The Occupational Pension Schemes (Pensions Compensation Provisions) Regulations 1997

Explanatory Note

(This note is not part of the Regulations)

These Regulations relate to the payment of compensation to occupational pension schemes by the Pensions Compensation Board (“the Board”), as provided for under sections 81 to 85 (“the compensation provisions”) of the Pensions Act 1995 (“the Act”).

Regulation 1 provides for the citation, commencement and interpretation of the Regulations.

Regulation 2 provides for exemptions to the compensation provisions.

Section 81(1) of the Act specifies the conditions which must be met for a scheme to establish eligibility for compensation. Section 81(1)(c) of the Act provides that the value of the scheme assets must have been reduced and that there must be reasonable grounds for believing that the reduction is attributable to an act or omission constituting a prescribed offence. Regulation 3 provides that the prescribed offence is one involving dishonesty.

Regulation 4 sets out who may make an application for compensation.

Section 83(3) of the Act provides that the amount of compensation must not exceed, first, 90 per cent. of the reduction falling within section 81(1)(c) of the Act at the application date (“the shortfall”) together with interest on the shortfall at the prescribed rate for the prescribed period, and secondly, in the case of a salary-related scheme, the amount required to restore the scheme to a funding level of 90 per cent. at the date after which the Board determine further recoveries of value are unlikely to be made without disproportionate cost or within a reasonable time. Regulation 5 provides that the total amount of compensation paid shall equal whichever is the lower of those amounts, and makes provision as to the manner in which such amounts are to be calculated.

Regulation 6 concerns payments made in anticipation of a final payment of compensation. It specifies the liabilities which a scheme must be unable to meet, either fully or in part, before anticipatory payments can be made; lays down criteria by reference to which such payments are to be calculated; and prescribes the circumstances in which such payments may not be recovered.

Regulations 7, 8, 9 and 10 provide for modification of the compensation provisions, where some but not all the benefits that a scheme provides are money purchase benefits (regulation 7), where a scheme applies to earners in employments under different employers (regulation 8), where only part of a scheme is approved for tax exemption purposes (regulation 9), and where all the benefits that a scheme provides (other than death benefits) are money purchase benefits (regulation 10).

An assessment of the compliance cost for employers of the measures arising from the Pensions Act 1995, including these Regulations, has been placed in the libraries of both Houses of Parliament. Copies can be obtained by post from the Department of Social Security, Pensions and National Insurance Directorate, The Adelphi, 1—11 John Adam Street, London WC2N 6HT.