| [Para 2(2), Sch 28] [Para 11(2) and (3), Sch 10, FA 2005] |
Only pensions in the form of a
scheme pension may be paid to members with
defined benefits arrangements. Scheme pensions
must be paid for the life of the member. For some schemes,
particularly those with relatively few members, it might not be
practical for them to guarantee to pay a certain level of pension
for life direct from the scheme on an ongoing basis. Therefore, the
rules allow for a scheme of any size to secure their liability to
that pension with an
insurance company. In other words pay an insurance
company to take on that liability and risk. They can do this
whenever they like (before, when or after that entitlement actually
arises).
If the scheme decides to pass their liability to pay the
member’s pension on to an insurance company by purchasing a
policy in the name of the member, it is the
scheme administrator (and not the member) who must
select the insurance company. The insurance company must provide a
pension in the form of a scheme pension (and not a lifetime
annuity) to the member.
Alternatively a scheme can purchase an annuity (in the name
of the scheme trustees) and use it (like an investment) to fund the
scheme pension. In these circumstances the scheme administrator
retains the liability to pay the scheme pension. This will also be
the case where such a policy requires the insurer to act as the
scheme’s agent paying pensions directly to the member.
| [s161(3) and (4)] |
Where a scheme pension is secured through an insurance company
then any payments made under the terms of that contract with the
insurance company are, for the purposes of the authorised payment
rules, treated as if made by the
registered pension scheme that purchased the
annuity. The pension scheme administrator cannot pass away their
liability in this regard, irrespective of how any insurance policy
is arranged. For this reason the policy contract must only provide
benefits that are authorised under the tax rules, providing a
pension that comes within the scheme pension rules, and only
providing benefits on the death of the member that conform with the
death benefit rules – see
RPSM09101330.
Any other payment made by the insurance company will be an
unauthorised payment, and taxed as such.
| Glossary ( RPSM20000000) |
