PSI2.3.7 - Taxation Background: Chapter I Part XIV ICTA 88 - Section 590(3)

(This archived guidance relates to HMRC discretionary practice before the 6th April 2006. For current guidance on Registered Pension Schemes see the Registered Pension Schemes Manual)

Section 590(3) and (3A) requires the Board to approve a scheme which satisfies the conditions set out above and in addition provides (using the paragraphs in section 590(3))

a. that the benefit must be a pension on retirement at a specified age between 60 and 75, not exceeding 1/60th of “final remuneration" for each year of service up to a maximum of 40 (see Part 6)

b. that any benefit for an employee's widow or widower is a pension payable upon the employee's death after retirement which does not exceed 2/3rds of the employee's pension (see Part 12)

ba. that any benefit for an ex-spouse or the widow or widower of an ex-spouse satisfies prescribed conditions set out in section 590(3A)

bb. that any benefit for an employee (or former employee) whose benefits are reduced (or “debited”) by a pension sharing order cannot exceed the maximum amount the employee (or former employee) could have had under the scheme had there been no pension sharing order less the amount of the debited benefits

c. that the scheme must provide no benefits other than those described in a., b. and ba above,

d. a pension must not be capable of surrender, commutation or assignment (see PSI6.1.22), except

da. in the case of an employee (or former employee) whose benefits are reduced by a pension sharing on divorce order, the lump sum obtained by commutation of part of his or her pension at retirement must not exceed 2.25 times the amount of pension payable to him or her in the first year (the amount of pension being subject to bb above)

e. and f. that the amount of pension or commuted pension payable to an employee (without continued rights) who is a member of a scheme by virtue of two or more associated employments (see PSI6.4.9) does not exceed the limits expressed in a. and d. or bb. and da above respectively, with "final remuneration" being subject to the "permitted maximum" (see PSI6.4.7-11);

g. and h. that the amount of pension or commuted pension payable to an employee (without continued rights) who is a member of a scheme which is connected with one or more other approved schemes (see PSI6.4.10) does not exceed the limits expressed in a. and d. or bb. and da. above respectively with "final remuneration" being subject to the "permitted maximum".

Section 590(3A) sets out the conditions for the benefits that may be provided for an ex-spouse. The benefits which can be paid to an ex-spouse are a pension payable in the age range 60 to 75 and part of the pension may be commuted for a lump sum. On the death of the ex-spouse, pensions may be paid to his or her widow, widower and dependants. The benefits broadly mirror the benefits that can be paid to an employee scheme as described in a., b. and d. above.

Section 590(4) states that the conditions in sections 590(3) and (3A) - described in PSI2.3.6 and in this paragraph - are together known as the "prescribed conditions". Approval under section 590 is known as "mandatory approval". These conditions are far more stringent than those imposed under our discretionary powers (see section 591 ICTA 88).