Explanatory note

These Regulations amend the Pension Schemes (Reduction in Pension Rates) Regulations 2006 (“the 2006 Regulations “) in order to prescribe further circumstances in which a pension may be reduced without infringing the condition in paragraph 2(3) of Schedule 28 to the Finance Act 2004 (“the 2004 Act”). If that condition is breached, the pension will not qualify as a “scheme pension” and this will give rise to certain tax charges.

Regulation 1 makes provision about citation, commencement and effect. The Regulations have retrospective effect, from 6th April 2006. That is the effective date of the pensions taxation simplification measures enacted by the 2004 Act (known as “A Day”), as well as the date of coming into force of the 2006 Regulations. Paragraph 2(8) of Schedule 28 to the 2004 Act provides that regulations made under paragraph 2(4)(h) (such as these) may include provision having effect in relation to times before they are made.

Regulation 2 substitutes three regulations for regulation 3 of the 2006 Regulations. The new regulation 3 will introduce regulations 4 and 5, which will describe the detail of what are to constitute prescribed circumstances. The new regulation 4 is essentially the existing regulation 3, but with some modifications of style that do not affect its substance. Regulation 5 is wholly new. It will apply when the pension scheme is being wound up and there are insufficient sums and assets in the fund to continue to pay the pension at the existing rate. Reductions in pension that are part of “avoidance arrangements”, as defined, are excluded.

A full and final Impact Assessment has not been produced for this instrument as a negligible impact on the private or voluntary sectors is foreseen.