RPSM09100172 - Technical Pages: Member benefits: Overview: Payments: Other transactions regarded as payments: Surrender

Surrender

Member surrenders, or agrees to surrender, on or after 6th April 2006 but before 10th October 2007

If a member of a registered pension scheme surrenders, or agrees to surrender,

any benefit, other than an excluded pension, to which the member, or any dependant of the member, has a prospective right to under the scheme, or

any right relating to sums or assets held under an arrangement in such a scheme

then an unauthorised member payment is deemed to have been made. The member therefore becomes liable to a tax charge (which may include a surcharge if applicable) on the payment.

Member surrenders, or agrees to surrender, on or after 10th October 2007

If a member of a registered pension scheme surrenders, or agrees to surrender

• any benefit, other than an excluded pension, to which the member, or any dependant of the member, has a prospective right to under the scheme,
• any rights to receive payments under a lifetime annuity or dependants’ annuity purchased from an insurance company with sums or assets held for the purposes of the pension scheme, or
• any right relating to sums or assets held under an arrangement in such a scheme

then an unauthorised member payment is deemed to have been made. The member therefore becomes liable to a tax charge (or charges) on the payment.

Other person surrenders, or agrees to surrender, on or after 6th April 2006

Also, if any other person who is not a member of the registered pension scheme, such as a dependant of the member surrenders, or agrees to surrender

• any benefit, other than an excluded pension, to which the person has a prospective right to under the scheme in relation to a member of the scheme, or
• any right relating to sums or assets held under an arrangement in such a scheme relating to a member of that scheme

then an unauthorised member payment is deemed to have been made to that person in respect of the member. The member becomes liable to a tax charge (or charges) in respect of the deemed payment or, where the deemed payment occurs after the member’s death, the person becomes liable to the tax charge (or charges) instead.

References to a ‘benefit’ in the cases described above include the right to receive

• a scheme pension or dependants’ scheme pension either provided directly by the scheme administrator or purchased from an insurance company with sums or assets held for the purposes of the pension scheme, or
• a lifetime annuity or dependants’ annuity that has been purchased from a insurance company with sums of assets held for the purposes of the pension scheme.

onwards has details of the tax charges in respect of unauthorised member payments.

A pension is an excluded pension for the purposes of the surrender provisions to the extent that it is a guarantee payment complying with the requirements of RPSM10104050.

The amount of unauthorised member payment which is treated as having been paid is the amount that would have been received had the surrendered benefit instead been assigned in a transaction carried out at arm’s length and on the basis that any power to reduce the entitlement to the benefit or right did not exist.

As well as the excluded pensions mentioned above, there are further exceptions, which are where

• the surrender is made due to a pension sharing order,
• the surrender is made to provide an entitlement to benefits for a dependant of the member, where those benefits are payable after the death of the member
• there is a transfer, or agreement to transfer, benefits or rights so as to become benefits or rights held under another arrangement under the pension scheme relating to the member or dependant of the member
• a lifetime or dependants’ annuity ceases to be payable by an insurance company and as a result the insurance company transfers sums and assets to another insurance company, which applies those sums or assets to provide a new lifetime or dependants’ annuity. (In these circumstances regulations made under paragraph 3(2B) of paragraph 17(3) of Schedule 28 of Finance Act 2004 treat the new annuity as if it were the original annuity.
• the surrender is made as part of a retirement-benefit activities compliance exercise (see RPSM09100177 for guidance on what is a retirement-benefit exercise)
• the surrender of a prospective entitlement to authorised pension death benefits or authorised lump sum death benefits (or both) made in order to comply with the Employment Equality (Age) Regulations 2006 or the Employment Equality (Age) Regulations (Northern Ireland) 2006 (or any regulations amending or replacing them) (See RPSM10100060 for guidance on what is an authorised pension death benefit and RPSM10100070 for guidance on what is an authorised lump sum death benefit)
• a surrender, or agreement to surrender, is made in order to fund an authorised surplus payment, see ( RPSM04102020),
• the surrender, or agreement to surrender, is an assignment which is treated as an unauthorised payment (see RPSM09100170)
• the surrender or agreement to surrender, is prescribed by regulations. Currently, the only regulations that have been made are the Registered Pension Schemes (Surrender of Relevant Excess) Regulations 2006 [2006/211] see RPSM03104030, or
• the surrender of a benefit to which a member, a dependant of a member or other person in respect of a member has a prospective entitlement under a defined benefit arrangement or cash balance arrangement provided there is not a consequential increase in the actual or prospective rights of another, connected, member of the same scheme or of another person in respect of such a connected member. For this purpose, whether one member is ‘connected’ with another member is determined in accordance with section 993 of the Income Tax Act 2007.

Where the surrender or agreement to surrender is by means of an assignment which is treated as an unauthorised payment (see RPSM09100170) there will not also be a second unauthorised payment in respect of the surrender of benefits.