Triggering events: continuity
Section 20: Triggering event: duties of trustees
Section 20 places three sets of duties on trustees where there is a triggering event: to notify the Pensions Regulator and employers (section 22); to pursue a continuity option (section 23); and to prepare and submit an implementation strategy to the Pensions Regulator (sections 26 and 27).
Section 21: Triggering events
The table in section 21(6) sets out the triggering events and when they occur.
Subsection (4) defines a ‘triggering event period’ as the period starting with the date on which the triggering event occurred and ending on the earliest of the dates set out under subsection (5). The second column in the table in subsection (6) makes provision for the date on which the triggering event occurs. As for when the triggering event period ends, a triggering event can end in one of two ways. Where the trustees pursue continuity option 1 (see section 24) the triggering event period ends when the scheme is wound up. Where the trustees pursue continuity option 2 (see section 25), the triggering event period will end on the date the trustees receive notification from the Pensions Regulator that the Pensions Regulator is satisfied the triggering event (and any other event that has occurred since the occurrence of the triggering event under subsection (6) of section 25) has been resolved.
Subsection (5)(c) makes provision for where there is notice of a decision by the Pensions Regulator to withdraw authorisation (an event within items 1 and 2 of the table at subsection (6)). The triggering event period will end where it becomes clear that authorisation will not be withdrawn (section 34).
Subsection (1)(b) provides that where an event falling in the table occurs within an existing triggering event period it is not a triggering event. The exception is provided for at subsection (2). If it is an event within item 1, 2 or 3 of the table at subsection (6), it is a triggering event even if it occurs within an existing triggering event period. Item 1 is the issue of a warning notice under the standard procedure by the Pensions Regulator in respect of a decision to withdraw the scheme’s authorisation. Item 2 is a determination notice under the special procedure by the Pensions Regulator in respect of a decision to withdraw the scheme’s authorisation. Item 3 is where the Pensions Regulator gives a notification under section 3(3) (scheme not authorised).
Subsection (7) permits a decision under item 10 of the table at subsection (6) to be made by the trustees even if the scheme rules do not.
Section 22: Notification requirements
Subsections (1) to (5) of section 22 set out who has responsibility for notifying the Pensions Regulator of events set out in the table in section 21(6).
Subsection (6) creates a requirement for the trustees to notify employers of the triggering event and other matters to be determined by regulations.
Regulations under subsection (7) will set out the time periods for notifications under this section.
Subsection (10) provides that a civil penalty under Article 10 of the Pensions (Northern Ireland) Order 1995 applies where a person fails to comply with the notification requirements under this section.
Subsection (11) provides that regulations under this section are subject to negative resolution.
Section 23: Continuity options
Where a Master Trust has a triggering event, subject to the circumstances set out in subsection (2), there are two continuity options available: option 1 which allows for members’ accrued rights to be transferred out and the scheme to be wound up (section 24), and option 2 which allows for the triggering event to be resolved (section 25). The continuity options are required elements of the implementation strategy described in sections 26 and 27. Trustees must choose a continuity option when setting out their implementation strategy.
Under subsection (2), if a Master Trust has been de-authorised by the Pensions Regulator, and all appeals have been exhausted, or the scheme has received a notification under section 3(3) (scheme not authorised), the only option available to the trustees is option 1.
Subsection (8) provides that a civil penalty under Article 10 of the Pensions (Northern Ireland) Order 1995 applies where a person fails to comply with the requirements of the section.
Section 24: Continuity option 1: transfer out and winding up
Section 24 makes provision for continuity option 1 under which trustees will transfer out all accrued rights and benefits in the scheme and then wind up the remaining structure of the scheme. Subsection (4) requires regulations to be made which set out how continuity option 1 is to be pursued where a proposed transfer is to a Master Trust scheme. The regulations must include provision for the matters set out at subsection (5). Under subsection (4)(b) regulations may be made about how continuity option 1 is to be pursued in a case where a proposed transfer is to “an alternative scheme” (as specified in regulations under subsection (2)(b)). Under subsection (4)(c) regulations may also be made for the purpose of otherwise giving effect to continuity option 1, in either case.
The trustees must identify one or more other pension schemes which are able to accept the accrued rights and benefits of their Master Trust scheme. These schemes can be either a Master Trust or, in circumstances set out in regulations, an alternative scheme that has characteristics set out in regulations. Members of the Master Trust scheme will retain their right to transfer to a scheme of their own choosing if they do not wish to transfer to the trustees’ choice (see subsection (5)(b) and (d)).
The trustees must also (subsection (1)(b)) notify employers and members of the transfer, and of other details specified in regulations. Subsection (3) allows for regulations which will set out the way in which the notification in subsection (1)(b) must be made, and the timing of the notification.
The matters under subsection (5) to be addressed in regulations under subsection (4)(a) address a comprehensive range of issues including information requirements, duties on trustees, the duties of trustees of receiving schemes and the rights of members to opt‐out of a transfer in favour of their preferred receiving scheme. Regulations must also confer powers on the Pensions Regulator to direct the trustees to do things permitted or required by the regulations.
Subsection (6) allows regulations under subsection (4)(b) to include any provision mentioned in subsection (5) as well as provisions to deem a member whose rights or benefits have been transferred to have entered into an agreement with a person of a description specified in the regulations.
A penalty under Article 10 of the Pensions (Northern Ireland) Order 1995 applies to anyone who fails to comply with any requirement imposed by this section and the regulations may also make provision for the application of Article 10 of the Pensions (Northern Ireland) Order 1995 to requirements in the regulations.
Subsections (10) and (11) provide that any regulations made under subsections (2)(b) and (4) of this section are subject to the confirmatory procedure and that any other regulations made under this section are subject to negative resolution.
Section 25: Continuity option 2: resolving triggering event
Section 25 sets out continuity option 2 which is for the triggering event to be resolved.
The trustees are required to notify the Pensions Regulator (subsection (2)) when they consider the triggering event has been resolved. They must also set out how they consider that it has been resolved. The Pensions Regulator is then required (subsection (5)) to notify the trustees of whether it is satisfied that the triggering event has been resolved. Under subsection (6), the Pensions Regulator must also be satisfied that any other event within the table at section 21(6) that has occurred in relation to the Master Trust scheme since the occurrence of the triggering event has also been resolved.
Subsection (7) provides that where a trustee fails to comply with a requirement imposed by this section a penalty under Article 10 of the Pensions (Northern Ireland) Order 1995 applies.
Subsection (8) provides that any regulations made under this section are subject to negative resolution.
Section 26: Approval of implementation strategy
This section requires the trustees of a Master Trust to submit an implementation strategy to the Pensions Regulator for approval if a triggering event occurs. This is a document setting out how the interests of members of the scheme are to be protected following the occurrence of the triggering event and section 27 sets out the content to be included in an implementation strategy.
Under subsection (2), in relation to item 1 or 2 of the table in section 21(6), the implementation strategy must only be submitted if the decision to withdraw has become final.
Under subsection (3), if a triggering event within item 1, 2 or 3 of the table in section 21(6) occurs within an existing triggering event period, the trustees must submit another implementation strategy and any implementation strategy which has already been approved for an earlier triggering event ceases to have effect.
The Pensions Regulator may approve the implementation strategy only if it is satisfied that it is adequate (subsection (4)).
The implementation strategy must be submitted before the end of a period specified in regulations (subsection (5)).
The Pensions Regulator may direct the trustees to comply with the requirements of this section (subsection (7)).
Where a person fails to comply with a direction under subsection (8), a civil penalty under Article 10 of the Pensions (Northern Ireland) Order 1995 applies.
Subsection (9) provides that this section overrides any provision of the Master Trust scheme to the extent there is a conflict.
Subsection (10) provides that any regulations made under this section are subject to negative resolution.
Section 27: Content of implementation strategy
The implementation strategy is a document that specifically sets out how the interests of members of the scheme are to be protected following the occurrence of the triggering event (section 21). The implementation strategy must set out the continuity option (sections 24 and 25) that the trustees are required or decide to pursue, as well as certain details of the particular option (subsection (5)).
The implementation strategy must include a section setting out the levels of administration charges that applied in relation to members of the scheme (subsection (3)). This relates to the prohibition on increasing charges levels during a triggering event period at section 33.
Regulations made under subsection (6) may specify further information to be included in the implementation strategy and the way in which it is prepared.
Subsection (7) provides that regulations made under this section are subject to negative resolution.
Section 28: Duty to pursue continuity option
This section requires that when the Pensions Regulator has approved the implementation strategy, the trustees must pursue the continuity option identified in the strategy and take such steps as are identified in the implementation strategy to carry out the continuity option. Where they fail to do so, the Pensions Regulator has the power to direct the trustees to pursue the continuity option identified in the strategy and take the steps identified in the strategy to carry it out (subsection (4)). A penalty for failure to comply under Article 10 of the Pensions (Northern Ireland) Order 1995 applies to anyone who fails to comply with a direction made by the Pensions Regulator (subsection (5)).
The trustees must also make the strategy available to employers under subsection (2). The time period for doing so must be set out in regulations.
The effect of subsection (6) is to override any provisions of the Master Trust scheme or any contracts that the scheme has entered into, to the extent that there is a conflict with the trustees pursuing the continuity option.
Subsection (7) provides that any regulations made under this section are subject to negative resolution.
Section 29: Prohibition on winding up except in accordance with continuity option 1
This section creates a new requirement that Master Trust schemes can only be wound up in accordance with continuity option 1 (section 24). The effect of subsection (2) is to override any provisions of the Master Trust scheme to the extent there is a conflict with this requirement.
The Pensions Regulator may still by order direct the scheme to wind up under Article 11 of the Pensions (Northern Ireland) Order 1995 (subsection (3)).
Subsection (4) provides that where a person fails to comply with subsection (1) a penalty under Article 10 of the Pensions (Northern Ireland) Order 1995 applies.
Section 30: Periodic reporting requirement
This section requires that during a triggering event period the trustees of a Master Trust scheme must submit periodic reports to the Pensions Regulator. The reports must record events or decisions and contain such other information to be set out in regulations under subsection (4). The trustees must report on progress in carrying out the implementation strategy (sections 26 and 27).
The timing for the submission of the first report must be set out in regulations under subsection (2), and subsequent reports will be submitted at intervals to be specified by the Pensions Regulator (subsection (3)). Under subsection (4), the report will need to report on progress in carrying out the implementation strategy and regulations will set out further detail of the content required in the report, and the form in which it is made.
A penalty for failure to comply under Article 10 of the Pensions (Northern Ireland) Order 1995 applies to a person who fails to follow the reporting requirements imposed by this section.
Subsection (6) provides that regulations under this section are subject to negative resolution.
Section 31 and Schedule 1: Pause orders
This section creates a power for the Pensions Regulator to pause certain Master Trust activities, once that Master Trust has experienced a triggering event (section 21). The power may only be exercised if it will help (subsection (3)) the trustees follow their implementation strategy (sections 26 and 27), or if the Pensions Regulator believes that doing so is necessary to protect the interests of the generality of the scheme members and that there is an immediate risk to the interests of members under the scheme or the assets of the scheme (subsection (4)).
A pause order may prevent a scheme from carrying out any or all of a number of actions which are specified in subsection (5). These include accepting new members, making payments, accepting contributions and discharging benefits.
The pause may relate to all such actions, or those related to specified members, employers, payments or groups of such actions.
There is further provision about pause orders in Schedule 1.
Paragraph 1 of Schedule 1 sets out the consequences of a pause order on a Master Trust. Sub-paragraph (1) states that any action in breach of a pause order is void, that is, it has no legal effect.
A scheme which is under a pause order may still be wound up in accordance with Article 11 of the Pensions (Northern Ireland) Order 1995 (sub-paragraph (2)).
Sub-paragraph (3) includes a provision that if a pause order prevents a Master Trust from accepting any contributions then affected contributions are treated as if they are not payable. The pause order may include provisions under section 31(5) that where such contributions have already been deducted from pay, they are to be repaid to affected scheme members.
Sub-paragraphs (4) and (5) create exceptions to a pause order to allow schemes to follow the requirements of pension sharing and pension earmarking orders. These orders are placed on member assets following divorce, dissolution and nullity proceedings in accordance with the relevant pieces of legislation in England and Wales, Scotland and Northern Ireland.
Sub-paragraphs (6) and (7) allow the Department to make regulations modifying specified areas of existing legislation where there is a pause order preventing transfers of members rights to ensure that the legislation works as intended.
Sub-paragraphs (8) to (10) apply the civil penalties under Article 10 of the Pensions (Northern Ireland) Order 1995 in relation to non-compliance with these provisions.
Sub-paragraph (11) provides that regulations made under this paragraph are subject to negative resolution.
Paragraph 2 states that any pause can take effect for a maximum of three months (sub-paragraph (1)), and can be extended for further periods of up to three months (sub-paragraph (2)). A pause will automatically end if a triggering period ends while it is in force (sub-paragraph (3)).
Paragraph 3 allows the Pensions Regulator to validate any action that is taken in contravention of a pause order on application from the trustees, or a person directly affected by the action.
Paragraph 4 provides for notifications between various parties in respect of a pause order, or validated action in contravention of a pause order under paragraph 3. The Pensions Regulator is required to inform the trustees, scheme strategist and scheme funder of any pause order as soon as is practicable (sub-paragraph (2)). The Pensions Regulator may also require the trustees to inform employers and members of the pause order within a specified time period. This may apply to all employers and members, or only those affected by the pause (sub-paragraph (3)).
Sub-paragraph (5) provides that civil penalties under Article 10 of the Pensions (Northern Ireland) Order 1995 apply to any trustee who has not taken all reasonable steps to ensure compliance with sub-paragraph (3).
Paragraph 5 allows pause orders and orders under paragraph 2, 3 or 4 to override existing law or scheme rules which would operate to prevent the order being made.
Section 32: Prohibition on new employers during triggering event period
Where a Master Trust has entered a triggering event period (section 21), neither the trustees, a scheme funder nor a scheme strategist may allow the participation of any new employer until the triggering period ends. Further, they may not enter into an agreement under which a new person will become an employer in relation to the scheme after the end of the triggering event period.
A civil penalty under Article 10 of the Pensions (Northern Ireland) Order 1995 applies to a person who fails to comply with this.
Section 33: Prohibition on increasing charges etc during triggering event period
Section 33 places restrictions on trustees increasing or imposing administration charges when a Master Trust scheme is in a triggering event period (section 21). The trustees may not impose charges on, or in respect of, members above the level set out in the implementation strategy (subsection (1)(a)) and trustees may not impose new administration charges on, or in respect of, members (subsection (1)(b)). Further, trustees cannot impose administration charges on, or in respect of, members in consequence of a member leaving, or deciding to leave, the scheme during the triggering event period (subsection (1)(c)).
Subsection (2) provides for a corresponding prohibition on a Master Trust scheme which receives a transfer of rights or benefits of members from a transferring scheme which is pursuing continuity option 1 and was proposed by trustees or participating employers. The trustees of a receiving scheme cannot increase administration charges above the level set out in the document provided to the Pensions Regulator by virtue of regulations under section 24(5)(i) and they cannot impose any new charges on members to meet costs set out under subsection (3). The costs set out under subsection (3) are the costs for which the receiving scheme is liable which were incurred by the transferring scheme or relate directly to the transfer of members’ accrued rights or benefits from the transferring scheme.
Under subsection (4), how levels of administration charges are to be calculated for the purposes of the section may be set out by regulations as well as how the purposes are determined for which charges are increased or imposed under subsection (2) (subsection (4)(b)). Under subsection (4)(c), regulations may make provision as to how to determine whether costs for which a receiving scheme is liable fall within subsection (3).
Subsection (5) overrides any provisions of the Master Trust scheme and any contracts that the scheme has entered into where there is a conflict with the requirements of this section.
Under subsection (6), regulations can apply some or all of the provisions in this section to an “alternative scheme” as specified in regulations under section 24(2)(b).
A civil penalty under Article 10 of the Pensions (Northern Ireland) Order 1995 applies to a trustee who fails to comply with the prohibition.
Under subsection (9), regulations made under subsection (6) are subject to the confirmatory procedure. Subsection (10) provides that any other regulations made under this section are subject to negative resolution.
