Annex 1: Minor changes in the law made by the Act: Change 105: Settlements: approved pension arrangements: section 627 and paragraph 132 of Schedule 2
This change provides for pension arrangements prescribed by regulations made under the Welfare Reform and Pensions Act 1999 and the Welfare and Reform and Pensions (Northern Ireland) Order 1999 to fall within the definition of a “relevant pension scheme”, benefits of which are not treated as income of the settlor. This is in place of a pension arrangement of any description which may be prescribed by regulations made by the Secretary of State under section 660A(11)(c) of ICTA (and section 660A(11)(g) for 2005-06).
Section 660A(1) of ICTA treats as income of the settlor income arising under a settlement from property in which the settlor retains an interest. But Section 660A(9)(c) of ICTA provides that a benefit under a relevant pension scheme will not be treated as the settlor’s income. Section 660A(11) of ICTA defines a relevant pension scheme. This includes (subsection (11)(c)) “a pension scheme of any description which may be prescribed by regulations made by the Secretary of State”.
The exclusion from the settlements charge for benefits from certain pension schemes was introduced into the settlements legislation by paragraph 26 of Schedule 13 to FA 2000 as section 660A(11). Section 660A(11)(g) of ICTA included within the approved arrangements pensions prescribed by regulations made by the Secretary of State. Paragraph 28 of Schedule 35 to FA 2004 amended these provisions for the tax year 2006-07 onwards but retained the exemption for pensions prescribed by regulations previously in section 660A(11)(g) of ICTA. The purpose of section 660A(11)(g) of ICTA was to provide the powers for regulations to be made by the Secretary of State. The wording of paragraph 26 of Schedule 13 to FA 2000 was borrowed almost in its entirety from section 11(2) of the Welfare Reform and Pensions Act 1999. But, in error, section 83 of that Act, which provides the supporting legislation for such regulations, was not legislated in FA 2000.
As a result, the powers in section 660A(11)(g) of ICTA and, following FA 2004, subsection 11(c) are inadequate to make regulations. However the intention was that regulations made under section 660A(11)(g) of ICTA (and hence also, for the tax year 2006-07 onwards, section 660A(11)(c) of ICTA) should be the same as those made under section 11(2)(h) of the Welfare Reform and Pensions Act (currently the Occupational and Personal Pension Schemes (Bankruptcy) (No 2) Regulations SI 2002/836) and in practice the pension arrangements in these regulations are accepted under section 600A(11)(g) of ICTA.
Rather than rewrite in Chapter 5 of Part 5 of this Act the powers in section 83 of the Welfare Reform and Pensions Act, it is considered simpler to include directly the arrangements within the regulations made under that Act. A reference to the equivalent legislation for Northern Ireland (Article 12(2)(h) of the Welfare and Reform and Pensions (Northern Ireland) Order 1999) has also been included. The relevant regulations here are in SI 1999/3417 (N.I.11).
The reference in section 660A(11)(g) (and (11)(c)) of ICTA to “Secretary of State” is not rewritten as it is, as a result of this change, unnecessary.
This change is in taxpayers' favour in principle. But it is expected to have no practical effect as it is in line with current practice.