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Pensions Act 2004

Restrictions on schemes during the assessment period
Section 132: Assessment periods

421.This section defines “assessment period”. The assessment period is the period of the Board’s involvement with a scheme, and during this period various restrictions are imposed on the scheme by sections 133 to 138.

422.Subsection (1) provides for references to an assessment period in Part 2 to be construed by reference to this section.

423.Subsection (2) provides for an assessment period to begin with the occurrence of a qualifying insolvency event in relation to the employer in relation to the scheme and to end once any of the following events occur:

  • the Board ceasing to be involved with the scheme (and issuing a withdrawal notice – see section 149(circumstances in which Board ceases to be involved with an eligible scheme));

  • the trustees or managers of the scheme receiving a transfer notice from the Board; or

  • the conditions in section 154(2) (requirement to wind up schemes with sufficient assets to meet protected liabilities) being satisfied and the scheme being required to wind up.

424.A qualifying insolvency event is defined in section 127(3). Subsection (3) provides for circumstances where more than one insolvency event occurs.

425.Subsection (4) provides that an assessment period also commences where an application is made under section 129(1) or a notification is received under section 129(5)(a). In that case the assessment period ends once any of the following events occur:

  • the Board ceasing to be involved with the scheme (and issuing a withdrawal notice – see section 149(circumstances in which Board ceases to be involved with an eligible scheme),

  • the trustees or managers of the scheme receiving a transfer notice from the Board, or

  • the conditions in section 154(2) (no scheme rescue but sufficient assets to meet protected liabilities) being satisfied and the scheme being required to wind up.

426.Subsection (5) provides that, where an assessment period has already begun in relation to the scheme, any further application or notification received during that period will be disregarded. This avoids overlapping assessment periods.

Section 133: Admission of new members, payments of contributions etc

427.This section applies to schemes that have entered an assessment period. The effect of an assessment period on schemes is similar to a freezing of a scheme under section 23 (freezing orders) of this Act.

428.Subsection (2) provides that no new members may be admitted to the scheme during an assessment period. Subsection (3) states that no further contributions can be paid into the scheme during an assessment period, except in circumstances and subject to conditions set out in regulations. For instance where contributions were due before the assessment period began or where a debt is owed to the scheme from the employer under section 75 of the Pensions Act 1995 (deficiencies in assets), these can still be paid to the scheme.

429.No benefits may accrue during the assessment period. This does not prevent any increase to a benefit which would otherwise accrue. Money purchase benefits can still continue to accrue. It is also possible for a trustee or manager of a scheme to discharge liabilities in respect of a pension sharing order granted over a member’s shareable rights by conferring rights under the schemes on the former spouse entitled to the pension credit.

430.Subsection (10) provides that any action taken in contravention of this section is void. Subsection (11) provides for section 10 of the Pensions Act 1995 (civil penalties) to apply to trustees or managers who fail to take all reasonable steps to comply with this section.

431.Where the Board ceases to be involved with a scheme, section 150(consequences of Board ceasing to be involved with a scheme) makes provision about contributions which, but for section 133, would have been due during the assessment period.

Section 134: Directions

432.This section enables the Board to give directions to “a relevant person” during the assessment period.

433.Subsection (2) provides for the Board to give directions to a relevant person during the assessment period on matters relating to the investment of the scheme’s assets; any expenditure; the instigation or conduct of legal proceedings; and any other prescribed matters. This enables the Board to ensure that protected liabilities do not exceed assets or, if they do exceed the assets, that excess is kept to a minimum. Assets for this purpose will not include assets relating to money purchase benefits. Subsection (3) defines the relevant person in relation to a scheme as the trustees, managers, sponsoring employer or such other persons as may be prescribed.

434.Subsection (4) enables the Board to revoke or vary any direction it makes under this section. Subsection (5) provides for section 10 of the Pensions Act 1995 (civil penalties) to apply to any trustee or manager of a scheme who fails to take all reasonable steps to secure compliance with any direction issued to the trustees or managers by the Board. Subsection (6) provides for civil penalties to also apply to any other person who fails to comply with a direction given to him by the Board and does not have a reasonable excuse for such a failure.

Section 135: Restrictions on winding up, discharge of liabilities etc

435.This section restricts the winding up of a scheme during an assessment period. It effectively takes away all the power that the trustees or managers or the employer might have under scheme rules to wind up a scheme.

436.Subsection (2) prevents the winding up of the scheme during the assessment period. It does not prevent the Regulator directing the winding up of a scheme under section 11(3A) of the Pensions Act 1995 (as inserted by section 22(power to wind up occupational pension schemes) of this Act) in order to ensure the protected liabilities do not exceed assets or to keep any excess to a minimum.

437.Subsections (4) and (5) provide that no transfers are to be made from the scheme during the assessment period. In addition no steps can be taken to discharge the scheme’s liabilities for pensions or other benefits or other liabilities prescribed in regulations. These prohibitions apply whether or not the scheme is being wound up. But these restrictions are subject to section 138 which sets out how benefits are to be paid, to or in respect of members, during an assessment period.

438.Subsection (7) applies where a member has a right to a cash transfer sum or a contribution refund (Chapter 5, Part 4 of the Pension Schemes Act 1993) and this right arises on the commencement of the assessment date, during the assessment period the right cannot be exercised and the powers and duties under Chapter 5, Part 4 of the Pension Schemes Act 1993 do not apply.

439.Subsection (8) provides that the restrictions in subsection (4) do not prevent trustees or managers from complying with a pension sharing order and discharging their liability to provide a pension credit to the member’s former spouse.

440.Subsection (9) provides that any action taken in contravention of this section is void, other than in cases where the Board validates it (see section 136(power to validate contraventions of section 135)).

441.Subsection (10) provides for section 10 of the Pensions Act 1995 (civil penalties) to apply to any trustee or manager of a scheme who fails to take all reasonable steps to secure compliance with the restriction.

442.Subsection (11) prevents the Regulator from making a freezing order (see section 23) in relation to a scheme during the assessment period.

Section 136: Power to validate contraventions of section 135

443.This section gives the Board power to validate contraventions of section 135(which places certain restrictions on schemes during the assessment period). Subsection (1) provides for the Board to validate a breach of section 135 only if to do so would be consistent with the objective of ensuring that the scheme’s protected liabilities do no exceed its assets or, if they do, that any excess is kept to a minimum. Assets for this purpose do not include assets relating to money purchase benefits.

444.Subsection (2) provides that when the Board makes a determination as to whether or not to validate a breach of section 135, it must give notice of its decision. The notice must contain the reasons for the determination. It must be given to the Regulator, the trustees or managers of the scheme, any insolvency practitioner in relation to the employer (or if there is none, the employer), and any other person who the Board considers affected by the decision.

445.Subsection (4) provides that a validation of a breach may only take effect once a notice of the Board’s decision has been given and the period for review of the notice has expired. If there is a review the validation takes effect once the review, any reconsideration, any reference to the PPF Ombudsman and any appeal against the determination has been disposed of.

Section 137: Board to act as creditor of the employer

446.This section provides that during an assessment period the Board is the creditor of any debt owed by the employer to the trustees or managers of a scheme and for the Board to have all the rights and powers of a creditor during this period. So, for example, the Board will represent the scheme at any meeting involving creditors of the employer.

447.Subsection (3) provides that the Board must pay any amounts received in respect of the debt owed by the employer to the trustees or managers of the scheme.

Section 138: Payment of scheme benefits

448.This section restricts the scheme benefits paid to members of a scheme during an assessment period.

449.Subsection (2) provides that the amount of the benefits payable to scheme members during the assessment period must be reduced, if necessary, so that they do not exceed the level of compensation that would be payable if the scheme had been taken over by the Board from the beginning of the assessment period. Subsections (3) and (4) provide that during the assessment period no benefits are payable in respect of Chapter 5, Part 4 of the Pension Schemes Act 1993 (early leavers; cash transfer sum and contribution refund). This restriction does not apply to money purchase benefits.

450.Subsection (5) provides that benefits can be paid during an assessment period in relation to pension credits (where there has been a pension sharing order).

451.Where a pension scheme is being wound up, the effect of sections 73 to 73B of the Pensions Act 1995 (as inserted by section 270(winding up) of this Act) is that the benefits payable may be reduced. Subsection (6) provides that where a scheme is being wound up during the assessment period the benefits payable are those that would have been payable by the scheme had it not been winding up. This is subject to any reduction required under subsections (2) and (3) so that the benefits are paid at the same level as that available under the pension compensation provisions.

452.If the Board does not assume responsibility for the scheme, adjustments may need to be made in the future to make up amounts not paid by virtue of this section or to recover amounts overpaid by virtue of section 138(6) (see sections 150(1) to (3) (consequences of the Board ceasing to be involved with a scheme) and 154(13) (requirement to wind up schemes with sufficient assets to meet protected liabilities)).

453.Subsection (8) provides that for the purposes of ensuring that benefits are paid during an assessment period in accordance with subsections (2) and (3) the trustees or managers of the scheme may take such steps as they consider appropriate (including steps adjusting future payments under the scheme rules) to recover any overpayment or pay any shortfall. Subsection (9) provides for civil penalties under section 10 of the Pensions Act 1995 (civil penalties) to apply to the trustees or managers of a scheme who fail to take all reasonable steps to secure compliance with subsections (2) and (3).

454.Subsection (10) provides that regulations may provide that in certain circumstances benefits payable during an assessment period are not to be reduced to the level of pension compensation payable from the Pension Protection Fund. Regulations may also allow, in certain circumstances, for a member who has attained normal pension age and continues in employment to postpone taking benefits from the scheme. This can be postponed for the whole or part of the assessment period and can be on such terms and conditions as may be prescribed. This prevents a person becoming a person in receipt of a pension where, had there not been an assessment period, he would have postponed payment of his pension.

455.Subsection (11) defines “normal pension age” as the age specified in the scheme rules as the earliest age at which the pension or other benefit becomes payable without actuarial adjustment (excluding early payment on the grounds of ill health). Provision is made for cases where different ages are specified in relation to different parts of a benefit.

456.Subsection (12) provides that regulations may set out that in prescribed circumstances a benefit will be treated (for the purpose of subsection (2)) as having become payable before the assessment period commenced. This may, for example, be used where a member dies before the assessment period commences and as a person becomes entitled to a benefit not immediately on the death but later during the assessment period.

Section 139: Loans to pay scheme benefits

457.This section allows the Board to lend money to the trustees or managers of a scheme during the assessment period where it considers it appropriate for the purpose of enabling payment of benefits to scheme members in accordance with section 138.

458.The trustees or managers will have to make an application. The Board will lend what it considers to be appropriate and on such terms as it thinks fit. Loans cannot be made to enable payment of money purchase benefits payable from the scheme.

459.Subsection (3) provides for any amount lent to the trustees or managers of a scheme and interest to become due for repayment at the time that the Board ceases to be involved with the scheme, or when the Regulator makes an order under section 11(3A) of the Pensions Act 1995 (power to wind up occupational pension schemes) to wind up the scheme or at the time when the requirement to wind up schemes with sufficient assets to meet the protected liabilities applies (section 154(requirement to wind up schemes with sufficient assets to meet protected liabilities)) whichever first occurs.

460.Subsection (4) provides that the Board may not make any loans once a scheme has been ordered to wind up under section 11(3A) of the Pensions Act 1995.

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