Summary and Background
3.In Spring 2002 the then Secretary of State for Social Security asked Alan Pickering to look at how the administration of occupational pension schemes could be simplified. Ron Sandler was jointly commissioned by the Chancellor of the Exchequer and the Secretary of State to review retail savings in the same period. A Quinquennial review of the Occupational Pensions Regulatory Authority (Opra) and a National Audit Office (NAO) Value for Money study into how Opra worked took place during 2002. The outcomes of all these separate reviews showed that major themes for pension reform were emerging.
4.In December 2002 the Government published a Green Paper entitled Simplicity Security and choice: Working and saving for retirement [Cm 5677], and its proposals for simplification of the tax treatment of occupational and personal pensions. In response to the ensuing consultation, in June 2003 the Secretary of State for Work and Pensions published Working and saving for retirement: Action on occupational pensions [Cm 5835], which focussed on the need for member protection to rank alongside the other themes. It presaged primary legislation across the areas consulted, including a Pension Protection Fund to compensate members of defined benefit and hybrid schemes whose employers become insolvent leaving the pension scheme unable to meet its liabilities. The European Directive on the Activities and Supervision of Institutions for Occupational Retirement Provision (2003/41 EC) was adopted in September 2003 for implementation by September 2005. In February 2004 the Secretary of State for Work and Pensions carried forward broader policy on financial retirement planning in Simplicity, security and choice: Informed choices for working and saving [Cm 6111].
5.These various strands of development have come together in this Pensions Act. Its main provisions are as follows.
6.Part 1 establishes a new Non-Departmental Public Body (NDPB), the Pensions Regulator, to replace Opra. This will take over Opra’s responsibility for regulation of occupational pensions, and specific functions relating to personal pensions and stakeholder pensions. Like Opra, the Regulator will be funded by a levy on schemes. Through this Act the Regulator will assume a number of new functions. A new tribunal – the Pensions Regulator Tribunal- will be established to handle references from determinations made by the Regulator.
7.The Act also establishes in Part 2 a second new NDPB, the Board of the Pension Protection Fund; to provide compensation for members of defined benefit (normally final salary) and hybrid occupational pension schemes in the event of the scheme’s sponsoring employer going insolvent and leaving the pension scheme with insufficient funds to pay its members at least the level of PPF compensation. The PPF will be funded by levies on relevant schemes, to be set by the Board of the Pension Protection Fund subject to parameters on the level and structure set by Parliament, and also by taking in any of the scheme’s remaining assets, including any debt due by the employer, on insolvency. The external appeals body for the Board of the Pension Protection Fund’s decisions will be the PPF Ombudsman. The Board of the Pension Protection Fund will subsume the functions of the Pensions Compensation Board.
8.Part 3 replaces the Minimum Funding Requirement for defined benefit occupational schemes with scheme-specific funding requirements allowing schemes greater flexibility in developing funding strategies appropriate to their circumstances.
9.Part 4 introduces a new, explicit function of the Secretary of State to promote and facilitate financial retirement planning. It provides for powers which may be exercised to require employers to provide their employees with access to pensions planning information and advice through the workplace and to be able to compel occupational or personal pension schemes to provide combined pension forecasts incorporating state pension data.
10.Part 5 deals with a number of matters relating to the administration of occupational and personal pension schemes. Amongst these it changes the rules on limited price indexation for occupational and personal pensions, reduces the cap from 5% to 2.5% for defined benefit schemes and removes the statutory requirements for limited price indexation for pensions derived from money purchase benefits. It introduces a minimum level of pension protection for employees involved in TUPE transfers where they had access to an occupational pension scheme pre-transfer. It introduces a requirement for trustees to have appropriate knowledge for the performance of their duties, in response to the recommendations from the Myners Report on institutional investment.
11.Part 6 provides for financial assistance to be given to members of certain pension schemes.
12.Part 7 makes provision about cross-border activities within the European Union.
13.Part 8 alters the position of pensioners who defer taking their State Retirement Pension by bringing forward an increase in increments originally planned for 2010. This will provide a higher weekly income on retirement. Provision is made for a new option, a lump sum, as an alternative to increments.
14.There are a number of measures providing greater flexibility and simplification in pension scheme administration. Throughout Parts 5 and 8 there are a number of provisions clarifying existing pensions law.
