On 7 March we reported on the Government's plans to further amend the Finance Act 2004 in this year's Finance Bill. Today HMRC published draft legislation, in the form of a single brief clause [PDF] and a 16-page Schedule [PDF], with a 27-page Explanatory Note [PDF]. This is said to cover all the previously announced measures, except for residential property and other assets (no indication is given about when that will appear) and recycling of tax-free lump sums, for which draft legislation [PDF] was published on 3 February 2006.

The subjects headlined are as follows:

• Meaning of "pension credit member" etc.: person dying before discharge of liability
• Unauthorised payments: former members and sponsoring employers etc.
• "Bridging" pensions
• Pension commencement lump sum: scheme pensions under money purchase arrangements
• Refund of excess contributions lump sum: excess relief at source
• Annuity protection lump sum death benefit: benefits from unsecured pension fund
• Benefit crystallisation events: reaching 75 after designation for unsecured pension
• Availability of individual’s lifetime allowance: previous benefit crystallisation events (see below)
• Overseas pension schemes: extension of migrant member relief
• Abatement (see below)
• Transitional provision: uncrystallised rights under paragraph 9 to include separate lump sums
• Transitional protection: taking account of death benefits (this covers nearly five of the sixteen pages)
• Transitional protection: right to take benefits before normal pension age
• Transitional provisions: minor corrections

Two measures included in this draft legislation have not previously been announced.

One is a minor amendment to clarify the lifetime allowance (LA) provisions in the very unusual circumstance where, after the occurrence of a benefit crystallisation event (BCE) in respect of which a LA charge has arisen, an individual acquires a new or an increased LA enhancement factor. The example given is an individual who has the standard LA and crystallises £5m. There is a LA charge on £3.5m (assuming the standard LA remains static at £1.5m). The same individual then acquires a LA enhancement factor, which increases his LA to £2.5m. The individual then crystallises £1m. The adjustment ensures that the previously-used amount is £1.5m (and not £5m) so that the individual's available LA at the second BCE is £1m (and not zero).

The other is an amendment to the definition of abatement for public sector schemes. Abatement, as currently defined (ie reducing a pension from the rate paid in the preceding 12 months), may be applied only where a member retires and is re-employed in the public sector. The amendment will also allow a reduction of a scheme pension payable by a public sector scheme where a member does not retire on becoming entitled to their pension.