory override in section 273B covers. Trustees and managers may make any of the payments listed in section 273B(1), even where the rules of the pension scheme do not allow them to do so. This override is provided to ensure that trustees of pension schemes can make any of the new types of authorised payments under the flexibility changes, should they wish to do so, without having to change the pension scheme rules.
22.Paragraph 13 makes various further amendments to Schedule 28.
23.Paragraph 13(4) and (6) amends paragraphs 27E(3) and 27K(3) of Schedule 28 to add an additional condition that must be met for funds to be unused drawdown funds for the purposes of paragraph 27E or 27K. This is that since the member’s death the funds haven’t been used to provide benefits for a beneficiary.
24.Paragraph 13(5) amends paragraph 27E(4) and (5) of Schedule 28 to provide that for funds to be uncrystallised for the purposes of paragraph 27E they must also not have been used to provide a nominees’ annuity.
25.Paragraph 14 makes various consequential amendments to Schedule 29 of FA2004 which provides further detail on the conditions that must be met for lump sums to be paid as authorised lump sums.