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Welfare Reform and Pensions Act 1999

Pension debits

Section 36: Safeguarded rights

The section inserts a new Part IIIA (sections 68A to 68D) into the Pension Schemes Act 1993. The new sections make special provision for the pension credit rights of a former spouse deriving from membership of a contracted-out occupational pension scheme or an appropriate personal pension (APP) scheme. These rights will be called “safeguarded rights” to distinguish them from the contracted-out rights built up by members of contracted-out occupational pension schemes and APP schemes.

The intention is that the requirements for safeguarded rights should broadly reflect those for contracted-out rights. In particular, we wish to ensure that safeguarded rights (which are wholly or in part financed by rebates of National Insurance contributions, and in the case of APP schemes, tax relief on the employee’s share of the rebate) are securely protected and used for the purpose for which they are intended – to provide an income in retirement.

Section 68A

Subsection (1) defines safeguarded rights as rights from a pension share, derived either in total or in part from contracted-out rights or safeguarded rights, subject to subsection (2).

Subsection (2) mirrors the existing protected rights provisions so as to permit the scheme rules to identify safeguarded rights more narrowly. In the case of rights that are directly attributable to a pension share, the safeguarded rights element will reflect the proportion of the member’s rights that were contracted-out rights or safeguarded rights. In the case of rights arising from an ordinary transfer, the safeguarded rights element will reflect the proportion of the rights under the transferring scheme which were contracted-out rights or safeguarded rights.

Subsections (3) and (4) define the “safeguarded percentage” of rights as the percentage of the rights from which they derive which are contracted-out or safeguarded.

Subsection (5) defines certain terms used in earlier subsections.

Section 68B provides a general regulation-making power to prescribe requirements in respect of safeguarded rights.

We intend to use this power to prescribe requirements in respect of safeguarded rights that broadly mirror those for contracted-out rights built up since April 1997 in an occupational pension scheme or an appropriate personal pension scheme. For example, where the safeguarded rights are used to provide money purchase benefits for the former spouse, the requirements will be similar to those for post-April 97 protected rights as set out in the Personal and Occupational Pension Schemes (Protected Rights) Regulations 1996 (SI 1996 No. 1537).

Section 68C: this subsection anticipates the transfer of the Contributions Agency from the DSS to the Inland Revenue. Subject to Parliamentary approval, the intention is to complete the transfer by April 1999. It will give the Agency that will be responsible for the supervision of safeguarded rights, the power to intervene if a scheme fails to comply with a requirement prescribed under section 68B.

Section 68D provides for regulations to prohibit or restrict the transfer or discharge of liability for safeguarded rights under a contracted-out occupational or personal pension scheme.

The provision is similar to the existing power at section 12C of the Pension Schemes Act 1993. We intend to use the regulation-making powers in this section to lay regulations in respect of the discharge of liability that will be comparable to Part III of the Occupational Pensions Schemes (Discharge of Liability) Regulations 1996. Regulations about the transfer of safeguarded rights will be comparable to Part III of the Contracting-out (Transfer and Transfer Payment) Regulations 1996, the Protected Rights (Transfer Payment) Regulations 1996 and the Personal and Occupational Schemes (Protected Rights) Regulations 1996.

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Explanatory Notes

Text created by the government department responsible for the subject matter of the Act to explain what the Act sets out to achieve and to make the Act accessible to readers who are not legally qualified. Explanatory Notes were introduced in 1999 and accompany all Public Acts except Appropriation, Consolidated Fund, Finance and Consolidation Acts.

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