Pensions Act 2007 Explanatory Notes

Section 12: Additional pension: upper accrual point

231.Subsection (1) amends section 22 of the SSCBA1992 to replace the reference to the upper earnings limit, which represents the current end point for additional pension accruals, with a reference to the new “applicable limit”. Prior to the flat rate introduction year, the applicable limit will remain as the upper earnings limit. From the flat rate introduction year, however, the applicable limit will be the new “upper accrual point”.

232.Subsection (2) amends section 44 of the SSCBA1992 in line with the provisions of subsection (1) to replace the upper earnings limit with the upper accrual point as the cap for earnings factors as from the beginning of the flat rate introduction year.

233.Subsection (3) amends section 122 of the SSCBA1992 to define the “upper accrual point”. This is defined as an amount equivalent to the upper earnings limit multiplied by 52 for the flat rate introduction year, except that there is power for the Secretary of State by order to specify a different amount should the forecast earnings growth not result in the low earnings threshold and the upper accrual point converging before 2030.

234.Subsection (4) introduces Part 7 ofSchedule 1 which contains consequential amendments relating to the simplified accrual rates.

235.Subsections (5) to (9) allow the Secretary of State to abolish both the low earnings threshold and the upper accrual point when the two converge, which is expected to happen in around 2030. (This will happen because the low earnings threshold increases at each up-rating in line with average earnings while, in contrast, the upper accrual point upon introduction will remain a fixed amount.) Subsection (5) activates these provisions when the low earnings threshold would otherwise be of an amount not less than the upper accrual point. At this time subsection (6) allows the Secretary of State by order to abolish both limits. Subsections (7) and (8) allow such an order to make any transitional or consequential amendments to primary legislation. Subsection (9) requires that any such abolition order must be approved by affirmative resolution of both Houses of Parliament. The effect of the convergence of the limits would be that, from that point, accruals for the state second pension would consist only of the flat rate accrual for any earnings factors over the qualifying earnings factor for the relevant year.

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