1014.This section introduces a fifth chapter into Part 4 of the Pension Schemes Act 1993 consisting of new sections 101AA to 101AI. They make provision for members who leave after three months pensionable service in a scheme, but before their rights have vested in the scheme, to be entitled to a cash transfer or a refund of employee contributions. The new sections 101AA to 101AI do not preserve those rights in the scheme so that the person has a preserved pension entitlement. But they provide instead for the member to have the choice of a cash transfer sum or a refund of their contributions.
1015.Subsection (1) provides that Chapter 5 is to apply to any member of an occupational pension scheme whose pensionable service ends before normal pension age, who has at least three months qualifying service but does not have relevant accrued rights in the scheme. In other words his full rights have not vested. Subsection (2) sets out the three month qualifying service condition and what service periods count towards it. It includes service in another scheme where there has been a cash transfer from that scheme into this scheme. Subsection (3) provides that a period under subsection (2) only counts as far as it counts towards the qualification of long service benefits within the meaning of Chapter 1.
1016.Subsection (4) defines for the purpose of subsection (1) “the relevant accrued rights to benefit under the scheme”. These are rights in the scheme which are not pension credit rights and would entitle the member to a short service benefit as in section 71(1) of the Pension Schemes Act 1993. Subsection (5) provides that all references in Chapter 5 to “a member in relation to an occupational pension scheme” are to a person to whom the provisions in Chapter 5 apply.
1017.Paragraph 30 of Schedule 12 (which makes minor and consequential amendments in connection with the Act) includes an amendment to section 179 of the Pension Schemes Act 1993 (which sets out what counts as linked qualifying service) so that it will include a transfer of a cash transfer sum as provided by the new Chapter 5 of Part 4 inserted by this section.
1018.Section 101AB sets out the circumstances in which a right to a cash transfer sum, or refund of contributions arises. Subsection (1) provides that a member has the right to either a cash transfer sum, or a refund of contributions when his pensionable service ends. Subsection (2) provides that the right to the options in subsection (1) is subject to the provisions of Chapter 5. Subsection (3) defines the term cash transfer sum as being the cash equivalent value of the benefits which would have accrued in respect of the member had the scheme not had a rule requiring a minimum period of service before those rights could vest.
1019.Subsection (4) defines the term contribution refund as being a sum representing contributions paid by or on behalf of the member on the member’s own account and, where rights have been transferred into the scheme, any employee contributions into the first scheme which are included in the transfer payment. Subsection (5) defines what is meant by the term “employee contributions” in subsection (4). It means contributions made to the scheme by or on behalf of the member on his own account but does not include any transfer payment or amount paid to the scheme which is attributable to a pension credit.
1020.This section sets out what the trustees or managers of the scheme must do when the pensionable service of a member ceases and he acquires a right under the provisions in section 101AB. Subsection (1) provides that this section only applies when the member’s pensionable service under the scheme has ended. Subsections (2) and (3) provide that the trustees or managers must, within a reasonable period, give the member written information setting out the amount of the cash transfer sum, how it may be used, the amount of the contribution refund and such other information as may be required by regulations. The notification must also include the date by which the member must notify the trustees or managers of his choice.
1021.Subsection (4) provides that the information required by regulations may include information about any tax liability on the options open to the member and about the effect on any other options the member may have under scheme rules or otherwise. Subsection (5) provides that the trustees or managers may notify the members that if he fails to exercise his choice by the due date given in the notification the trustees or managers may be entitled to pay a contribution refund to him. Subsection (6) provides that any trustee or manager who has failed to take reasonable steps to comply with the requirements in subsection (2) may be liable to a civil penalty under section 10 of the Pensions Act 1995 (civil penalties).
1022.Subsection (1) explains that this section applies where a member has acquired a right under section 101AB to a contribution refund or cash transfer sum. Subsection (2) provides for the member to exercise his right by notifying the trustees or managers in writing of his choice of a cash transfer sum or a contribution refund. If he opts for the cash transfer sum he must also state which one of the permitted ways outlined in the letter he wishes to use. Subsection (3) requires that the reply must be within the date specified by the trustees or managers, or any other later date that they may allow.
1023.This sets out the permitted ways of using a cash transfer sum under section 101AB. Subsection (2) provides that a cash transfer sum may be used to: acquire rights under another occupational pension scheme, or a personal pension scheme, providing the receiving scheme is willing and able to accept the transfer and the receiving scheme meets prescribed requirements, or to purchase one or more appropriate annuities. It also provides for regulations to set out other ways in which the cash transfer sum may be used. Subsection (3) defines “appropriate annuity” as an annuity which satisfies prescribed requirements and, is to be purchased from an insurer who is chosen by the member, satisfies the requirements in section 19(4) of the Pension Schemes Act 1993 and is willing to accept payment from the trustees or managers.
1024.This provides for regulations to prescribe how cash transfer sums and refunds of contributions are calculated. Subsection (2) provides that the contribution refund must be calculated in accordance with any requirements in regulations. Subsection (3) provides that regulations may enable administrative costs to be deducted from cash transfer sums and for cash transfer sums and contribution refunds to be increased or reduced in prescribed circumstances.
1025.Subsection (4) provides that those circumstances that may be prescribed under subsection (3)(b), may include failure of the trustees or managers to take the necessary action required under section 101AG(2) or (4) of the Pension Schemes Act 1993 once a member has exercised his right to a cash transfer or contribution refund, and the state of scheme funding, (for example, to allow a cash transfer sum to be reduced if the scheme is underfunded or where the transfer has already been made to the member under scheme rules). Subsection (5) allows regulations to provide for the cash transfer sum or contribution refund to be reduced to the extent that a member may not receive anything.
1026.Paragraph 30 of Schedule 12 (which makes minor and consequential amendments in connection with the Act) includes an amendment to section 179 of the Pensions Schemes Act 1993 which sets out what counts as linked qualifying service so that it will include a transfer of a cash transfer sum as provided by the new Chapter 5 of Part 4 inserted by this section.
1027.Paragraph 18 of Schedule 12 (which makes minor and consequential amendments in connection with the Act) introduces a new section 113A to the Pension Schemes Act 1993. This will enable regulations to specify the information which must be provided to trustees or managers of the receiving occupational pension scheme when rights are transferred from one scheme to another. The powers will enable trustees of the receiving scheme to obtain information about employee contributions paid in the transferring scheme.
1028.This sets out the duties on the managers or trustees of the scheme when they receive the reply from the member exercising his choice within the time limit. Subsection (2) requires the trustees or managers to take whatever steps are needed to comply with the member’s request for a cash transfer sum within a reasonable period of receiving it. Subsection (3) discharges the trustees or managers of any obligation in respect of any rights (other than pension credit rights) the member may have in the scheme or to provide a contribution refund in respect of any rights in the scheme when they have taken the steps required.
1029.Subsection (4) requires the trustees or managers to take whatever steps are needed to comply with the member’s request for a contribution refund within a reasonable period of receiving it. Subsection (5) provides that where trustees or managers have taken the steps required to pay the contribution refund they are discharged from any obligation in respect of any rights (other than pension credit rights) the member may have in the scheme, or if the member also has a right under scheme rules for a contribution refund, the amount of the contribution refund paid under Chapter 5 may be offset against it. Subsection (6) provides that where the trustees or managers fail to carry out the action required in subsections (2) and (4) they may be liable to a civil penalty under section 10 of the Pensions Act 1995.
1030.This applies where the member has failed to respond to the notification issued by the trustees or managers as required in section 101AC. Subsection (1) applies the provisions in this section when the member fails to exercise his right by the reply date, or any other later date set by the trustees or managers who have notified him in accordance with section 101AC(3).
1031.Subsection (2) makes provision for the trustees or manager to pay a contribution refund within a reasonable period beginning with the reply date or later date agreed by the trustees or managers, if the member has not exercised his right by the dates in subsection (1). Subsection (3) provides that where trustees or managers have paid the contribution refund they are discharged from any obligation in respect of any rights the member may have in the scheme or if the member also has a right under scheme rules for a contribution refund, the amount of the contribution refund paid under Chapter 5 may be offset against it.
1032.This sets out the further provisions that may apply to the right of a cash transfer sum or contribution refund under section 101AB. Subsection (1) provides that a member will lose any right acquired under 101AB in the case of the scheme having been wound up, or subject to the provisions in subsection (2), if he fails to exercise his right by the due date.
1033.Subsection (2) allows for the trustees or managers, on application from the member, to set a later reply date within which the member can exercise his right. Subsection (3) provides that the trustees or managers must notify the member in writing of any later date determined by them and that the later date is treated as the reply date for the purposes of subsection (1). Subsection (4) provides that a notification under subsection (3) of this section, section 101AC(2) and section 101AD(2) may be given to the member by delivering it to him, leaving it at his proper address, or by posting it to him at that address.
1034.Subsection (5) provides that the proper address is, in the case of a corporate body, the registered or principal office and in all other cases the last known address. Subsection (6) provides that Chapter 5 is subject to any provision made under section 61 of the Pension Schemes Act 1993 that permits a deduction from any payment of a contribution refund, or requiring the payment of a contribution refund to be delayed. Subsection (7) defines the expressions of “applicable rules”, “member”, “permitted way”, “relevant benefits” and “reply date” for the purpose of Chapter 5. Subsection (8) lists what provisions are relevant legislative provisions for the purposes of subsection (7).