Explanatory note

From 6th April 2011, section 65 of, and Schedule 16 to, the Finance Act 2011 (“FA 2011”) amend Part 4 (pension schemes etc) of the Finance Act 2004 (“FA 2004”) to remove certain tax rules that require members of registered pension schemes to secure an income, usually by buying an annuity, by age 75. The amendments replace the concepts of an ‘unsecured pension’ and an ‘alternatively secured pension’ with a ‘drawdown pension’ and provide that individuals able to demonstrate that they have a secure pension income for life will have full access (“flexible drawdown”) to their drawdown funds without any annual cap. These Regulations make consequential and other minor amendments to regulation 12 of the Registered Pension Schemes (Transfer of Sums and Assets) Regulations 2006 (S.I. 2006/499; “the principal Regulations”).

Regulation 2(2) amends the principal Regulations by substituting a new regulation 12. Regulation 12 provides that a transfer of sums and assets from one arrangement (“the old arrangement”), to a new arrangement under which no other sums or assets are held, is a recognised transfer (so is not therefore liable to a tax charge). It also prescribes purposes for which the sums and assets transferred are to be treated as sums and assets under the old arrangement.

New regulation 12 replaces references to an unsecured pension with references to a drawdown pension and omits provisions referring to alternatively secured pensions. It contains new entries in tables 3 and 4 which make provision for transfers where a member or dependant has met the conditions for flexible drawdown in relation to the old arrangement so that these conditions are treated as having been met in relation to the new arrangement.

The amendments made by Schedule 16 to FA 2011 introduce new paragraphs 10A and 24A (which make provision in relation to drawdown pension years beginning after the member or dependant’s 75th birthday) and new paragraphs 10B and 24B (which permit a change to the drawdown pension year in certain circumstances) into Schedule 28 to FA 2004. New regulation 12 contains amended entries in tables 3 and 4 in respect of the definition of drawdown pension year and calculation of the basis amount to reflect these changes. The opportunity has been taken to make minor amendments to regulation 12 which are not consequential but ensure consistency with the new entries.

These Regulations have retrospective effect from 6th April 2011. Section 282(A1) of FA 2004, as that section has effect under paragraph 108 of Schedule 16 to FA 2011, provides that regulations made under Part 4 of FA 2004 may include provision having effect in relation to times before the regulations are made.

A Tax Information and Impact Note covering this instrument was published on 9th December 2010 alongside draft legislation for the Finance (No.3) Bill 2011 concerning the removal of the effective requirement to annuitise by age 75 and is available on the HMRC website at http://www.hmrc.gov.uk/thelibrary/tiins.htm. It remains an accurate summary of the impacts that apply to this instrument.