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Welfare Reform and Pensions Act 1999


Section 39: Public service schemes

This section amends the Pensions (Increase) Act 1971 to provide for pensions derived from pension sharing in public service schemes. The Act provides for the index-linking of “official pensions”, including those of civil servants, teachers, NHS and local authority staff. Other public service pension schemes apply the Act by analogy.

Subsection (2) inserts a new subsection (2A) in section 3 of the Act. This requires the recipient of pension credit benefit payments to have reached age 55 before indexation increases are paid.

Subsection (3) amends section 8(1) of the Act to remove a parenthetical reference to services, since the concept of services is not relevant to pension credit rights.

Subsection (4) amends section 8(2) of the Act. The beginning date for the application of the Act is the date from which the pension is indexed and is normally the day following the last day of service. Pension credit benefit is specifically excluded because a recipient of such benefit will have no last day of service. A new subsection (8)(2A) provides that a pension derived from a pension credit will begin on the day which the pension sharing order takes effect.

Subsection (5) contains changes and additions to some terms used in the Act.

Section 40: Other pension schemes

This section is concerned with pensions in payment derived from a pension share not covered by section 31 above. It enables the Secretary of State to protect an occupational pension in payment, derived from a pension share, against inflation. It also enables the Secretary of State to protect a personal pension derived from safeguarded rights against inflation.

Subsections (1) and (2): we intend to use the regulation-making power to require an occupational pension scheme to index the part of a pension derived from safeguarded rights and/or post-April 1997 occupational pension rights (excluding AVCs) by the retail price index, subject to a cap of 5% per cap per annum. However, for administrative simplicity, schemes will be able to index the whole of the pension if they so choose. Similarly, price indexation up to a 5% cap will apply to personal pensions derived from safeguarded rights. There will be no requirement to index personal pensions derived from non-safeguarded rights but former spouses will be able to purchase an annuity offering protection against inflation if they so choose.

Section 41: Charges by pension arrangements

The purpose of this section is to enable provision to be made allowing pension arrangements to recover from the couple any reasonable administrative costs incurred as a result of implementing the pension share (for example, final valuation, costs of discharging the liability for the pension credit, reduction of the member’s benefit etc). There is already provision for pension arrangements to recover the costs of providing valuations earlier in the proceedings that they are not statutorily required to provide.

Pension arrangements will not be obliged to impose charges and the Government does not intend to impose charges in connection with SERPS rights. Charges can be apportioned between the divorcing couple but unless the pension arrangement is notified how the charges are to be split, they will be attributed to the member. The intention is that pension arrangements should have the option of requiring charges to be paid as a pre-condition to implementation of the pension share. Alternatively they should be able to deduct charges from either the member’s pension rights or the pension credit obtained by the former spouse as a result of the pension share.

Subsection (1) enables provision to be made for the recovery of charges from either the member or the former spouse.

We intend to use the regulation-making power to require that charges must be reasonable and limited to the costs incurred in implementing the pension sharing order/agreement; and that pension arrangements offer the parties a chance to pay charges at the outset before they can deduct them from the pension credit or the member’s pension rights or pension payments.

Subsection (2) provides that regulations made under subsection (1) may include the following provisions;

  • subsection (2)(a): postponement of the start of the implementation period. We intend to use the regulation-making power to allow the scheme to postpone the start of the implementation until the administration charges have been met (see also section 34(3) above;

  • subsection (2)(b): we intend to use this provision to allow charges to be recovered from one party where that party has defaulted on meeting the administrative charges, and the charges have been met by the other party;

  • subsection (2)(c): we intend to use this provision to provide that, where a pension arrangement deducts charges from a pension credit, the provisions in Schedule 5 about discharge of liability in respect of the credit have effect by reference to the net amount of the credit.

  • subsection (2)(d): to permit the scheme to make additional deductions from any transfer or other payment in respect of the member’s rights. We intend to use this regulation-making power to permit a salary related scheme to increase the original charge, by an appropriate rate of interest, when the charges are met not at the time the scheme implements the pension sharing order/agreement, but at a later date.

Subsection (3) controls how the regulations about charges will deal with the question of apportionment between the parties. The principle is that apportionment may be settled, if there is a pension sharing order, by provision in the order, and, if there is a pension sharing agreement, by provision in the agreement. If, in either case, there is no such provision, the default setting is that the charges are attributable to the member spouse whose pension is being shared.

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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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