Supplementary
Section 36: Fraud compensation
Section 36 provides a regulation-making power enabling the Department to modify Articles 165 to 170 of the Pensions (Northern Ireland) Order 2005, which relate to fraud compensation. The regulations will make amendments to modify how fraud compensation under that Order applies to Master Trusts and other pension schemes to which all or some of the provisions of Part 1 (by virtue of section 40) of the Act apply.
Articles 165 to 170 of the Pensions (Northern Ireland) Order 2005 enable fraud compensation payments to be made to occupational pension schemes where certain conditions are met. These conditions include that:
the value of the scheme’s assets has been reduced and there are reasonable grounds for believing this was due to dishonesty; and
the employer has gone out of business or is unlikely to continue as a going concern.
The Department proposes to use regulations to make adjustments to fraud compensation to make it more suitable for Master Trusts.
Section 36 also allows these modifications to apply to other types of occupational pension schemes should they become covered by the Master Trust authorisation scheme by virtue of section 40.
Subsection (2) provides that any regulations made under this section are subject to negative resolution.
Section 37 and Schedule 2: Master trusts in operation on commencement: transitional provision
This section introduces Schedule 2, which includes provisions affecting Master Trusts that are in operation before section 3 comes into operation.
Schedule 2 introduces transitional modifications in respect of those schemes that were in existence before the commencement date. The commencement date is defined by reference to the commencement of section 3 (the prohibition on operating a Master Trust without authorisation). The intention is that this section will be commenced once all regulations under the authorisation provisions are in operation. The modifications in paragraphs 2 to 7 take effect from the day after the Act is passed, whilst those in paragraphs 8 to 15 take effect from the date on which section 3 (prohibition on operating a scheme unless authorised) comes into operation.
Paragraph 2 modifies section 20 to impose a duty to comply with notification requirements on trustees of an existing Master Trust if a triggering event occurs on or after 20 October 2016 but before the commencement date.
As for time periods for notifying the Pensions Regulator, where the trustees consider the triggering event was resolved before the date the Act is passed, the notification must be given within the period of 14 days beginning with the date the Act is passed. Where the trustees consider the triggering event was resolved on or after the date on which the Act is passed but before the commencement date, or where the triggering event occurred before the commencement date but the trustees consider it was resolved after the commencement date, the notification must be given before the end of the period of 14 days beginning with the date on which the triggering event was in the opinion of the trustees resolved. Where a triggering event occurs after the commencement date, the period for notification will be set out in regulations.
Paragraph 6 modifies section 33 to apply the prohibition during a triggering event period under section 33 to a Master Trust scheme in relation to which a triggering event occurs on or after 20 October 2016 but before the commencement date. The prohibition is modified in the way it applies.
If a triggering event occurs on or after 20 October 2016 trustees must, before the end of the period of seven days beginning with the triggering event or the date on which the Act is passed (whichever is the later), provide the Pensions Regulator with a statement of the annual levels of administration charges that applied in relation to members of the scheme on 20 October 2016 according to each arrangement or fund within the scheme. Trustees must not then impose any administration charges on or in respect of members at levels above those.
Provision is also made so that trustees of a scheme receiving transfers of accrued rights from the Master Trust experiencing a triggering event must not impose administration charges on members above a level of charges in the receiving scheme as set out in a statement of annual charges on 20 October 2016.
Paragraph 7 creates a new section, section 33A, for Master Trusts in existence on 20 October 2016. Under this section the scheme funder of a Master Trust experiencing a triggering event, or moving to wind up, is liable for the costs of winding the scheme up if these costs do not fall elsewhere (taking into account the prohibition on increasing charges on members to pay for the costs of winding up).
Paragraph 8 modifies section 3 for schemes which are already operating when it comes into operation. The modifications are designed to allow a Master Trust to continue to operate until its application is received by the Pensions Regulator, or the Regulator determines that the scheme should not be authorised.
Paragraph 8 also provides that the trustees of a Master Trust scheme must, within the six month application period, either apply for authorisation or decide to wind up the scheme. The Regulator may allow an extension to the six month period of up to six weeks if the trustees satisfy the Regulator that there is a good reason for requiring an extension. Extensions can only be granted during the initial six month application period.
Under paragraph 8, if the Pensions Regulator is aware of a Master Trust scheme operating after the application period (as extended where applicable) and it has not received an application for authorisation or a notification that the scheme is to be wound up then it must notify the trustees that the scheme is not authorised. This is a triggering event and the notification must explain the trustees’ duties (see sections 20 to 33).
Paragraph 8 also inserts a new section 3A which applies only to existing Master Trusts. It allows the Pensions Regulator to issue a pause order to a Master Trust scheme which has submitted an application for authorisation under section 4, provided the decision on that application has not yet become final under section 35.
Subsections (3) and (4) mean that a pause order made under this section is to be treated as though it is made under section 31, except that the provision which ensures that a pause order ceases to have effect at the end of a triggering event period does not apply (as under this specified circumstance, the pause order is not made within the triggering event period).
To issue a pause order under section 3A, the Regulator must be satisfied that there is, or is likely to be if a pause order is not made, an immediate risk to the interests of members under the scheme or the assets of the scheme, and that it is necessary to make a pause order to protect the interests of the generality of members of the scheme.
Paragraph 9 modifies section 5 so that where a decision is made not to authorise a Master Trust that is operating before the commencement date, the notice includes an explanation that it is a triggering event for the purposes of sections 20 to 33A (added subsection (7)). A decision to authorise or not authorise an existing Master Trust scheme which has submitted an application for authorisation must be taken by the Pensions Regulator’s Determinations Panel (added subsection (8)).
Paragraphs 10 to 15 make amendments to sections 21, 23, 26, 28, 34 and 35 in relation to Master Trusts in operation at commencement. The effect of these amendments is to:
replace references to authorisation being withdrawn with references to authorisation being refused to reflect that existing Master Trusts will not have been authorised previously; and
add a triggering event (item 2A) to the table of triggering events in relation to existing Master Trust schemes (paragraph 10(c)).
Section 38 and Schedule 3: Minor and consequential amendments
Section 38 allows the Department, through regulations, to make amendments to legislation which are consequential on Part 1 of the Act. This applies to both primary and secondary legislation.
Subsections (4) and (5) provide that any regulations made under this section that contain provision amending primary legislation are subject to the confirmatory procedure and that any other regulations made under this section are subject to negative resolution.
This section also introduces Schedule 3 which sets out other minor consequential amendments.
Paragraphs 1 to 4 of Schedule 3 make amendments to sections 96B(2) and 97AI(7) of the Pension Schemes (Northern Ireland) Act 1993 and Article 67A(9) of the Pensions (Northern Ireland) Order 1995 to amend the definition of ‘scheme rules’ so that references to scheme rules in these provisions incorporate the legislative overrides included in sections 21, 23, 26, 28, 29 and 33 and Schedule 1.
Paragraphs 5 to 9, 15 to 17 and 19 make changes to the Pensions (Northern Ireland) Order 2005 (“the 2005 Order”) to extend existing powers and functions of the Pensions Regulator to measures in this Act. The definition of “scheme rules” in Article 2(4) of the 2005 Order is amended so that references to scheme rules in these provisions incorporate the legislative overrides included in sections 21, 23, 26, 28, 29 and 33 and Schedule 1.
Article 9 of the 2005 Order is amended to include reference to this Act by paragraph 7 to ensure that the Pensions Regulator can issue improvement notices to trustees where there are breaches of the Act provisions (or regulations made under them).
Paragraph 8 amends Article 65 of the 2005 Order to include the scheme funder and scheme strategist within those who have a duty to report breaches of the law to the Pensions Regulator.
Paragraph 9 amends Article 67 of the 2005 Order so that a person required to give information under Article 67 for the purposes of the Pensions Regulator’s authorisation functions can be required to explain any information or document, including by attendance in person.
Paragraphs 10 to 14 make amendments to Articles 68(2), 72A(6), 72B(8), 75(1)(c) and 75A(2)(c) of the 2005 Order, in consequence of the Pension Schemes Act 2021, to insert references to this Act into provisions in those Articles. The amendments correspond to amendments made to the relevant provisions in Great Britain by the Pension Schemes Act 2021, to maintain parity.
Paragraph 15 amends Article 85 of the 2005 Order to require the Pensions Regulator to publish Codes of Practice on authorisation criteria and the application for authorisation and adds a reference to the Act in the definition of “pensions legislation” for the purposes of that Article.
Paragraph 16 amends Article 88(2) of the 2005 Order to make the power to give a direction under section 26(7) of this Act (direction to submit implementation strategy) subject to the Pensions Regulator’s internal ‘standard procedure’.
Paragraph 17 extends the list of instances included in Article 92(5) of the 2005 Order showing where the special procedure can be used so that the special procedure can apply in relation to the power to make a pause order, the power to extend a pause order, the power to validate action in contravention of a pause order and the power to require notification of members or employers under paragraph 4(3) of Schedule 1 to this Act.
Paragraph 18 amends paragraph 2(2) of Schedule 1 to the 2005 Order to add in references to provisions in this Act relating to fixed penalty notices and escalating penalty notices, in consequence of the Pension Schemes Act 2021. The amendments correspond to amendments made to the relevant provisions in Great Britain by the Pension Schemes Act 2021, to maintain parity.
Paragraph 19 extends the list of functions exercisable by the Pensions Regulator’s Determinations Panel in Schedule 2 to the 2005 Order by creating a new list headed Part 4A. These functions are the power to withdraw authorisation, the power to direct trustees to pursue a continuity option, power to make a pause order, power to extend the pause order, power to validate action taken in contravention of the pause order and power to direct notification of members or employers.
Paragraph 20 amends section 31 of the Pensions (No. 2) Act (Northern Ireland) 2008 which currently sets out the effect of freezing orders to include references to pause orders issued under section 31 of this Act.
Paragraphs 21 and 22 amend sections 17 and 18 of this Act, which relate to fixed penalty notices and escalating penalty notices, in consequence of the Pension Schemes Act 2021. The amendments correspond to amendments made to the relevant provisions in Great Britain by the Pension Schemes Act 2021, to maintain parity.
Section 39: Interpretation of Part 1
Interpretation of various terms used in Part 1 of the Act are given in section 39.
Section 40: Regulations modifying application of Part 1
Section 40 provides the Department with a regulation-making power to apply some or all of the provisions in Part 1 of the Act to schemes with specified characteristics which do not fall within the Master Trust definition. It also provides a power to disapply some or all of the provisions in relation to Master Trust schemes with specified characteristics. This will enable the Department to ensure that the authorisation regime applies appropriately and to address Master Trusts which might be structured in such a way that deliberately seeks to evade the Master Trust definition, or which exhibit the characteristics of a Master Trust without meeting the definition.
There is also provision under subsection (2) for regulations to allow two or more schemes to be treated as a single Master Trust under certain circumstances. The circumstances may include situations where schemes are under common control, influence, share common rules, or are provided by the same service provider.
Subsection (4) provides that any regulations under this section are subject to the confirmatory procedure.
