The National Health Service (Scotland) (Superannuation Scheme and Additional Voluntary Contributions) (Pension Sharing on Divorce) Amendment Regulations 2001

Explanatory Note

(This note is not part of the Regulations)

These Regulations make further amendments to the National Health Service Superannuation Scheme (Scotland) Regulations 1995 (“the 1995 Regulations”) and the National Health Service Superannuation Scheme (Scotland) (Additional Voluntary Contributions) Regulations 1998 (“the AVC Regulations”) which provide for the superannuation of persons engaged in the National Health Service in Scotland and make provision for the payment of additional voluntary contributions by persons who are members of the NHS Superannuation Scheme, or by their employers, in order to secure additional pension benefits. They have retrospective effect from 1st December 2000 as authorised by section 12 of the Superannuation Act 1972.

Regulations 1 and 2 provide for citation, commencement, effect, extent and interpretation.

Regulation 3 and Schedule 1 amend the 1995 Regulations.

Paragraph 1 of Schedule 1 inserts new definitions into regulation A2 of the 1995 Regulations.

Paragraph 2 of Schedule 1 inserts a new regulation R14 into the 1995 Regulations which gives effect to a new Schedule 1A to the 1995 Regulations (inserted by paragraph 4 of Schedule 1).

Paragraph 3 of Schedule 1 inserts a new Part W into the 1995 Regulations setting out a regime for pension sharing on divorce. Part W has the following effect–

• Regulation W1 (Interpretation of Part W) explains that this new Part is to be read using the definitions in regulation A2 of the 1995 Regulations.

• Regulation W2 (pension sharing mechanism in the Scheme) provides for pension sharing in respect of a member’s shareable rights under the 1995 Regulations.

• Regulation W3 (pension sharing order activates pension sharing creating pension debits and credits) provides for the members shareable rights to be debited and for the transferee to be entitled to a pension credit.

• Regulation W4 (calculation of “appropriate amount”) provides for the calculation of the specified percentage or the amount to be transferred and defines valuation day and transfer day for the purposes of this regulation.

• Regulation W5 (pension debits and reduction of benefit) provides for the shareable rights of the debit member to be reduced in accordance with the appropriate percentage of the pension credit.

• Regulation W6 (effect of pension sharing on protected rights and guaranteed minimum pension) provides for the debit member’s protected rights or guaranteed minimum pension to be reduced by the appropriate percentage.

• Regulation W7 (discharge of pension credit liability) allows the Scottish Ministers to discharge their liability in respect of the pension credit by providing the appropriate rights within the Scheme which equals the amount of the credit.

• Regulation W8 (adjustment to the amount of the pension credit payments made without the knowledge of the pension debit) makes provision for the pension credit to be reduced in circumstances where the Scottish Ministers are not aware of the pension debit and make a payment in respect of the shareable rights. If the cash equivalent of the member’s shareable rights after deduction the payment is less than the amount of the pension debit, the pension credit will be reduced to the lesser amount.

• Regulation W9 (“implementation period” for discharge of pension credit) provides for the Scottish Ministers to discharge their liability in respect of a pension credit within the 4 months “implementation period”. The regulation also sets out the documents which Scottish Ministers must receive in order to establish the day on which the implementation period begins. It also sets out the requirement to notify the transferor and transferee of that date or any cessation or postponement of that date. Paragraph (4) makes provision under regulation 4 of the Pension Sharing (Implementation and Discharge of Liability) Regulations 2000 for the implementation period to be postponed or to cease where an application is made for leave to appeal out of time. Where the Scottish Ministers have discharged their liability in respect of the pension credit and subsequently receive notification of an application for leave to appeal out of time they must inform the court within 21 days that the liability for the pension credit has been discharged.

• Regulation W10 (failure to discharge liability in respect of pension credit within the implementation period and death of ex-spouse within period) paragraphs 1 and 2 of regulation W10 provide that where the Scottish Ministers fail to discharge their liability within the implementation period they must notify the Regulatory Authority within the period prescribed in regulations under section 33(2)(a) of the 1999 Act and section 10 (civil penalties) of the Pensions Act 1995 will apply. The prescribed period set out in regulation 2 of the Pension Sharing (Implementation and Discharge of Liability) Regulations 2000 is 21 days from the day immediately following the implementation period. Paragraph (3) provides that Scottish Ministers may apply for an extension of the implementation period in circumstances prescibed by regulations made under section 33(4) of the 1999 Act provided the application is made before the end of the implementation period.

• Regulation W11 (“appropriate rights”/“pension credit benefits” under the Scheme) sets out the appropriate rights in respect of the pension credit member. The credit member benefits are restricted to pension and lump sum on retirement and lump sum on death and will be treated as a preserved pension. Provision is made for benefits to be increased under the Pensions Increase Act 1971. Benefits will be payable on reaching the normal retirement age for the Scheme (age 60) and may not be deferred.

• Regulation W12 (pension credit member dies after pension credit benefit becomes payable) makes provision for payment of a lump sum in respect of the pension credit member where the pension has been in payment for less than 5 years restricted to a maximum of twice the members final year’s pensionable pay on valuation day (increased in line with the Index) less the lump sum paid under regulation W11(3).

• Regulation W13 (pension credit member dies before pension credit benefit becomes payable) provides for payment of a lump sum on the same terms as a preserved benefit.

• Regulation W14 (additional contributions and additional periods) prevents the active member from purchasing additional service to replace any rights debited and restricts the amount of additional service which may be purchased to the amount of service the member could have purchased if the pension sharing order had not been made. This restriction is relaxed in respect of moderate earners whose earnings at the date of divorce or annulment are not more that 25 per cent of the permitted maximum or such other amount as may be prescribed.

• Regulation W15 (commutation: small pensions) provides for a pension credit to be commuted on grounds of triviality. Where a pension credit member is also a member of the Scheme, the pension credit may only be commuted if the aggregate of pension or pensions under the Scheme falls below the limit in regulation T7.

• Regulation W16 (commutation: exceptional ill-health) provides for the pension credit to be commuted for a lump sum payment before the normal benefit age on grounds of terminal ill-health where the life expectancy is less than one year.

• Regulation W17 (pension transfers) prevents the Scheme from accepting a transfer value in or paying a transfer value out of the Scheme in respect of pension credit rights or pension credit benefits.

• Regulation W18 (charges in respect of pension sharing costs) allows the Scottish Ministers to recover the costs accrued in respect of pension sharing as set out in the Pensions on Divorce etc. (Charging) Regulation 2000.

• Regulation W19 (excluded membership) ensures that, where a pension credit member is also an active or deferred member, the pension credit must be disregarded when assessing the length of service in relation to Scheme service and benefits.

• Regulation W20 (general rules about benefits) applies the general provisions of Part T of the 1995 Regulations to the credit member.

• Regulation W21 (assignment) provides for the pension credit not to be assigned except where required by law.

• Regulations W22 (administrative matters) provides for the determination of any questions concerning a person’s rights or liabilities in respect of a pension credit under these Regulations.

Paragraph 4 of Schedule 1 inserts a new Schedule 1A into the 1995 Regulations. Schedule 1A has the following effect:–

• Paragraph 1 modifies the provisions in Part E of the 1995 Regulations in relation to pension debit members as regards retirement pensions and retirement lump sums;

• Paragraph 2 modifies the provisions in Part F of the 1995 Regulations in relation to the payment of a lump sum on death in respect of a person entitled to a pension credit, a pension credit member and a pension debit member;

• Paragraph 3 modifies the provisions in Part G of the 1995 Regulations in respect of widows and widowers;

• Paragraph 4 modifies the provisions of Part H of the 1995 Regulations in respect of dependant child allowances;

• Paragraph 5 modifies Part K of the 1995 Regulations in respect to contracting out and guaranteed minimum pensions;

• Paragraph 6 modifies Part M of the 1995 Regulations in respect of transfer out arrangements.

• Paragraph 7 modifies the provisions in Part Q of the 1995 Regulations in relation to the right to buy additional service and unreduced lump sum;

• Paragraph 8 modifies Part S of the 1995 Regulations in relation to members who return to pensionable employment after pension becomes payable;

• Paragraph 9 modifies regulation T5 of the 1995 Regulations in relation to offset for crime, fraud or negligence; and paragraph 10 modifies regulation T6 of the 1995 Regulations in relation to the removal of rights to benefits in certain circumstances;

• Paragraph 10 makes consequential modifications to regulation T6 of the 1995 Regulations.

Regulation 4 and Schedule 2 amend the AVC Regulations, Regulations 2, 13 and 15 of the AVC Regulations are amended (paragraphs 2 to 4 of Schedule 2). Paragraph 5 of Schedule 2 inserts a new regulation 17A into the AVC Regulations which gives effect to a new Schedule 2 (paragraphs 5 and 6 of Schedule 2 to these Regulations).

• Generally the new Schedule 2 to the AVC Regulations makes provision for the discharge of liability in respect of a pension credit by the Scottish Ministers, the discharge of liability if the person entitled to the pension credit dies before liability has been discharged, the commutation of pension credit benefit before or at normal benefit age (age 60), the payment of pension credit benefit at normal benefit age, and after the death of the pension credit member before the pension credit benefit becomes payable and after it becomes payable. Provision is also made for the investment of pension credit rights in a way which is similar to the investment of additional voluntary contributions under regulation 7 of the AVC Regulations. The transfer of pension credit rights out of the AVC scheme is also provided for.

• Specifically paragraph 11 of the new Schedule 2 enables a person entitled to a pension credit or a pension credit member to nominate someone other than a surviving spouse to receive the lump sum payable upon his death.

• Paragraphs 13 and 14 of the new Schedule 2 to the AVC Regulations contain provisions regarding the reduction and forfeiture of rights to pension credit benefit to the extent that those rights are originally derived from contributions made by the employer of the pension credit member’s former spouse and against whom the pension sharing order or provision was made. The provisions are similar to regulations 19 and 20 of the AVC Regulations.

These Regulations do not impose any costs to Businesses.