Pensions Act 2011

Pensions Act 2011

2011 CHAPTER 19

Commentary on Sections

Part 1: State Pension

Section 2: Abolition of certain additions to the state pension

32. Section 2 amends section 150 of the SSAA 1992 and Schedule 5 to the SSCBA 1992. This section removes the provision from the state for new awards of small “top-up” amounts to a person’s state pension from the specified date, where that person is a member of a salary-related contracted-out scheme who has delayed taking their private pension and earned “increments” on their Guaranteed Minimum Pension (GMP), or is the survivor of such a member. (The GMP is the minimum pension a scheme is required by law to pay to an individual who was in contracted-out employment between 1978 and 1997.)

33. The small “top-up” amounts, referred to as “Payable Uprated Contracted-out Deduction Increments” (PUCODIs) are paid by the State to take account of the fact that the occupational pension scheme is only responsible for providing limited indexation on the extra amounts gained by the individual for postponing their private pension – the GMP increments. For example, schemes are not required to provide any indexation on GMP increments accrued between 1978 and 1988, but must provide indexation at the rate of the general level of prices in Great Britain (changed from RPI to CPI in April 2011) capped at three per cent for accruals between 1988 and 1997. Hence the state will index any GMP increments at the rate of RPI/CPI for any 1978 to 1988 accruals, and in the event that RPI/CPI exceeds three per cent by anything over three per cent for accruals between 1988 and 1997.

34. PUCODIs do not apply to any periods of contracted out employment after April 1997 as the requirement to provide a GMP was replaced with the requirement to provide benefits which are broadly equivalent to those provided under the Reference Scheme Test.

35. Awards which have been made and are in payment before this date will not be affected.

36. Section 2 gives effect to Schedule 2.