Part 6 – Private Pensions
Section 33: Automatic transfer of pension benefits etcSchedule 17: Automatic transfer of pension benefits etc
143.Section 33 introduces Schedule 17 which contains a duty for the Secretary of State to make regulations to establish a system of automatic transfers of pension benefits.
144.Paragraph 1 of Schedule 17 outlines this system, setting out that the regulations must provide that where an active member of an ‘automatic transfer scheme’ has ‘transferable benefits’ in another pension scheme (the ‘transferable benefits scheme’), then the automatic transfer process set out in the Schedule must be followed.
145.The transfer will be from a money purchase scheme or a pension scheme of a prescribed description (sub-paragraph (5)) that the member is no longer contributing to (sub-paragraph (4)(c)), into another money purchase scheme or a pension scheme of a prescribed description (sub-paragraph (2)) of which the individual is an active member. This will only apply if certain criteria are met including that the benefits to be transferred have been accruing since a certain date (sub-paragraph (4)(e)) and are worth less than a prescribed amount (sub-paragraph (4)(f)).
146.The Government has stated its intention that this amount will initially be £10,000. The Schedule provides that the regulations will require the Secretary of State to review the prescribed amount at least every 5 years (paragraph 13), taking certain factors into account when conducting the review.
147.In addition, Schedule 17 sets out that regulations will provide that trustees or managers of ‘automatic transfer schemes’ must find out whether members have transferable benefits in other schemes (paragraph 2). The regulations must make provision about disclosure of information and they may, in particular, permit or require a person to disclose information to another person to help that other person comply with their duties, which will include providing information on an individual’s transferable benefits to any central database (paragraph 9(1) and (2)).
148.The regulations must also provide that a prescribed person must give information to the member (paragraph 5) and must provide that the member has a right to opt out of the automatic transfer (paragraph 4) unless there is a requirement for consent by the member before the transfer is made. The information provided to members will include details about the automatic transfer, their right to opt out, or need for consent (as applicable), and may contain other information, for example about the pension scheme.
149.Where ‘transferable benefits’ are identified and the individual has not opted out, or has provided consent (whichever is applicable), the trustees or managers must notify the ‘transferable benefits scheme’ (paragraph 3), the ‘transferable benefits scheme’ must then transfer those benefits (paragraph 6) and the ‘automatic transfer scheme’ must give the member rights equivalent to those benefits (paragraph 7). Other functions may be required of the trustees or managers of either scheme (paragraph 12), for example to acknowledge the transfer.
150.Further to these core features, Schedule 17 sets out a number of areas that regulations may cover. For example, regulations may be made to:
provide for the manner in which cash equivalents are to be calculated and verified by the ‘transferable benefits scheme’ (paragraph 8);
allow for the enforcement of the automatic transfer duties by the Pensions Regulator, including the imposition of compliance notices and penalties for non-compliance (paragraph 10) and record keeping requirements (paragraph 11);
require the Secretary of State or the Pensions Regulator to establish and operate a database containing information relating to people who have or have had ‘transferable benefits’ (paragraph 9(3)); or
allow certain provisions within the regulations to override scheme rules (Part 3 paragraph 17). For example, if scheme rules prevented an ‘automatic transfer scheme’ from accepting a transfer.
151.Part 2 provides that regulations may be made to consolidate multiple pots belonging to one member in the same scheme, providing for an asset transfer if necessary, for example where an individual has two employments over their working life and the employers both use the same multi-employer scheme (Part 2, paragraph 14).
Section 34: Power to prohibit offer of incentives to transfer pension rightsSection 35: Expiry of power in Section 34
152.Section 34 allows the Secretary of State to make regulations to prohibit a person from offering a financial or similar incentive to another person with the intention of inducing a member of a salary-related occupational pension scheme to transfer their rights out of that pension scheme into another pension scheme or arrangement. Regulations may provide that the prohibition applies to the offer of an incentive by the person who will provide the incentive, or by another person, for example, an agent. It also provides for penalties to be introduced if the prohibition is contravened.
153.Section 35 provides that section 34 will be repealed seven years after the section has come into force if the powers granted have not been exercised.
Section 36: Short service benefit for scheme member with money purchase benefits
154.This section provides that where all of the benefits to be provided by a scheme are money purchase benefits, there will be an entitlement to a ‘short service benefit’ immediately after a member has completed thirty days' qualifying membership of the scheme (section 36(1), (2) and (3)).
155.The effect of the section is that, in such cases, the ability to make a refund of contributions (“short service refund”) to members who give up their membership within two years, but after 30 days, will no longer be available under section 101AB of the PSA 1993, because the member will have accrued rights to benefit under the scheme. Such a person will however still have the right to ask the occupational pension scheme to transfer the value of his pension to another pension provider under Chapter 4 of Part 4 of that Act.
156.This will only apply to those who first become active members of a scheme after this section comes into force, and those members who re-joined the scheme after that date having had a previous period of pensionable service under the scheme and who received a contribution refund or a cash transfer sum (section 36(3)).
Section 37: Automatic re-enrolment: exceptions where automatic enrolment deferred
157.Employers must automatically enrol workers who satisfy age and earnings criteria into a qualifying workplace pension scheme. However, they are allowed to postpone automatic enrolment by up to three months.
158.Where an employer has an open defined benefit or hybrid scheme which they intend to use for automatic enrolment, they may instead, and subject to certain conditions, defer automatic enrolment for jobholders who satisfy those conditions until the end of a transitional period in September 2017. At the end of that transitional period the individual must be automatically enrolled, provided that he or she satisfies the age and earnings conditions. However, an employer deferring automatic enrolment until the end of the transitional period may use the waiting period afterwards if they choose, which would postpone auto-enrolment by up to a further three months.
159.Automatic enrolment by the employer is compulsory: pension saving by the worker is not. An individual who decides not to continue saving into the scheme they have been automatically enrolled into may opt out within a specified window. This window is one month from the later of the date that the individual becomes an active member of the scheme and the date he or she is given the enrolment information by the employer. If, however, he or she continues to save into the scheme but subsequently decides to withdraw, he or she may cancel his or her active membership at any time.
160.The employer must carry out an automatic re-enrolment exercise approximately every three years to re-enrol those who opted out or cancelled their membership. The cyclical automatic re-enrolment dates are employer specific. Deferral dates and immediate re-enrolment dates are specific to the worker.
161.Under the PA 2008, the employer’s re-enrolment duty could result in the permitted deferral or postponement period being curtailed as an employer’s cyclical re-enrolment date could fall within a period where an individual’s automatic enrolment date has legitimately been deferred or postponed. Section 37 removes the duty of the employer to automatically re-enrol an eligible individual if automatic enrolment has been postponed for a period of up to three months (section 37(2)) or deferred to the end of the transitional period in the case of a defined benefit or hybrid scheme (section 37(3)).
Section 38: Automatic enrolment: powers to create general exceptions
162.Under sections 3, 5, 7 and 9 of the PA 2008, employers are obliged to automatically enrol (and re-enrol) workers who satisfy age and earnings criteria into a qualifying workplace pension scheme and make joining arrangements for workers who opt in or apply to join a pension arrangement.
163.Automatic enrolment and pension saving is not always appropriate. It may impose nugatory work on the employer and in some circumstances could cause an individual to incur a financial penalty.
164.There are some limited exceptions to the enrolment duty but there is no general power to exclude prescribed types of workers, or workers in prescribed circumstances from the scope of automatic enrolment. However, a prescribed exclusion may carry an increased employer monitoring burden. This section inserts a new section in to the PA 2008 to provide a general power to create exceptions to the employer duties which includes the power to prescribe that a duty is turned into a power. Where such a power was conferred on an employer, it would mean that in prescribed circumstances an employer need not automatically enrol a worker but may choose to do so. The section subsumes the existing power to exclude in section 5(4) of the PA 2008 and section 292A of the PA 2004 (both of which are repealed) and amends section 10 of the PA 2008 to allow automatic enrolment information to be more appropriately targeted.
165.The power is restricted so that regulations made under this section could not provide for an employer to be excluded from the automatic enrolment duty on the basis of their size (Subsection (2) of new section 87A).
166.The section also includes a power to re-instate the automatic enrolment duty if the circumstances that triggered the exclusion change.
Section 39: Alternative quality requirements for UK defined benefits schemes
167.To be a qualifying defined benefits scheme capable of being used under automatic enrolment, a pension scheme must either be contracted-out of the state second pension or meet the ‘test scheme standard’ in relation to all jobholders concerned. The test scheme is a hypothetical scheme used as a benchmark against which a scheme can be measured. To meet the test scheme standard the scheme must provide benefits to members which are broadly equivalent to, or better than, those which would be provided under a test scheme.
168.Section 39 provides a power to prescribe alternative quality requirements for defined benefits schemes. It amends the PA 2008 to enable the Secretary of State by regulations to prescribe that a defined benefits scheme satisfies the quality requirements in one of three ways, as set out in new section 23A (1)(a), (b) and (c):
subsection (1)(a) provides for an alternative defined benefits quality requirement to be satisfied in relation to a jobholder if the scheme in question is of a prescribed description and satisfies the money purchase quality requirement in relation to that jobholder, i.e. the scheme provides a total contribution of 8 per cent of qualifying earnings with at least 3 per cent contributed by the employer;
subsections (1)(b) and (1)(c) provide for alternative defined benefits quality requirements to be satisfied if the cost to the scheme of funding the future accrual of active members' benefits is at least a prescribed rate. The rate is to be expressed as a prescribed percentage of members’ relevant earnings over a relevant period either on an aggregate (scheme) level or at an individual level for at least 90 per cent of the relevant members.
169.Subsection (3) of new section 23A provides that the prescribed percentage in both of the cost of future accruals tests in (1)(b) and (c) must be at least 8 per cent, in line with the minimum level for total contributions into a qualifying money purchase scheme.
170.Subsection (7) of new section 23A provides for any regulations made under section 23A(1) to be reviewed on an ongoing basis to check that the Government’s policy intentions are being achieved. The first review will be in 2017, with subsequent reviews being no more than three years after the previous review.
171.The PA 2008 provides transitional arrangements for the implementation of automatic enrolment. These transitional arrangements differ depending on whether a jobholder is enrolled into a money purchase pension scheme or a defined benefit pension scheme. In the case of the latter, the transitional arrangements allow the employer to defer automatic enrolment until the end of the transitional period. Sections 39(5) to 39(8) provide that where a defined benefit pension scheme or hybrid pension scheme (a pension scheme which offers both money purchase and defined benefit pensions under a single scheme) is a qualifying scheme by virtue of satisfying the alternative quality requirement at section 23A(1)(a) then the employer can not defer automatic enrolment. Instead the transitional arrangements in respect of money purchase pension schemes apply.
Section 40: Automatic enrolment: transitional period for hybrid schemes
172.On 19 December 2012 the Government announced its intention to introduce retrospective legislation to clarify the law which sets out transitional arrangements for implementing automatic enrolment into workplace pension arrangements.
173.The transitional provisions differ depending on whether the jobholder is enrolled into a money purchase pension arrangement or is offered membership of a defined benefit pension arrangement. If the former is the case, then both employer and employee minimum contributions are phased in over a transitional period. If the latter, the employer can defer automatic enrolment until the end of a transitional period.
174.Section 30 of the PA 2008 (as originally enacted), provided that where a pension scheme offered both money purchase and defined benefit pensions under a single scheme (known as a hybrid scheme) an employer could postpone automatic enrolment for a jobholder who was eligible only to accrue money purchase benefits under a hybrid scheme.
175.Section 40(1) to (5) amends section 30 of the PA 2008 to make it clear that postponement under section 30 of the PA 2008 only applies where a defined benefit pension is offered to a jobholder (whether offered under a hybrid scheme or a defined benefit scheme). The single exception to this is where the defined benefit or hybrid scheme providing the pension is only a qualifying scheme by virtue of satisfying the alternative quality requirement provided by section 23A(1)(a) of the PA 2008 (as introduced by section 39 of this Act).
176.Employers offering money purchase benefits under a hybrid scheme will still be able to use the transitional arrangements under section 29 of the PA 2008, which permit a gradual phasing in of the contribution requirements over a transitional period.
177.The legislation has retrospective effect. Section 40(6) and (7) provides that any employer who has deferred automatic enrolment under section 30 of the PA 2008 for a jobholder who is entitled only to membership of a money purchase arrangement under a hybrid scheme will need to automatically enrol that jobholder. They will also need to backdate employer contributions to 19 December 2012 (or their staging date if that is later). The jobholder will be able to choose whether they wish to pay their own contributions for the same period.
Section 41: Penalty notices under sections 40 and 41 of the Pensions Act 2008 etc
178.Under the PA 2008, the Pensions Regulator has the power to issue a penalty notice for failure to comply with information notices (which are issued when the Pensions Regulator requires specific information).
179.This section amends the PA 2008 to make it explicit that this power to issue penalty notices can only be used for non-compliance with information notices issued in relation to the Regulator’s compliance function concerning employer duties, as set out in Part 1 of the PA 2008, and not in connection with the Regulator’s general compliance functions set out in the PA 2004.
180.In exercising its power to issue information notices under section 72 of the PA 2004, the Regulator can ask for an explanation of the relevant information or require the recipient to explain in person at the Regulator’s offices. This power was previously available for information notices issued relating only to some of the Regulator’s new employer compliance functions. Section 41 extends this to include all of the Regulator’s employer compliance functions as set out in Part 1 of the PA 2008.
Section 42: Unpaid scheme contributions
181.In the event that an employer becomes insolvent, the PSA 1993 enables scheme trustees or managers to claim an amount of any unpaid pension contributions from the Secretary of State, payable out of the National Insurance Fund. The contributions comprise those due from the employer either on his or her own account to fund benefits for, or in respect of, one or more employees, or on behalf of an employee, if a contribution has been deducted from wages.
182.This section amends the definitions in the PSA 1993, and the references to employees in the PSA 1993, to include workers and agency workers and so extend to them this protection for relevant scheme contributions to be paid from the National Insurance Fund in the event of an employer becoming insolvent.
Section 43: Power to restrict charges or impose requirements in relation to schemesSchedule 18: Power to restrict charges or impose requirements in relation to schemes
183.Section 43 and Schedule 18 allow the Secretary of State to make regulations to restrict charges or impose requirements on certain pension schemes. Schedule 18 allows for the making of regulations which set limits on or prohibit particular types of administration charges, or set requirements relating to the administration or governance of the scheme.
184.The regulations will apply to pension schemes of a type specified in the regulations. Different provision could be made for different types of scheme. For example, different charges may be allowed depending on the type or use of scheme. The regulations could also allow for the inclusion of schemes that are closed to new members or to new accruals.
185.The provision allows the regulations to say that a scheme which does not comply cannot be a qualifying scheme for automatic enrolment purposes. Provisions about standards that must be complied with in order for a scheme to be used as a qualifying scheme will continue to be enforced via the employer compliance regime under the PA 2008.
186.Schedule 18 also allows regulations to cover the enforcement of the quality standards by the Pensions Regulator (paragraph 3), including the imposition of compliance notices and penalties for non-compliance. As with other civil penalties, it will be a criminal offence to pay these penalties from scheme funds (paragraph 10). The compliance regime may also include the Financial Conduct Authority regulating compliance in contract-based schemes under the powers in the Financial Services and Markets Act 2000. The Schedule also provides that the regulations may allow certain provisions of the regulations to override scheme rules (paragraph 6). For example, if scheme rules currently prescribe a type or level of charge which is prohibited.
Section 44: Disclosure of information about transaction costs to members etc
187.Section 44 places duties on the Secretary of State (in relation to occupational pension schemes) and the Financial Conduct Authority (‘FCA’) (in relation to personal pension schemes) to make regulations that require the disclosure of certain information about the transaction costs incurred by money purchase pension schemes. In addition, duties are imposed in a similar way to require information on transaction costs and administrative charges to be published. The duties in relation to occupational pension schemes are set out in amendments to section 113 of the PSA 1993 and require the Secretary of State to consult the FCA and the Treasury before making regulations. The FCA duties are provided through the insertion of a new section 137FA into the Financial Services and Markets Act 2000. They require the FCA to consult the Secretary of State and the Treasury before publishing draft rules and to take account of any regulations made under the section 113 duties.
Section 45: Power to require pension levies to be paid in respect of past periods
188.The Pension Protection Fund (PPF) pays compensation to members of pension schemes where the employer becomes insolvent leaving the scheme under-funded. There are two levies which eligible schemes must pay: the risk-based pension protection levy, which goes towards PPF compensation, and the administration levy, which goes towards the PPF’s running costs. A limited number of schemes have the benefit of a Crown guarantee, meaning that if a scheme has an insolvent employer and becomes under-funded the Government will meet the liabilities of the scheme or the employer in respect of the whole or part of the scheme.
189.On 11 February 2009 the European Commission ruled that the BT Pension Scheme’s exemption from payment of the levies to the PPF, arising from the Crown guarantee, constituted unlawful State aid and must stop. Following this, in 2010 regulations were laid to ensure future compliance in payment of these two levies.
190.This section provides for regulations to be made allowing the sections of the PA 2004 relevant to payment of pension levies and associated regulations to have effect as if the Regulations made in 2010 had always had effect. Regulations made under the section will allow the Government to recover payment of levies due in respect of the tax years 2005/06 to 2009/10. This will apply to those schemes covered by a Crown guarantee where an exemption from payment of the levies would give rise to incompatible State aid.
Section 46: Prohibition and suspension orders: directors of corporate trusteesSchedule 19: Prohibition orders: consequential amendments
191.The Pensions Regulator has the power to suspend and prohibit trustees from acting as trustees in the future if they are not deemed to be a fit and proper person to be a trustee of a scheme. Previously, if a prohibited trustee was found to be or became the director of a company which acted as a trustee of a scheme (a corporate trustee) there was no restriction on the ability of that company to operate as a corporate trustee.
192.This section inserts a new section into the PA 1995 to forbid a company from being a trustee if one or more of its directors have been prohibited by the Regulator. If the director(s) who has/have been prohibited subsequently leave(s) the board of the company, the prohibition will be immediately lifted. In addition, the company is allowed to apply to the Regulator for the prohibition to be waived.
193.The Regulator has the power to suspend a trustee “pending consideration being given to the institution of proceedings against him for an offence involving dishonesty or deception” (section 4(1)(aa) of the PA 1995).
194.Section 45(3) to (5) allows the Pensions Regulator to suspend a corporate trustee where it or one of its directors could be suspended under section 4(1)(aa).
Section 47: Preparation of guidance for pensions illustrations
195.Occupational, personal and stakeholder pension schemes are required by regulations to provide a Statutory Money Purchase Illustration (SMPI) to members on an annual basis.
196.In producing the SMPI, relevant pension schemes must comply with guidance currently contained in the “AS TM1: Statutory Money Purchase Illustrations”, issued at present by the Financial Reporting Council Ltd (FRC).
197.Section 18 of the Companies (Audit, Investigations and Community Enterprise) Act 2004 exempts a body given a grant by the Secretary of State from liability in damages that arise from certain activities. These activities are set out in section 16(2) of that Act.
198.The measure amends the Companies (Audit, Investigations and Community Enterprise) Act 2004 to provide that a relevant body shall be exempt from liability for damages arising from the production of a statutory money purchase illustration based on the relevant body’s technical memorandum.
Section 48: Pensions Regulator’s objectives
199.This section sets out an additional objective for the Pensions Regulator to minimise any adverse impact on the sustainable growth of an employer when exercising its functions under Part 3 of PA 2004 (scheme funding) only. This objective is in addition to the Regulator’s existing five objectives, set out in section 5(1) of the PA 2004.
Section 49: Maximum period between scheme returns to be 5 years for micro schemes
200.All occupational pension schemes are required to complete a scheme return at least once every three years. This is sent to the Pensions Regulator and provides up to date information about the scheme.
201.The section allows the Pensions Regulator to increase the maximum period between scheme returns to five years for micro schemes (i.e. those that have between two and four members).
Section 50: Pension Protection Fund: increased compensation cap for long serviceSchedule 20: Pension Protection Fund: increased compensation cap for long service
202.The Pension Protection Fund (PPF) pays compensation to members of eligible, occupational pension schemes where the employer becomes insolvent, leaving the scheme under funded. Anyone under the scheme’s normal pensionable age when the employer becomes insolvent is paid compensation based on 90 per cent of their expected scheme pension subject to a maximum cap - ‘the compensation cap’.
203.Section 50 and Schedule 20 provide for a revised compensation cap dependent on a person’s age and length of pensionable service when the person first becomes entitled to compensation.
204.Paragraphs 1 to 3 of Schedule 20 amend Schedule 7 to the PA 2004 to insert new paragraph 26A which gives the meaning of the revised compensation cap. The standard amount, calculated in the same way as the current compensation cap amount, will apply for anyone with pensionable service of less than 21 years. For anyone with 21 years or more pensionable service, the cap will be increased by 3 per cent of the standard amount for each full year over 20 years, to a maximum of double the standard amount.
205.Paragraphs 4 to 6 and 13 make consequential amendments to the PA 2004.
206.Paragraphs 8 to 12 of Schedule 20 make transitional provision for members who are entitled to PPF compensation when the long service compensation cap is introduced. Under paragraph 8(2) the PPF will be required to recalculate the ‘protected pension rate’ as if the long service compensation cap had been in force when the member first became entitled to compensation. The ‘protected pension rate’ is the protected pension rate or protected notional pension on which the amount of compensation payable depends and the PPF must, therefore, redetermine the compensation and change the payment. This applies to both members of the original scheme and any of their survivors and dependants who are in receipt of compensation when the long service cap legislation comes into force.
207.Any indexation that had been awarded before the legislation comes into force will be maintained by adding the amount of that indexation on to the revised compensation amount (paragraph 8(5) of the Schedule).
208.All other elements used in calculating the compensation payable will be unaffected by this change:
where a person commuted part of their original compensation as a lump sum, the commuted amount will be deducted as part of the redetermination;
where a person had their compensation actuarially reduced because they took their compensation early, the same reduction will be applied in the redetermination;
where a person had been awarded a postponement addition, that addition will not be recalculated or increased.
209.With one exception, there will be no backdating. Any increase will be effective only from the date the legislation is commenced. Members who are continuing to postpone payment of their compensation at that time will have the increase applied when they take their postponed compensation.
210.Paragraph 12 deals with those who received a terminal illness lump sum in the year prior to the long service compensation cap legislation being commenced and makes an exception in backdating any increase due to the revised compensation cap. Where the recipient is still alive when the legislation is commenced, the lump sum will be re-calculated as if the long service cap legislation had been in force at the date of entitlement and arrears paid.
211.Paragraphs 14 to 17 make transitional provision for schemes undergoing assessment for entry to the PPF or winding up on the date the long service compensation cap comes into force.
212.An eligible pension scheme with an insolvent employer enters an “assessment period” during which the PPF determines whether the scheme will enter the PPF. Part of the assessment process involves the scheme assets being compared against the scheme’s ‘protected liabilities’ - the cost of providing annuities to cover the compensation that the PPF would pay if the scheme did enter the PPF. Paragraph 14(2) provides that, for schemes in the assessment period when the long service compensation cap legislation comes into force, the valuation of its protected liabilities should be completed on the basis that the long service cap has not been introduced.
213.A scheme can apply for the decision on whether or not they enter the PPF to be reconsidered. Where a scheme enters the assessment period before the long service compensation cap legislation is commenced and subsequently asks for such a reconsideration, paragraph 14(2) provides that this consideration should be done on the basis that the long service compensation cap has not been introduced.
214.During an assessment period the scheme trustees continue to pay scheme pensions as they fall due, but the payments must be reduced as necessary so as not to exceed the level of compensation the PPF would pay should the scheme enter the PPF. Paragraph 14(3) requires scheme trustees to increase pension payments during the assessment period to reflect the introduction of the long service compensation cap, where appropriate.
215.Paragraph 15 provides for how the long service compensation cap applies where a scheme began wind up, or is treated as having begun wind up, before the long service compensation cap legislation comes into force. This could be where a scheme begins to wind up without having been through a PPF assessment period, or where a scheme has been in the assessment period and left it without transferring to the PPF. Schemes winding up are required to allocate assets in accordance with the statutory priority order in Section 73 of the PA 1995. They are also required under section 73A of that Act to restrict payments of pension to the amounts which the scheme will be able to satisfy on wind up.
216.In general the priority order requires the asset allocation to begin with covering the compensation that would have been paid had the scheme entered the PPF. Paragraph 15(2) provides that where a scheme began wind up before the long service compensation cap is introduced it should continue to allocate assets and restrict pension payments on the basis the long service compensation cap had not been introduced. Paragraph 15(4) clarifies that if a scheme is winding up and also in a PPF assessment period, pension payments should be increased to reflect the introduction of the long service compensation cap.
217.Paragraphs 18 and 19 deal with the definition of terms used in the schedule.
218.Paragraphs 20 to 22 clarify that transitional provision can be made under section 56(8) of the Act, particularly in relation to pension compensation sharing and cases where a member has multiple benefits.
Section 51: Pension Protection Fund: compensation cap to apply separately to certain benefits
219.Section 51 amends paragraph 26 of Schedule 7 to the PA2004.
220.Where a person is entitled to compensation under the PPF due to entitlement to two or more scheme benefits, paragraph 26 of Schedule 7 (as originally drafted) provided for those benefits to be added together for the purposes of applying the compensation cap in all circumstances. However, the policy intention is, and has always been, that for the purposes of applying the compensation cap, such benefits should only be added together where they are either all attributable to the person’s pensionable service or all attributable to a pension credit arising from a divorce or dissolution settlement. The PPF have been calculating compensation on the basis of the policy intent. This means that individuals with benefits derived from different sources, for instance one benefit arising from a pension credit and another from their own service in the scheme, have their compensation calculated separately for each and the compensation cap applied separately to each.
221.This section amends paragraph 26 of Schedule 7 to the PA 2004 so that the legislation supports the policy and the current practice. The amendments to paragraph 26 are retrospective by virtue of subsection (7) to cover payments which may already have been made. Subsection (8) allows for the secondary legislation, which modifies how the compensation cap applies when tranches of compensation become payable at different dates, to be amended with retrospective affect to give effect to this change to paragraph 26.
Section 52: Public service pension schemes: transitional arrangements
222.Section 51 amends the Public Service Pensions Act 2013 to enable members of the smaller public body schemes transferring into one of the eight larger new public service pension schemes to be subject to the same transitional protection, ensuring that those less than ten years from their normal pension age will not be affected by the Government’s public service pension reform programme. This avoids the need to keep these members in their old smaller schemes.
