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Scotland Act 1998


This Section reserves matters relating to occupational and personal pensions including public service pensions.Most of the statutory provisions concerning occupational and personal pensions are contained in the Pension Schemes Act 1993 and Part I of the Pensions Act 1995. Section 1 of the 1993 Act provides definitions of “occupational pension scheme”, “personal pension scheme” and “public service pension scheme” which are applied with modifications here.  Section 126(1) makes clear that these definitions apply but as if the reference to employed earners in the definition of personal pension schemes were to any earners.

Occupational pensions are usually payable under trusts set up by an employer, or more rarely a group of employers, in respect of their employees.  The trust deed sets out the rules as to how the scheme is to operate, e.g. the rates of contributions and benefits, who is liable to pay the contributions and when and to whom benefits are payable.  Some employers operate a number of separate schemes, some a single scheme for all their employees, while others may provide a scheme for only certain of their employees e.g. by restricting pension arrangements to executives or salaried staff or to employees who have worked for the company for at least 2 years.  The occupational pension scheme will be administered by the trustees appointed under the trust deed in accordance with the rules as to the operation of the scheme.  The scheme rules must, however, comply with legislative requirements and can be overridden when a conflict arises.

Public service pension schemes are a particular category of occupational pension schemes.  They are generally established under legislation and cover a wide range of public service employees.  A definition of public service schemes is set out in section 1 of the Pension Schemes Act 1993.There is no statutory obligation on an employer in the United Kingdom to establish an occupational pension scheme or to participate in a scheme established for an industry in which he operates.  However, if an employer or group of employers sets up such a scheme then certain statutory requirements must be met.  These fall into three main headings:


requirements affecting the administration of schemes, and the duties of trustees and professional advisors;


financial management of schemes, including rules on investments, contributions and solvency, and the conditions under which schemes can contract out of the State Earnings Related Pension Scheme; and


the right of individual scheme members, including preservation of the pension rights of people leaving the scheme before pension age, the transfer of rights from one non-State pension scheme to another, the indexation of rights before and after pension age, requirements for the equal treatment of men and women and rules on the disclosure of information to scheme members.

In addition, most schemes seek to comply with conditions for tax approval, which determine whether the scheme can benefit from advantageous tax treatment, particularly in relation to income and corporation taxes.

Personal pension schemes are established by financial institutions, principally insurance companies. They are essentially contracts between individuals and pensions providers, though groupings of individual pensions may be administered together for convenience.  Contributions, which may also include contributions from an employer, are paid into the scheme and invested.  Personal pension schemes attract a range of tax concessions and their marketing is regulated under the Financial Services Act 1986.

Provision about pensions payable to any person is also reserved except in relation to former members (and office-holders) of the Scottish Parliament and Ministers.  Also excepted from the reservation is legislative competence in relation to allowing or requiring any devolved public body to provide for pensions for its members or staff.  In all these cases the provision made will be subject to the general requirements of the Pensions Acts.

The reservation of matters relating to occupational and personal pensions interacts with areas of Scots private law which are being devolved, for example trust law and family law. In particular, so far as family law is concerned, Scots law has, since 1985, required pension rights accrued during the marriage to be taken into account by a court making financial provision on divorce.  The law relating to what financial provision is made on divorce and the question as to whether and to what extent pension rights are taken into account by the court will in general be a matter of Scots law within the legislative competence of the Scottish Parliament.

However, although the Scottish Parliament has legislative competence over Scottish trust law and family law, its competence will be subject to the reservation in respect of pensions.  In particular, the obligations of the trustees or managers of occupational and personal pension schemes are a reserved matter.

Section 12A of the Family Law (Scotland) Act 1985 (as amended by section 167 of the Pensions Act 1995) allows the court to order the trustees or managers of a pension scheme to pay the whole or part of a lump sum due to or in respect of a member to his or her divorcing spouse when it becomes due.  These are known as earmarking/attachment rules. Parts III and IV of, and Schedules 3 to 6 and part of Schedule 12 to, the Welfare Reform and Pensions Act 1999 (c.30) deal with pension sharing on divorce. They also amend the earmarking provisions in section 12A of the 1985 Act. Accordingly, although the Scottish Parliament can legislate, for example, to require pension rights accrued during the marriage to be taken into account on divorce, it could not legislate to impose obligations upon trustees or managers of occupational or personal pension schemes to earmark or make provision for pension sharing.

This effect is achieved partly by this reservation and partly by paragraph 2 of Schedule 4 to the Scotland Act, as amended by the Scotland Act 1998 (Modifications of Schedule 4) Order 2000 (S.I. 2000/1831). Paragraph 2(3),as so amended, ensures that the Scottish Parliament cannot modify the obligations of trustees or managers in relation to occupational or personal pension schemes or of persons  responsible for other pension arrangements in relation to the sharing of rights under pension arrangements on divorce. See that paragraph for more details.

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