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Pension Schemes Act 2021

Commentary on provisions of Act

Part 1: Collective Money Purchase Benefits

Definitions

Section 1: Collective money purchase benefits and schemes

  1. This section defines the terms ‘collective money purchase benefit’ (CMPB) and ‘collective money purchase scheme’. The definitions refer to the terms ‘qualifying scheme’ and ‘qualifying benefit’ which are defined in subsequent sections. References to ‘collective money purchase scheme’ mean a qualifying scheme or a section of a qualifying scheme, where all of the benefits provided under the scheme or section are qualifying benefits. To be a CMPB the benefit must be a qualifying benefit provided by a qualifying scheme.

Section 2: Qualifying benefits

  1. This section defines what is a qualifying benefit. Subsections (1)(a) and (1)(b) provide that to be a qualifying benefit the rules of the scheme must provide for the rate or amount of the benefit to be variable so as to achieve a balance between the available assets of the scheme and the ‘required amount’, which is the projected costs of paying benefits under the scheme. The benefit must also be paid out of the available assets of the scheme. This makes it clear that qualifying benefits are not subject to any guaranteed level and that the employer is consequently not liable for any deficit.
  2. Subsection (1)(c) allows for benefits specified in regulations to be excluded from being categorised as qualifying benefits. This power is intended to ensure that benefits not intended to be CMPB do not inadvertently fall within the definition. For example, regulations could be made under this section to exclude non-money purchase benefits in the event a risk arises that they might be reclassified in law as CMPB and, therefore, removed from scheme funding requirements and eligibility for entry to the PPF.
  3. Subsection (2) defines the terms ‘available assets of the scheme’ and ‘the required amount’. The available assets do not include deductions for administration charges. The definition of ‘the required amount’ makes it clear that the calculation involves the application of actuarial assumptions and relates to the cost of providing benefits under the scheme on a collective basis.
  4. Where an occupational pension scheme is divided into sections, subsection (4) enables the provisions in this section to be read as if they referred to a section of the scheme.

Section 3: Qualifying schemes

  1. This section sets out the requirements for schemes to be qualifying schemes, and so able to provide CMPB.
  2. Subsection (2) requires all qualifying schemes to be occupational pension schemes set up under trust by an employer or group of connected employers. Subsection (3) limits qualifying schemes to those schemes used by a single employer or group of connected employers. Subsection (4) prevents public service pension schemes from providing CMPBs.
  3. Subsection (5) requires qualifying schemes to provide a pension income in retirement.
  4. Where a scheme offers both qualifying and other benefits, subsection (6) provides that there must be appropriate separation of the qualifying benefits. Subsection (7) provides that there is appropriate separation only if the scheme is divided into separate sections and that a section providing qualifying benefits cannot provide any other types of benefits. Payments of qualifying benefits under a section must also be allocated to that section, and the assets attributable to each section cannot be used for any other section.
  5. Where a scheme offers more than one kind of CMPB, in a way to be described in regulations, subsections (8) and (9) require that the different types of CMPB must be provided under different sections. Payments of qualifying benefits under a section must be allocated to that section and the assets attributable to each section cannot be used for any other section.

Section 4: Qualifying schemes: supplementary

  1. This section sets out what constitutes a public service pension scheme for the purpose of subsection (4) of section 3.

Section 5: Schemes divided into sections

  1. Subsection (1) provides for regulations to specify when a qualifying scheme offering CMPBs is to be classed as being divided into sections. 
  2. Subsection (2) allows regulations to provide that authorised status may apply to newly created sections within a previously authorised qualifying scheme where these sections satisfy certain conditions.
  3. Subsection (3) provides that each section of a qualifying scheme which is divided into separate sections and which provides CMPBs is treated as a separate scheme, but that the overall ‘umbrella’ scheme is not treated as a collective money purchase scheme.

Section 6: Amendment of definitions of "money purchase benefits" etc

  1. This section introduces Schedule 1 which makes amendments to existing definitions of ‘money purchase benefits’ set out in legislation to insert CMPBs as a type of money purchase benefit. It also amends section 32 of the Pensions Act 2011, which contains a power to amend by regulations the definitions of money purchase benefits in legislation, so that regulations made under section 32 may also amend the definition of CMPBs in this Act and other legislation.

Schedule 1: Money purchase benefits

  1. This Schedule inserts the term "collective money purchase benefits" as defined by this Act into other relevant legislation as a subset of "money purchase benefit" for the purposes of the legislation.

Authorisation

Section 7: Authorisation of collective money purchase schemes

  1. This section sets out a general prohibition – that a person cannot operate a collective money purchase scheme unless that scheme is authorised. A person operates a collective money purchase scheme, if in relation to the scheme, the person accepts money from members or prospective members, or money from employers or prospective employers in respect of contributions, fees, charges or anything else (although trustees may receive money paid by an employer in advance of authorisation where this is to meet the costs of setting up the scheme or costs relating to obtaining authorisation for the scheme) (subsection (5)). To become authorised, the Pensions Regulator must be satisfied that the scheme meets certain criteria which are set out in section 9.
  2. Subsection (2) provides that if a person does operate a collective money purchase scheme that is not authorised, they may be subject to a civil penalty under section 10 of the Pensions Act 1995.
  3. Subsections (3) and (4) provide that where the Regulator becomes aware that a collective money purchase scheme is operating without authorisation, it is required to notify the trustees that the scheme is not authorised. The notification must explain that the notification is a triggering event (see section 31) and include an explanation of the trustees’ duties under sections 31 to 45.

Section 8: Application for authorisation

  1. This section makes provision regarding the application for authorisation of a collective money purchase scheme, which is to be made to the Pensions Regulator, and the information which must be included in the application. Under subsection (1), the trustees of the scheme may apply to the Pensions Regulator; the application will need to be made in the manner and form specified by the Regulator (subsection (2)).
  2. Subsection (3) provides that an application must include the scheme’s viability report and viability certificate (see section 13), and continuity strategy (see section 17).
  3. Subsection (4) provides a power for the Secretary of State to make regulations setting out other information to be provided in an application and prescribing an application fee payable to the Regulator.
  4. Subsection (5) provides that in considering an application, the Regulator may take into account any matters it considers appropriate including additional information provided by the applicant and subsequent changes to the application or information provided by the applicant.

Section 9: Decision on application

  1. This section sets out that where an application is made for authorisation, the Pensions Regulator must make a decision regarding authorisation within six months of the date of receiving the application. The Regulator will need to decide if it is satisfied that a collective money purchase scheme has met the six authorisation criteria set out in subsection (3), which are detailed in later sections of the Act. The criteria relate to: the individuals who are involved in the scheme; the soundness of the scheme’s design, the sustainability of the scheme's financial position; the scheme's systems and processes for communicating with members and others; the scheme’s systems and processes used in running the scheme; and the scheme’s continuity strategy if a triggering event occurs. All of the authorisation criteria must be met for a collective money purchase scheme to be authorised, and they must continue to be met for it to remain authorised. Sections 11 to 17 set out further detail about each of the criteria and the matters that the Regulator must take into account when satisfying itself as to whether the scheme meets the authorisation criteria.
  2. Where the Pensions Regulator is satisfied that the authorisation criteria have been met, it is required to authorise the scheme and notify the trustees of its decision. The scheme will also need to be included on the Regulator's published list of authorised collective money purchase schemes (see section 26).
  3. If the Regulator is not satisfied that the criteria have been met, it must refuse to grant the authorisation and must notify the trustees of its decision, the reasons for it and details of the right of referral to the First-tier Tribunal or Upper Tribunal (see section 10).

Section 10: Reference to Tribunal of refusal to grant authorisation

  1. This section provides that a decision to refuse to grant authorisation to a collective money purchase scheme by the Pensions Regulator can be referred to the First Tier or Upper Tier Tribunal in accordance with Tribunal Procedure Rules.
  2. A referral to the Tribunal can be made by the trustees of the scheme, or any other person who appears to the Tribunal to be directly affected by the Regulator's decision to refuse authorisation.

Authorisation criteria

Section 11: Fit and proper persons requirement

  1. This section applies for the purposes of enabling the Pensions Regulator to decide if key individuals involved with the scheme are fit and proper to act in their roles in relation to the scheme. Subsection (2) sets out that the people who must be assessed for these purposes to act in relation to the scheme in the capacity mentioned are: the person who establishes the scheme, a trustee of the scheme, persons who have the power to appoint or remove trustees, persons who have the power to vary the scheme’s provisions (i.e. trust deed or scheme rules) and persons acting in a capacity specified in regulations by the Secretary of State.
  2. Under subsection (3)(a), in assessing whether a person is fit and proper to act in that person’s role, the Regulator must take into account any matters specified in regulations. Under subsection (3)(b) the Regulator may also take into account other matters as it considers appropriate, including matters relating to a person who is connected with the person being assessed. The circumstances in which persons are connected for these purposes are set out in subsection (5), in line with definitions set out in sections 251 and 435 of the Insolvency Act 1986. They include individuals who are directors, or shadow directors, of the same company or where a trustee is able to exercise a power under the trust to benefit a specific individual.

Section 12: Scheme design requirement

  1. This section applies for the purposes of enabling the Pensions Regulator to decide whether it is satisfied that the design of a collective money purchase scheme is sound.
  2. Subsection (2) provides that in deciding whether the design of the scheme is sound, the Regulator must take into account the scheme’s viability report and viability certificate (see section 13) and any matters specified in regulations made by the Secretary of State (these regulations may include provision requiring specified information to be provided to the Regulator (subsection (3)).

Section 13: Viability report

  1. This section requires the trustees of a collective money purchase scheme to produce a document (a viability report) explaining the design of the scheme and why they consider that design to be sound. They must also obtain a certificate from the scheme actuary (a viability certificate) certifying that, in the actuary’s opinion, the scheme design is sound.
  2. Under subsection (2) a viability certificate cannot be provided by the scheme actuary unless the scheme actuary is satisfied that the scheme has rules that are compliant with the requirements imposed by section 18 (Calculation of benefits) and any regulations under that section.
  3. Subsection (3) provides a power for the Secretary of State to make regulations, amongst other things, regarding the information to be included in a viability report, how the report and the certificate must be prepared and making provision about additional information or documents to be prepared or obtained in connection with a report.
  4. The trustees are also required at least annually to review the most recent viability report; if appropriate, revise it; and obtain a new viability certificate (subsection (4)). The trustees must also revise the report and obtain a new viability certificate in respect of the revised report, if the most recent viability report becomes inaccurate or incomplete to any significant extent (subsection (5)).
  5. The most recent viability report, viability certificate and any additional information or documents specified by regulations under subsection (3), must be submitted to the Regulator when applying for authorisation; within three months of revising the viability report and at any other time on request by the Regulator (subsection (6) and (7)).

Section 14: Financial sustainability requirement

  1. Section 14 applies for the purposes of enabling the Pensions Regulator to decide whether a collective money purchase scheme is financially sustainable. In order to be satisfied of this, the Regulator must be satisfied that the scheme has sufficient financial resources to meet the costs (a) of setting up and running the scheme, and, (b) in the event of a triggering event occurring, of complying with requirements under sections 31 to 45 and of continuing to run the scheme for a period as the Regulator thinks appropriate for the scheme (which must be at least 6 months and no more than two years) (subsection (2)).
  2. Subsection (3) provides a power for the Secretary of State to make regulations setting out matters that the Regulator must take into account in deciding if it is satisfied that a scheme has sufficient financial resources to meet these costs, which may include provision requiring specified information to be provided to the Regulator or specifying financial requirements to be met by the scheme (subsection (4)).

Section 15: Communication requirement

  1. This section applies for the purposes of enabling the Pensions Regulator to decide whether a collective money purchase scheme has adequate systems and processes for communicating with members and others. The Regulator must be satisfied that the scheme has adequate systems and processes for providing information in relation to the scheme to the persons set out in subsection (3) and for securing that information provided to those persons is correct and not misleading.
  2. Subsection (4) provides a power for the Secretary of State to make regulations setting out the matters that the Regulator must take into account in deciding whether this criterion is met. A non-exhaustive list of the matters which the Secretary of State may address in those regulations is set out in subsection (5). In making its decision, subsection (4) states that the Pensions Regulator may also take into account any communications made using the systems and processes referred to in subsection (2).

Section 16: Systems and processes requirements

  1. This section applies for the purposes of enabling the Pensions Regulator to decide whether a collective money purchase scheme has sufficient systems and processes to ensure it is run effectively. It provides a power for the Secretary of State to make regulations specifying matters that the Pensions Regulator must take into account (subsection (2)) in deciding if this criterion is met.
  2. Subsection (3) provides a non-exhaustive list of the matters concerning systems and processes about which the Secretary of State may make regulations. These include, but are not limited to, the standards, functions and maintenance of IT systems, and processes relating to the appointment and removal of trustees.

Section 17: Continuity strategy requirement

  1. This section applies for the purposes of enabling the Pensions Regulator to decide whether a collective money purchase scheme has an adequate continuity strategy. It requires the trustees of a collective money purchase scheme to prepare a document – (a continuity strategy) - which sets out how the interests of members are to be protected if the scheme experiences a triggering event. Triggering events are set out in section 31.
  2. A continuity strategy must include a section setting out the levels of administration charges that apply in relation to members of the scheme. Regulations are to specify the manner in which the administration charge levels must be set out in the strategy (subsections (3) and (4)).
  3. Subsection (5) provides a power for the Secretary of State to make regulations requiring other information to be included in a strategy and how the strategy must be prepared.
  4. The trustees of a collective money purchase scheme are required to keep the continuity strategy under review and to revise it as appropriate (subsection (6)).
  5. The continuity strategy must be submitted to the Regulator by the trustees when applying for authorisation, within three months of revising the strategy, and at any other time on request by the Regulator (subsection (7)).
  6. The Regulator, when determining whether a continuity strategy is adequate, must take into account any matters which the Secretary of State may specify in regulations. Those regulations may require specified information to be provided to the Regulator (subsections (8) and (9)).

Valuation and benefit adjustment

Section 18: Calculation of benefits

  1. This section sets legal requirements on how benefits under a collective money purchase scheme must be calculated and adjusted.
  2. Subsections (1) and (2) require that the method for calculating the rate or amount of benefits must be set out in the scheme’s rules. This must include rules on how the assets of the scheme are identified and valued, how the amount expected to be required for providing benefits under the scheme is to be determined, and rules about how the rate or amount of benefits is to be adjusted. Regulations made under subsections (4), (5) and (6) can make provision about the matters which must be included in the rules, including how adjustments are to be treated, and assumptions and methods underpinning the benefit calculation.
  3. Subsection (7)(a) makes it clear that the regulations made under subsection (4) of this section can apply to both future benefits and to benefits which have already accrued in the scheme, ensuring that future adjustments of benefits accrued before the regulations came into force will be in accordance with the regulations.
  4. Subsection (7)(b) allows regulations made under this section to override scheme rules where there is a conflict.

Section 19: Advice of scheme actuary

  1. This section requires collective money purchase scheme trustees to take the advice of the scheme actuary before deciding which methods or assumptions are to be used for the calculation of benefits. Subsection (2) allows regulations to prescribe requirements which the scheme actuary must comply with when advising trustees about this. Subsection (3) provides that the regulations may require the scheme actuary to take account of guidance issued by prescribed persons.
  2. Subsection (4) makes provision for financial penalties under section 10 of the Pensions Act 1995 (civil penalties) to apply in cases where trustees have failed to take all reasonable steps to obtain the advice of the scheme actuary as required under subsection (1).

Section 20: Actuarial valuations

  1. This section requires the trustees of a collective money purchase scheme to instruct the scheme actuary to prepare actuarial valuations of the scheme. An actuarial valuation of a collective money purchase scheme will form the basis of the calculation of the rate or amount of benefits to be provided under the scheme.
  2. Subsection (2) sets out what should be included in such a valuation – the actuary must report on:
    1. the scheme assets and their value;
    2. the amount expected to be required to provide benefits under the scheme; and
    3. whether the rate or value of the benefits need to be adjusted under the rules of the scheme.
  3. Subsection (4) provides that the scheme actuary must prepare the actuarial valuation in accordance with the scheme rules.
  4. Subsection (5) gives power to the Secretary of State to make regulations about the actuarial valuations, including the information and statements they must contain, when the report must be prepared, and when it must be submitted to the Pensions Regulator.
  5. Subsection (6) set out that where regulations have not been made to specify the frequency of the actuarial valuation, trustees are required to obtain an actuarial valuation within the period of one year beginning with the date the qualifying scheme is established and on an annual basis thereafter.
  6. Subsection (7) provides that where regulations have not been made to specify the date by reference to which the actuarial valuation is to be prepared, the date is to be the effective date.
  7. Subsection (8) makes provision for financial penalties under section 10 of the Pensions Act 1995 (civil penalties) to apply in cases where trustees have failed to take all reasonable steps to obtain an actuarial valuation.

Section 21: Certificate that actuarial valuation prepared in accordance with scheme rules

  1. This section requires the scheme actuary, when preparing an actuarial valuation in respect of a qualifying scheme, to certify that the actuarial valuation has been prepared in accordance with the scheme rules.

Section 22: Benefits adjustments

  1. This section applies where an adjustment to the rate or amount of benefits is required in accordance with the scheme rules. Subsection (2) provides that the trustees of a collective money purchase scheme must report to the Pensions Regulator as soon as reasonably practicable if an adjustment to benefit values is required in accordance with the scheme rules, and the adjustment has either not been made in accordance with the most recent actuarial valuation or has been made in a way that is different to that set out in the scheme rules. Subsection (3) requires that the Regulator must be given a clear statement of why the adjustment has been made in a different way as well as any other information prescribed by the Secretary of State.
  2. Subsection (4) applies section 10 of the Pensions Act 1995 (civil penalties) to a trustee if they do not take all reasonable steps comply with the requirements under this section.

Section 23: Powers of the Pensions Regulator

  1. This section gives the Pensions Regulator powers to direct trustees to take actions, where the trustees have without good reason failed to (i) obtain an actuarial valuation as required by the legislation or (ii) adjust the benefits in accordance with the most recent valuation and / or the scheme rules. Subsections (2) and (3) permit the Regulator to direct the trustees to obtain an actuarial valuation, specifying the reference date and period within which the actuarial valuation must be obtained (and any other information as prescribed by the Secretary of State), or to take any steps the Regulator considers appropriate to mitigate the failure.
  2. Subsection (4) requires the Regulator to have regard to specified requirements in regulations when exercising their power to issue directions under this section.
  3. Subsection (5) imposes the financial civil penalty under section 10 of the Pensions Act 1995 on any trustees who fail to take all reasonable steps to comply with a direction issued by the Regulator.

Members’ Rights

Section 24: Rules about modifying schemes

  1. The subsisting rights provisions ensure that members of occupational pension schemes have a legal right to their benefit entitlement. In a collective money purchase scheme, members will not have a right to a certain value of CMPB, but will have a right to a variable amount or rate of benefit calculated according to scheme rules and paid as a pension income for life. This section amends the existing legislation around subsisting rights in sections 67 and 67A of the Pensions Act 1995 (1995 Act) to ensure that rights under collective money purchase schemes are included.
  2. Subsection (2)(a) inserts new subsection (1A) into section 67 of the 1995 Act which makes any exercise of a power to make a prohibited modification void. Subsection (2)(b) amends subsection (2)(a)(i) of section 67 of the 1995 Act to make all regulated modifications (i.e. protected modifications and detrimental modifications) to a collective money purchase scheme voidable unless the consent requirements are satisfied. Subsection (2)(e) inserts a new subsection (3A) to section 67 of the 1995 Act which provides for regulations to disapply the subsisting rights provisions in prescribed cases. This would, for example, enable the Secretary of State to make regulations if needed, to remove any ambiguity around the application of the subsisting rights provisions to a CMPB.
  3. Subsections (3) and (4) amend Section 67A of the 1995 Act so as to define "prohibited modification" as a modification of a pension scheme which would or might result in a member or survivor who is entitled to non-money purchase benefits under a scheme having those benefits converted to or replaced by collective money purchase benefits.
  4. Subsection (5) amends section 67A of the 1995 Act to introduce the concept of "relevant transformation of a subsisting right". A relevant transformation of a subsisting right is a protected modification which means that it is voidable unless the consent requirements are satisfied. Subsection (6) inserts subsection (3A) and defines "relevant transformation of a subsisting right" as (a) conversion of non-money purchase benefits into any form of money purchase benefits other than a CMPB; (b) conversion of other money purchase benefits into CMPB; and (c) conversion of CMPB into other money purchase benefits.
  5. Subsection (7) amends section 67A(4) of the 1995 Act to exclude "prohibited modifications" from the definition of "detrimental modification" for the purposes of the subsisting rights provisions.
  6. Subsection (8) amends subsection (9) of section 67A of the 1995 Act, which provides that references in the subsisting rights provisions to scheme rules include legislative provisions which override the scheme rules, so as to include such provisions which are in this Act.

Section 25: Transfer rights

  1. This section provides members with CMPBs the right to transfer their accrued pension rights to another pension scheme. This right is principally set out in Chapter 1 of Part 4ZA of the Pension Schemes Act 1993 (sections 93-101).
  2. Subsection (2)(a) amends Section 93(7)(b) of that Act so that it does not apply to CMPBs. Subsection (2)(b) inserts new subsection (10A) into that Act. This states that where a pension scheme is divided into sections, each section of the scheme that relates to CMPBs is to be treated as a separate scheme for the purposes of the transfer provisions in Chapter 1 of Part 4ZA of the Pension Schemes Act 1993.
  3. Subsection (3) inserts new subsection 3ZA into section 97 of the Pension Schemes Act 1993. This provides that if the six-month deadline for facilitating a CMPB transfer (at section 99(2)(b) of the Pension Schemes Act 1993) is extended to a period which is longer than six months, the reference to six-months in section 97(3)(b) should be read as if it were the period to which the deadline has been extended.
  4. Subsection 4 amends section 99(2) of the Pension Schemes Act 1993 to make clear that the deadline for facilitating CMPB transfers is six months from the date of application or such longer period as may be prescribed in regulations. For example, operational issues may emerge once these new schemes are bedded in that may necessitate a longer period to facilitate these transfers.
  5. Subsection (5) inserts new section 99A into the Pension Schemes Act 1993, which places further duties on trustees when they are dealing with an application to transfer a member’s CMPBs. It requires the trustees to notify the member in writing of their cash equivalent. It also stipulates that the trustees cannot facilitate the transfer of the cash equivalent without the written consent of the member for a period of three weeks commencing from the day after the date the trustees notified the member of their cash equivalent. If the trustees fail to comply with this requirement, any agreement reached with a third party regarding the transfer of the member’s cash equivalent is deemed to be void.
  6. Subsection (6) provides for minor and consequential amendments to be made to section 100B(2) of the Pension Schemes Act 1993.

Ongoing supervision

Section 26: List of authorised schemes

  1. This section places a requirement on the Pensions Regulator to publish and maintain a list of collective money purchase schemes that have been authorised. The list must include the name of the scheme and may include other information the Regulator considers appropriate.

Section 27: Requirement to submit supervisory return

  1. This section enables the Pensions Regulator to issue a notice requiring trustees of a collective money purchase scheme to submit a supervisory return to the Pensions Regulator. Subsection (2) provides a power for the Secretary of State to make regulations setting out the information that may be required in a supervisory return.
  2. Subsection (3) makes provision for what must be included in the notice. Subsection (4) specifies that a supervisory return may not be required more frequently than once in any 12-month period. Subsection (5) provides that a civil penalty under section 10 of the Pensions Act 1995 applies to a trustee who fails to submit a return when required to do so.

Section 28: Duty to notify the Pensions Regulator of significant events

  1. This section creates a requirement for specified persons to notify the Pensions Regulator of significant events, in writing, as soon as reasonably practicable after the person becomes aware such an event has occurred in relation to an authorised collective money purchase scheme.
  2. Subsection (2) sets out the people who are required to notify the Regulator of significant events. They are: trustees of the scheme, employers in relation to the scheme, persons who have power to appoint or remove a trustee or vary a provision of the scheme, persons who provide legal, financial or actuarial advice to the scheme, the manager of the scheme administration services and persons acting in a capacity specified in regulations.
  3. Subsection (3) sets out that the Secretary of State must make regulations setting out the significant events that are required to be reported.
  4. Subsection (4) provides that the Secretary of State may make regulations specifying further information that is to be provided by a person required to give notice of a significant event.
  5. Subsection (5) sets out that the disclosure of information under this section does not breach any obligation of confidence owed by the person making the disclosure or any other restriction on the disclosure of information (however imposed). Subsection (6) makes it clear that this section does not require a disclosure of information if the disclosure would contravene data protection legislation (as defined in section 49(1)). Under subsection (7), a person is not required by this section to disclose anything in respect of which a claim to legal professional privilege (or, in Scotland, to confidentiality of communications) could be maintained in legal proceedings.
  6. Subsection (8) provides that a civil penalty under section 10 of the Pensions Act 1995 applies where there is a failure to comply with a requirement imposed by or under this section.

Section 29: Risk notices

  1. If the Pensions Regulator considers that there is an issue of concern in relation to a collective money purchase scheme which will, or is likely to lead to, a breach of the authorisation criteria if the issue is not resolved, this section provides that it may issue a risk notice requiring the trustees to submit a resolution plan to the Regulator setting out proposals for resolving the issue of concern (see subsections (1) and (2)).
  2. Under subsection (3), a risk notice must specify the issue of concern and the date by which the resolution plan is to be submitted. It must also contain any other information required by regulations made by the Secretary of State under subsection (10).
  3. The Regulator may give a further notice requiring the submission of a revised resolution plan if it is not satisfied with the original submitted resolution plan (subsection (4)).
  4. Subsections (5) and (7) provide that where a resolution plan (including any revised plan) is approved by the Regulator, the trustees must implement the plan as agreed, and submit reports to the Regulator on their progress (progress reports) in resolving the issue of concern. The time period within which the first report must be submitted is to be specified in regulations, whilst the timing for submission of subsequent reports is to be specified by the Regulator.
  5. The resolution plan and progress reports submitted by the trustees must be provided in the manner and form specified by the Regulator (subsection (8)).
  6. Where trustees fail to implement the proposals contained in a resolution plan that has been agreed by the Regulator, it may direct them to do so (subsection (6)).
  7. Subsection (11) makes provision for the imposition of a civil penalty under section 10 of the Pensions Act 1995 (civil penalties) in cases where a trustee fails to comply with a risk notice issued under subsection (1) or a further notice issued under subsection (4) or a requirement in respect of a progress report under subsection (7), or fails to comply with a direction to implement a resolution plan under subsection (6).

Section 30: Withdrawal of authorisation

  1. This section provides that where the Pensions Regulator is no longer satisfied that an authorised collective money purchase scheme meets the authorisation criteria it may decide to withdraw the scheme's authorisation.
  2. Subsection (2) provides that when the Regulator either issues a warning notice under its standard procedure or a determination notice under its special procedure in relation to a decision to withdraw authorisation, the notice must explain that the issue of the notice is a triggering event together with an explanation of the trustees' duties under sections 31 to 45.
  3. Subsection (3) sets out that where a collective money purchase scheme’s authorisation is withdrawn the Regulator must notify the trustees of this and remove the scheme from its list of authorised collective money purchase schemes.

Triggering events and continuity options

Section 31: Triggering events

  1. Subsection (1) and the table in subsection (4) set out the triggering events and when they occur.
  2. Subsection (2) provides that where an event falling within items 4 to 9 in the table occurs within an existing triggering event period for the scheme (see section 32), it is not a triggering event.
  3. An event within items 1, 2 or 3 of the table at subsection (4), is a triggering event even if it occurs within an existing triggering event period. Item 1 is the issue of a warning notice by the Regulator under its standard procedure in respect of a decision to withdraw the scheme's authorisation. Item 2 is a determination notice issued by the Pensions Regulator under its special procedure in respect of a decision to withdraw authorisation. Item 3 is where the Regulator gives a notification under section 7(3) (scheme not authorised).

Section 32: Triggering event periods

  1. Subsection (1) defines a 'triggering event period' as the period starting with the date on which the triggering event occurs and ending on the earliest of the dates set out under subsection (2). These are the dates on which:
  • the trustees receive notification from the Pensions Regulator under section 37(4) (that the Regulator is satisfied that the triggering event is resolved), or
  • the trustees receive the notification under section 38(4) (that the Regulator is satisfied that preparations for conversion to a closed scheme are complete and that the conversion will resolve the relevant events), or
  • the date on which the scheme is wound up, or
  • in the case of an item 1 or 2 triggering event, the date upon which it becomes clear that authorisation is not to be withdrawn.
  1. Subsection (3) and the table at subsection (4) set out when it becomes clear authorisation is not to be withdrawn, for the purposes of subsection (2)(c).

Section 33: Notification of triggering events

  1. Subsections (1) to (9) set out who has responsibility for notifying the Pensions Regulator of the occurrence of triggering events (set out in the table under section 31 (4)) and who has responsibility for notifying other persons of this and of such other matters as may be specified in regulations.
  2. Regulations under subsection (10) are to set out the time periods within which notifications under this section must be made.
  3. Subsection (11) sets out that the disclosure of information under this section does not breach any obligation of confidence owed by the person making the disclosure or any other restriction on the disclosure of information (however imposed). Subsection (12) makes it clear that this section does not require a disclosure of information if the disclosure would contravene data protection legislation (defined in section 49(1)). Under subsection (12) a person is not required by this section to disclose anything in respect of which a claim to legal professional privilege (or, in Scotland, to confidentiality of communications) could be maintained in legal proceedings.
  4. Subsection (13) provides that a civil penalty under section 10 of the Pensions Act 1995 applies where there is a failure to notify as required under this section.

Section 34: Continuity options

  1. Subsections (1) and (2) provide that where a qualifying scheme has a triggering event, the trustees must pursue a continuity option following that event. Continuity options are a series of actions to be followed by the trustees depending on the event in question.
  2. There are 3 continuity options available:
  • continuity option 1 (discharge of liabilities and winding up) which allows the qualifying scheme’s collective money purchase liabilities to be discharged (that is moved from the scheme to another pensions arrangement or securing them by some other means as specified in regulations) and the qualifying scheme to be wound up (see section 36);
  • continuity option 2 (resolving triggering event) – which allows for the triggering event to be resolved and the qualifying scheme to continue to operate (see section 37); and
  • continuity option 3 (conversion to closed qualifying scheme) – which allows for conversion to a closed scheme (see section 38). A closed scheme either does not admit new members or does not allow members to build up further benefits or both.
  1. The continuity options are required elements of the implementation strategy outlined in section 39 and section 40. Trustees must specify a continuity option when setting out their implementation strategy.
  2. Subsections (3) and (4) set out when trustees must pursue continuity option 1 – i.e. where an item 1, 2 or 3 triggering event has occurred trustees are compelled to follow continuity option 1.
  3. Subsection (5) sets out that trustees may only pursue continuity option 3 where conversion to a closed qualifying scheme is permitted within the scheme rules, and subject to that, provides that this section overrides any provision of the qualifying scheme to the extent there is a conflict.
  4. Subsection (6) applies the civil penalty under section 10 of the Pensions Act 1995 to anyone who fails to act as required by this section.

Section 35: When a decision to withdraw authorisation becomes final

  1. This section determines the date on which a decision to withdraw authorisation becomes final for the purposes of a triggering event within item 1 or 2 of the table in section 31. The date on which it becomes final is set out in the table under subsection (2) in the third column, for the circumstances set out in the second column.

Section 36: Continuity option 1: discharge of liabilities and winding up

  1. This section makes provision for continuity option 1 under which trustees must discharge the liabilities of the qualifying scheme and then wind up the remaining structure of the scheme. Winding up will mean that the scheme will cease to exist.
  2. Subsection (1) requires trustees to establish the individual values of beneficiaries’ accrued rights to benefits under the scheme, to identify proposed arrangements for discharging these liabilities and to notify employers and beneficiaries of these proposed options, and such other matters as may be prescribed in regulations.
  3. Subsection (2) sets out how trustees may discharge the liabilities of the scheme. These are, transferring the value of beneficiaries’ accrued rights to benefits to another collective money purchase scheme, a Master Trust scheme, or an alternative scheme with the characteristics specified in regulations; or some other way of securing the benefits (‘an alternative payment mechanism’) as specified in regulations.
  4. Subsection (3) provides that a transfer proposal may deal with the entitlements of different descriptions of beneficiaries in different ways.
  5. Subsection (4) makes it clear that beneficiaries (scheme members and survivors) retain their right to take a cash equivalent transfer instead of the trustee’s proposed discharge mechanism.
  6. Subsection (5) allows for regulations which will set out the way in which the notification in subsection (1)(c) must be made, and the timing of the notification.
  7. Subsection (6) allows for regulations to set out how continuity option 1 is to be given effect and provides a non-exhaustive list of other matters which may be covered by regulations under this subsection.
  8. Subsection (7) provides a list of the matters about which the Secretary of State must make regulations under subsection (6). These include how the rights of beneficiaries are to be quantified, how pensioner beneficiaries who are receiving a periodic income are to be dealt with during the wind up period, the conditions that should be met by a pension scheme or alternative payment arrangement and provision about winding-up.
  9. Subsection (8) defines "beneficiary" and "pensioner beneficiary" for the purposes of this part.
  10. A financial penalty under section 10 of the Pensions Act 1995 applies to anyone who fails to comply with any requirement imposed by this section (subsection (9)) and regulations may also make provision for the application of Section 10 of the Pensions Act 1995 to a person failing to comply with requirements in the regulations (subsection (10)).

Section 37: Continuity option 2: resolving triggering event

  1. This section sets out continuity option 2. Where the trustees decide to pursue this option they must attempt to resolve the triggering event.
  2. 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 (subsection (3)). The Regulator is then required (subsection (4)) to notify the trustees of whether it is satisfied that the triggering event has been resolved.
  3. Under subsection (5), the Regulator must also be satisfied that any other event within the table at section 31 that has occurred in relation to the qualifying scheme since the occurrence of the triggering event has also been resolved.
  4. Subsection (6) provides that where a trustee fails to comply with a requirement imposed by this section, a financial penalty under Section 10 of the Pensions Act 1995 applies.

Section 38: Continuity option 3: conversion to closed scheme

  1. This section makes provision for continuity option 3 under which trustees decide to convert the scheme so that it continues to operate but on a closed basis. A closed scheme is one where either no new contributions are made but the scheme continues to operate in relation to benefits built up prior to closure; or where no new members are admitted to the scheme but existing members can continue to build up new benefits; or a scheme which is closed to both new members and new contributions.
  2. Trustees must notify the Pensions Regulator when they consider that preparations for conversion to a closed scheme are complete (subsection (2)).
  3. Subsection (3) allows regulations to set out the timings for notification under subsection (2).
  4. Subsection (4) provides that where the Regulator is satisfied that the preparations for conversion to a closed scheme are complete and the conversion will resolve the triggering event (and any other triggering event that may have subsequently occurred), the Regulator must notify the trustees of this.
  5. Subsections (5) and (6) provide that a closed scheme option may only be pursued in accordance with the provisions of the scheme, and that a scheme may only convert to a closed scheme – i.e. begin to operate as one – once the trustees have been notified by the Regulator under subsection (4).
  6. Once a conversion to a closed scheme has taken effect, trustees may not later reverse the action (subsection (7)).
  7. Subsection (8) applies financial penalties under section 10 of the Pensions Act 1995 to a trustee who does not comply with the requirements and restrictions of this section.
  8. Subsection (10) provides a definition of ‘closed scheme’.

Section 39: Implementation strategy

  1. This section requires the trustees of a qualifying scheme to submit an implementation strategy to the Pensions Regulator for approval. This is a document setting out how the interests of members of the qualifying scheme are to be protected following the occurrence of a triggering event, and how that event will be resolved.
  2. Under subsection (2), if a triggering event within item 1, 2 or 3 of the table in section 31(4) occurs within an existing triggering event period, the trustees need only submit an implementation strategy in relation to the most recent triggering event. Any implementation strategy which has already been approved for an earlier triggering event ceases to have effect when the later triggering event occurs.
  3. Under subsection (3)(a), in relation to items 1 and 2 triggering events, the implementation strategy is only required to be submitted if the decision to withdraw authorisation has become final. Under subsection (3)(b), where it becomes clear that authorisation is not to be withdrawn, the override in respect of the original triggering event and implementation plan provided under subsection (2) no longer applies.
  4. The Regulator may direct the trustees to comply with the requirements of this section (subsection (4)).
  5. Where a person fails to comply with a direction under subsection (4), a financial penalty under section 10 of the Pensions Act 1995 may apply (subsection (5)).
  6. Subsection (6) provides that this section overrides any provision of the scheme to the extent there is a conflict.

Section 40: Approval of implementation strategy

  1. Under subsection (1) of this section the Pensions Regulator may approve the implementation strategy only if it is satisfied that it is adequate.
  2. The implementation strategy must include a section setting out the levels of administration charges that apply in relation to members of the qualifying scheme (subsections (3 and 4)). This relates to the prohibition on increasing levels of charges during a triggering event period at section 45.
  3. Subsection (5) provides that the implementation strategy must set out the continuity option that is being pursued as well as other information specified relating to the continuity option being pursued.
  4. The implementation strategy must, further, include other information specified in regulations and be prepared in accordance with regulations (subsection (6)).

Section 41: Trustees’ duties once implementation strategy approved

  1. 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 the steps set out in the implementation strategy to carry out the continuity option (subsection (1)). If they fail to do so, the 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 financial penalty for failure to comply under section 10 of the Pensions Act 1995 applies to anyone who fails to comply with a direction made by the Pensions Regulator (subsection 5).
  2. Regulations under subsection (2) may require the trustees to make the implementation strategy available to employers and relevant former employers by a specified time.
  3. Subsection (3) provides that where an item 1, 2 or 3 triggering event occurs within the triggering event period for an earlier triggering event, trustees cease to be obliged to comply with the requirements of subsection (1) and any regulations under subsection (2) in respect of the original triggering event. If it becomes clear that authorisation is not to be withdrawn in relation to an item 1 or 2 triggering event, the trustees are subject to those requirements again from the date on which that becomes clear.
  4. Subsection (6) provides that this section overrides any provisions of the qualifying scheme or any contracts that the scheme has entered into, to the extent that there is a conflict.

Section 42: Prohibition on winding up except in accordance with continuity option 1

  1. This section provides that a collective money purchase scheme can only be wound up in accordance with continuity option 1.
  2. Subsection (2) provides that this section overrides any provisions of the scheme to the extent there is a conflict.
  3. Subsection (3) provides that where a person fails to comply with this section, a financial penalty under section 10 of the Pensions Act 1995 applies.

Section 43: Periodic reporting requirements

  1. This section requires that during a triggering event period the trustees of a collective money purchase scheme must submit periodic reports to the Pensions Regulator.
  2. The time period within which the first report must be submitted is to be specified in regulations. The timing for submission of subsequent reports is to be specified by the Regulator (subsections (2) and (3)), as is the form and manner in which they should be made (subsection (4)(d)).
  3. Under subsection (4), the reports must report on progress in carrying out the implementation strategy, and regulations may set out further detail of other content required in the report.
  4. A civil penalty under section 10 of the Pensions Act 1995 applies to any person who fails to comply with the requirements imposed by this section (subsection (5)).

Section 44: Pause orders

  1. This section enables the Pensions Regulator to pause certain activities once a collective money purchase scheme has experienced a triggering event. Subsections (2) to (4) state that a pause order may be made if the Regulator is satisfied it will help the trustees carry out their implementation strategy (see section 39), or if the Regulator believes that doing so is necessary to protect the interests of the generality of the scheme members and that there is, or there is likely to be, an immediate risk to the interests of members of the scheme or the assets of the scheme if an order is not made.
  2. A pause order is an order containing one or more directions that prevent a scheme from carrying out any or all of a number of actions which are specified in subsection (5) whilst the order has effect. These include:
  • accepting new members;
  • making payments towards the scheme;
  • making transfers out of the scheme; and
  • paying benefits (or specified benefits).
  1. The pause order may relate to all such actions, or those related to specified members, employers, payments or groups of such actions.
  2. Subsection (6) provides that where a direction in subsection (5)(b) is made (preventing payments from being made towards the scheme), it does not include payments due to be made before the order takes effect. It does include payments in respect of pension credits where the person entitled to the credit is a member of the scheme.
  3. Subsection (7) relates to a direction under subsection (5)(e) that no transfers or transfer payments are to be made out of the scheme of, or in respect of, a member’s rights. It states that the direction may provide that these transfers or transfer payments cannot take place unless specified conditions are met and the amounts paid out in respect of these transfers are determined in a specified manner.
  4. A pause order may require the trustees to obtain an actuarial valuation within a specified period (subsection (8)). An order containing such a requirement must (subsection (9)) specify the date by reference to which the matters to be set out in the valuation must be determined, the information and statements it must contain and any other requirements the valuation must satisfy.
  5. There is further provision about pause orders in Schedule 2.

Schedule 2: Pause orders

  1. Paragraph 1 of Schedule 2 sets out the consequences of a pause order. Sub-paragraph (1) states that any action taken in breach of a pause order is void, that is, it has no legal effect (except to the extent that the action is validated under paragraph 3 of Schedule 2).
  2. Sub-paragraph (2) includes a provision that if a pause order prevents a scheme from accepting any payments then affected payments are treated as if they do not fall due and as if any obligation to make them does not arise. The pause order may include provisions under subsection (5)(c) of section 44 that where such payments have already been deducted from pay, they are to be repaid to affected scheme members.
  3. Sub-paragraph (3) states that where a pause order contains a direction that no benefits or specified benefits are to be paid and an amount of benefit under the scheme rules was not paid as a result of the direction, the direction does not affect any entitlement to those benefits, and that any benefits that have been paused to which the member, or a person in respect of a member, remains entitled at the end of the period for which the pause order has effect are due once the pause order ceases to have effect.
  4. 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.
  5. Sub-paragraphs (6) and (7) allow the Secretary of State to make regulations modifying specified areas of existing legislation where there is a pause order preventing transfers of members rights to ensure that the existing legislation works as intended.
  6. Sub-paragraphs (8) to (10) apply the civil penalties under section 10 of the Pensions Act 1995 in relation to non-compliance with these provisions.
  7. Paragraph 2 states that any pause order 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 order will automatically end if a triggering event period ends while it is in force (sub-paragraph (3)).
  8. Paragraph 3 allows the Pensions Regulator to make an order validating any action that is taken in contravention of a pause order on application from the trustees, or a person directly affected by the pause order.
  9. Paragraph 4 provides for notifications between various parties in respect of a pause order, or an order made validating action in contravention of a pause order under paragraph 3. The Regulator is required to inform the trustees that the relevant order has been made as soon as is practicable (sub-paragraph (2)). The Regulator may also direct the trustees, by order, to inform employers and members that the relevant order has been made and of its intended effect within a specified time period (sub-paragraph (3)). This may relate to all employers (or certain relevant former employers) and members, or only those specified in the Regulator’s order (sub-paragraph (3)).
  10. Civil penalties under section 10 of the Pensions Act 1995 apply to any trustee who has not taken all reasonable steps to ensure compliance with sub-paragraph (3).
  11. Paragraph 5 allows pause orders to override any existing law or scheme rule to the extent that it is not unlawful under section 6(1) of the Human Rights Act 1998.

Section 45: Prohibition on increasing charges etc during triggering event period

  1. This section places restrictions on trustees increasing or imposing administration charges when a scheme is in a triggering event period (section 32). The trustees of a collective money purchase scheme must not impose administration charges on or in respect of members above the level set out in the implementation strategy (subsection (1)(a)) and must not impose new administration charges on or in respect of members (subsection (1)(b)). Further, trustees must not 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)).
  2. Subsection (2) provides for corresponding prohibitions on the trustees of a collective money purchase scheme or a Master Trust pension scheme which receives a transfer of the value of accrued rights to benefits from a collective money purchase scheme which is pursuing continuity option 1, having been proposed by the trustees or employer of that transferring scheme as a scheme to which those rights should be transferred. The trustees of such a receiving scheme must not increase administration charges above the level set out in the document the scheme is to provide to the Regulator by regulations under section 36(7)(e) and they must not impose any new charges on members, to meet costs set out under subsection (4). The costs set out under subsection (4) are the costs for which the receiving scheme is liable which were incurred by the transferring scheme or which relate directly to the transfer of the value of accrued rights to benefits under the transferring scheme.
  3. Subsection (3)(a) allows regulations to omit administration charges specified in regulations from the prohibition imposed by subsection (1) or (2), whilst subsection (3)(b) allows regulations to set how the levels of administration charges are to be calculated for the purposes of this section.
  4. Subsection (5) provides that this section overrides a provision of a collective money purchase scheme, a Master Trust scheme and any contracts that such a scheme may have entered into with persons providing services in relation to the scheme, where there is a conflict with the requirements of this section.
  5. By regulations under subsection (6) the Secretary of State may apply requirements of this section to other schemes which are able to act as a ‘receiving scheme’ by regulations under section 36 (2)(b). A civil penalty under section 10 of the Pensions Act 1995 applies to a trustee who fails to comply with this section (subsection (7)).
  6. Subsection (8) defines "receiving scheme" to mean a pension scheme that receives a transfer of the value of accrued rights from a transferring scheme to benefits under the receiving scheme during a triggering event period and which was a scheme that the trustees or employer of the transferring scheme proposed should receive the transfer. It also defines "transferring scheme" to mean a collective money purchase scheme in respect of which the trustees are pursuing continuity option 1 (see section 36) as a result of a triggering event.

Publication of information

Section 46: Publication of information

  1. This section allows regulations to set out in detail what information trustees of collective money purchase schemes will be required to publish. This is intended to engender trust and enable transparency to ensure a clear understanding of the soundness of the scheme design, how the scheme is working and how members’ interests are to be protected. Publication will allow for wider scrutiny, challenge and comparisons across similar schemes.
  2. Subsection (2) makes provision for other matters which can be included in the regulations. These include that information be made available free of charge and that information be provided in the form specified. The regulations may require or permit specified information to be excluded from the published information.
  3. Subsection (3) requires that trustees publishing information required by regulations made under subsection (1) must also have regard to any guidance prepared by the Secretary of State. The guidance will set out the manner the information should be published, any restrictions and how accessibility issues should be considered,
  4. A financial penalty under section 10 of the Pensions Act 1995 applies to a trustee who fails to take all reasonable steps to comply with this section (subsection (4)).

Powers to make further provision

Section 47: Powers to extend definition of qualifying schemes

  1. The Act currently restricts the definition of "qualifying schemes" to schemes established by one or more employers and intended to be used by a single employer or group of connected employers. This section permits regulations to disapply these requirements so that a scheme established by non-employers, or used by multiple employers, not all of whom are connected with one another, could be a qualifying scheme.
  2. Subsections (2) to (4) allow regulations to make further provision to facilitate non-employer established schemes where some or all of the employers are not connected. Subsection (2) sets out some of the purposes for which the regulation-making power can be used, including provisions relating to the authorisation regime of relevant schemes, triggering events and continuity options and administration charges.
  3. Subsection (3) allows regulations to apply the provisions set out in Part 1 of the Pensions Schemes Act 2017 to facilitate the provision of CMPB by schemes where some or all of the employers are not connected.
  4. Subsection (4) further specifies that regulations made under subsection (1) and (2) may also make provision which modifies or amends provisions in Part 1 of the Act, and consequential modifications or amendments to other enactments.

Supplementary

Section 48: Minor and consequential amendments

  1. This section introduces Schedule 3 which makes consequential amendments.

Schedule 3: Collective money purchase benefits: minor and consequential amendments

  1. This Schedule makes minor and consequential amendments to other relevant legislation in respect of collective money purchase benefits.

Section 49: Interpretation of Part 1

  1. The definition of various terms used in Part 1 of the Act are given in this section.

Section 50: Index of defined expressions

  1. This section lists provisions which define terms used in Part 1 of the Act.

Section 51: Regulations

  1. This section makes general provision regarding regulations made under Part 1 of the Act.

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