Schedule 4: Pension Protection Fund
Paragraphs 1 to 13 make amendments to the 2005 Order permitting the Board of the Pension Protection Fund (“the Board of the PPF”) where it is able to do so, to determine the funding position of an eligible pension scheme without obtaining a fresh actuarial valuation in accordance with the requirements of Article 127(2) of the 2005 Order, which is used by the Board of the PPF to decide whether it must accept responsibility for the scheme.
A scheme’s protected liabilities are the cost of providing benefits equivalent to pension compensation, any non-pension liabilities of the scheme, and the estimated cost of winding up the scheme. The amendments provide the Board of the PPF with the power to decide whether it can use other information for the purpose of determining whether the assets of the scheme are less than the protected liabilities (for example, a valuation undertaken for the purposes of calculating a scheme’s pension protection levy), or whether an actuarial valuation is needed to determine the funding position of the scheme.
Paragraph 11 makes equivalent provision in relation to valuations for closed schemes under Article 142. Where a scheme has been through an assessment period and has not initially transferred into the Board of the PPF, but where the scheme’s assets have subsequently fallen below its protected liabilities, the Board will also have the power to determine whether an actuarial valuation under Article 142 is required or whether it can use other information it has in order to decide if the scheme should transfer into the Pension Protection Fund.
Paragraph 13 amends Schedule 8 to the 2005 Order (which lists matters that are reviewable by the Board of the PPF) so that a determination made by the Board, in cases where it has decided that an actuarial valuation is not required, is reviewable.
Paragraphs 14 to 16 remove the requirement in Article 135 of the 2005 Order that an application for reconsideration must include a “protected benefits quotation”. A protected benefits quotation is a quote, from an insurance company, of the cost of purchasing annuities providing each scheme member with benefits equivalent to the lower of the compensation which they would receive if their scheme transferred to the Pension Protection Fund and their scheme benefits.
The amendments enable the trustees or managers of an eligible scheme that has not initially transferred to the Pension Protection Fund because it was not sufficiently underfunded to apply for reconsideration if the trustees or managers are unable, despite their best efforts, to obtain a protected benefits quotation. The amendments provide the Board of the PPF with a power to determine whether the value of the assets of the scheme at the reconsideration time is less than the amount of the protected liabilities at that time. If so, the scheme may transfer into the Pension Protection Fund, without the trustees or managers obtaining a protected benefits quotation. The Board of the PPF will be able to use any information it has available and any additional information it may request in order to determine the value of the assets and liabilities of the scheme at that time.
Paragraph 15(5) and (7) amends Article 136 of the 2005 Order to enable the Board of the PPF to issue a determination notice under that Article in a form and containing such information as may be decided by the Board.
Paragraph 17 removes the requirement in Article 144 of the 2005 Order that an assessment period for the Pension Protection Fund must last for a minimum of 12 months. An assessment period starts when the employer of a scheme that is eligible for the Pension Protection Fund has a qualifying insolvency event. An assessment period may also start when an employer in relation to a scheme is unlikely to continue as a going concern and the Board of the PPF receives either an application for transfer from the scheme’s trustees or managers under Article 113(1) of the 2005 Order or a notification from the Regulator under Article 113(4) of the 2005 Order. During an assessment period the Board of the PPF assesses whether or not it must assume responsibility for a scheme. The removal of the requirement in Article 144 of the 2005 Order that an assessment period must last for a minimum of 12 months will enable the Board to transfer some schemes into the Pension Protection Fund earlier.
Paragraph 18 removes the requirements in Article 288 of the 2005 Order that regulations relating to the Pension Protection Fund administration levy cease to have effect within 6 months of their coming into operation unless approved by a resolution of the Assembly. As a result, those statutory rules will be subject to the negative resolution procedure. The Pension Protection Fund administration levy is collected on behalf of the Department to recoup any money paid by the Department or the Secretary of State to meet the administrative expenses of the Board of the PPF (Article 103 of the 2005 Order).
Paragraph 19 replaces paragraph 21 of Schedule 6 to the 2005 Order so that the calculation of pension compensation paid to pension credit members includes revaluation if revaluation would have been applied under the rules of the relevant scheme to the pension credit member’s benefits. Under section 79 of the Pension Schemes (NI) Act, occupational pension schemes are required to revalue benefits payable by virtue of pension credit rights only where the rights involve the pension credit member being credited by the scheme with notional pensionable service. New paragraph 21 of Schedule 6 deals with the case where the member is not credited with notional pensionable service (so that no revaluation is required). New paragraph 21A deals with the case where the member is credited with notional pensionable service (so that revaluation is required).
Under new paragraph 21A, the revaluation would be based on:
scheme rules for the period from the implementation of a member’s pension credit to the day before the start of an assessment period for the Pension Protection Fund; and
statutory requirements for the period from the start of the assessment period to a member’s normal benefit age (the equivalent, for pension credit members, to normal pension age).
As a consequence, paragraph 20 repeals paragraphs 10 and 11 of Schedule 6 to the Pensions (No. 2) Act.
Paragraphs 21 to 28 replace an existing regulation-making power within paragraph 25A of Schedule 6 to the 2005 Order (as inserted by paragraph 13 of Schedule 6 to the Pensions (No. 2) Act) so that people may postpone payment of their pension compensation past their normal pension age.
The paragraphs provide that, if a person does postpone payment of pension compensation:
the pension compensation cap would apply as at the time the person first becomes entitled to pension compensation (their normal pension age);
revaluation would apply up to a member’s normal pension age; and
the Board of the PPF must provide an appropriate increase in pension compensation when it comes into payment, calculated on an actuarial basis to take account of the postponement of the start of payment.
Paragraphs 29 to 36 make amendments parallel to those in paragraphs 21 to 28. These paragraphs omit an existing regulation-making power in paragraph 11 of Schedule 4 to the Pensions (No. 2) Act, replacing it with a similar power to prescribe circumstances where a person who is entitled to pension compensation by virtue of pension compensation sharing may choose to receive compensation from a later date than normal benefit age. This power will permit postponement whether or not the person entitled to compensation is below or above normal benefit age at the time that they first become entitled to payment of compensation.
Paragraph 37 amends paragraph 35 of Schedule 6 to the 2005 Order. This paragraph requires recent changes to scheme rules, which have the effect of increasing the amount of a scheme’s protected liabilities, to be disregarded in calculating the amount of compensation to which members of the scheme are entitled. Paragraph 35, in conjunction with paragraph 3(5) and 5(6) of Schedule 6, also stipulates that discretionary increases to pensions that are either in payment or postponed in the three-year period before the start of an assessment period, which have the effect of increasing the protected liabilities, are disregarded.
The amendments clarify the operation of these provisions.