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Welfare Reform and Pensions Act 1999

Paragraph 7 : Mandatory payment of contribution equivalent premium

Paragraph 7(1)

When a person leaves an occupational salary-related scheme with less than two years’ service (or dies having less than two years’ service) the scheme may refund his or her contributions rather than providing him or her (or his or her widow or widower) with a pension. Where this happens the scheme trustees pay a “contributions equivalent premium” (CEP) which restores the leaver’s (or widow’s or widower’s) rights in the state earnings-related scheme (SERPS) for that short period of service. The policy is that payment of a CEP should be mandatory where there are state scheme rights to be restored.

The Pensions Act 1995 introduced new rules for contracted-out schemes, and also amended the legislation dealing with CEPs to take account of those new rules. Section 55 of the Pension Schemes Act 1993, as amended by the 1995 Act, now deals with the payment of CEPs. However, that section does not provide for the mandatory payment of CEPs in certain circumstances.

Paragraph 7(1) amends section 55 of the 1993 Act to make such provision. This paragraph also provides that the Inland Revenue must be notified by the prescribed person where a CEP is required to be paid, and introduces a power to set out how and when such notification must be made.

Paragraph 7(2)

The Northern Ireland Act 1998 excepts certain matters from the legislative and executive powers of the Northern Ireland Assembly, including matters relating to the payment of CEPs. Accordingly, paragraph 7(2) makes amendments to the Pension Schemes (Northern Ireland) Act 1993 equivalent to those made by paragraph 7(1) to the Pension Schemes Act 1993.

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