|[Para 12, Sch 10, FA 2005]|
If the rate of
scheme pension payable to an individual is reduced
in any circumstance other than those allowed by the legislation the
reduced payments, then all future payments will not represent
payments of a scheme pension but be
unauthorised member payments, and be taxed as
such. In other words the pension will fall outside of the scheme
pension definition as soon as the reduction occurs.
There are also three circumstances where an additional unauthorised payments charge will arise on what is called the ‘appropriate amount’ (see below). These circumstances are where
To re-iterate, in the circumstances laid out in the first two
bullets, this charge on the ‘appropriate amount’ is in
addition to any charge due on any ongoing pension payments.
This charge can be imposed only
|[Para 2A(3), Sch 28][Para12, Sch 10, FA 2005]|
The appropriate amount is the amount of any tax-free lump sum
paid by the scheme in connection with the commencement of that
scheme pension entitlement. So the charge is negating the tax
benefit afforded with the original lump sum payment.
Under the tax rules, the maximum pension commencement lump sum payable is calculated by reference to the initial annual rate of scheme pension coming into payment at the time entitlement to that pension arises. The purpose of the additional charge is to ensure that this tax-free lump sum entitlement is not manipulated, and that scheme pension levels are set at a level that will provide a constant income for that individual’s lifetime.
|Glossary ( RPSM20000000)|