Public Service Pensions Bill

These notes refer to the Public Service Pensions Bill

as introduced in the House of Commons on 13 September 2012 [Bill 70]

Explanatory Notes


Introduction

1. These Explanatory Notes relate to the Public Service Pensions Bill as introduced in the House of Commons on 13 September 2012. They have been prepared by the Treasury in order to assist the reader of the Bill and to help inform debate on it. They do not form part of the Bill and have not been endorsed by Parliament.

2. The Notes need to be read in conjunction with the Bill. They are not, and are not meant to be, a comprehensive description of the Bill. So where a clause or part of a clause does not seem to require any explanation or comment, none is given.

Background

3. In 2010 the Chancellor of the Exchequer invited Lord Hutton of Furness to chair the Independent Public Service Pensions Commission ("the IPSPC"). The Commission was tasked with undertaking a fundamental structural review of public service pension provision.

4. The IPSPC published its final report1 in 2011. The report contained recommendations to reform public service pensions to balance the concerns of taxpayers about the present and future cost of pension commitments in the public service and to ensure decent levels of retirement income for public service workers. In March 2011 the Government accepted the IPSPC recommendations as the basis for consultation with public service workers, trades unions and other representative bodies.


1 Independent Public S ervice Pensions Commission: Final report, 10 March 2011, http://cdn.hm-treasury.gov.uk/hutton_final_100311.pdf

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5. In November 2011, following discussions, HM Treasury published Public Service Pensions: good pensions that last 1 setting out the Government’s preferred pension scheme design as the framework for further discussions. Trades unions were invited to suggest changes to the Government’s preferred scheme design to ensure it best meets the needs of each scheme’s members, within the cost ceilings set by the Government (for the four largest schemes on 2 November 2011 and for the Firefighters’ scheme on 7 December 2011 and on 28 March 2012 for the Police Pension Scheme). Following the discussions, scheme-specific design alternatives to the Government’s preferred pension design were put forward.


1 Public Service Pensions: good pensions that last , HM Treasury, 2 November 2011, http://cdn.hm-treasury.gov.uk/pensions_publicservice_021111.pdf

6. Key scheme design milestones for the new public service pensions schemes were reflected in the following documents:

· The Principal Civil Service Pension Scheme Heads of Agreement, 20 December 2011

· The NHS Pension Scheme Heads of Agreement in England and Wales, 20 December 2011

· The Teachers’ Pension Scheme Heads of Agreement in England and Wales, 20 December 2011

· The Local Government Pension Scheme Principles Document in England and Wales, 20 December 2011

· The Firefighters’ Pension Scheme in England Heads of Agreement, 9 February 2012

· The Principal Civil Service Pension Scheme Proposed Final Agreement, 9 March 2012

· The NHS Pension Scheme Proposed Final Agreement in England and Wales, 9 March 2012

· The Teachers’ Pension Scheme Proposed Final Agreement in England and Wales, 09 March 2012

· The Firefighters’ Pension Scheme in England Proposed Final Agreement, 24 May 2012

· The Local Government Pension Scheme Joint Statement, 31 May 2012

· Armed Forces Pension Scheme Outline Scheme Design, 8 August 2012

· The Police Reform Design Framework in England and Wales, 4 September 2012

7. The Government announced its intention to bring forward legislation, as a result of these discussions, agreements and the recommendations of the IPSPC, in the Queen’s Speech on 9 May 2012.

8. The Government began a dialogue with the judiciary about future arrangements for the Judicial Pension Scheme on 20 July. The Government’s preferred option is for the members of that scheme to join the reformed scheme for civil servants. The Bill is drafted on that basis. If as a result of the dialogue a different option is adopted, the Government will put forward appropriate amendments.

Summary

9. The Bill sets out the new arrangements for the creation of schemes for the payment of pensions and other benefits. It provides powers to Ministers to create such schemes according to a common framework of requirements. The Bill also provides powers to HM Treasury to set specific technical details of certain requirements and gives powers to The Pensions Regulator to operate a system of independent oversight over the operation of these schemes.

10. It is intended that the powers in the Bill will supersede powers, including those contained in the following legislation, to create schemes for the payment of pensions and other benefits:

  • Superannuation Act 1972 , for civil servants, people employed in local government service, teachers and persons engaged in health services;
  • Fire and Rescue Services Act 2004 ;
  • Armed Forces (Pensions and Compensation) Act 2004 ;
  • Police Pensions Act 1976 ;
  • Judicial Pensions and Retirement Act 1993 ; and
  • Superannuation (Northern Ireland) Order 1972 .

11. The Bill protects the benefits already earned by members of existing public service pension schemes and allows continued membership of those schemes for certain categories of person who are closest to retirement.

Territorial extent

12. This Bill extends to England and Wales, Scotland and Northern Ireland.

13. The Northern Ireland Assembly’s consent will be sought in relation to the provisions of this Bill to make schemes for pensions and other benefits that are within the competence of that Assembly.

14. This Bill contains provisions that trigger the Sewel Convention in Scotland. The provisions relate to the pensions of certain members of the Scottish judiciary and a power to require the closure and reform of pension schemes in public bodies for which the Scottish Parliament has competence. The Sewel Convention provides that Westminster will not normally legislate with regard to devolved matters in Scotland without the consent of the Scottish Parliament. We have sought "in principle" agreement from Scottish Ministers to seek a Legislative Consent Motion for these provisions. If there are amendments relating to such matters which trigger the Convention, the consent of the Scottish Parliament will also be sought for them.

15. The consent of the National Assembly for Wales will be sought in relation to provisions in this Bill which apply to new pension schemes for public bodies and statutory office holders; the National Assembly for Wales has competence in relation to pension schemes for Assembly Members, Welsh Ministers and members of local authorities.        

Commentary on Clauses and Schedules

Establishment of new schemes

Clause 1: Schemes for persons in public service

16. This clause contains the main enabling power for new public service pension schemes and schemes providing other benefits, such as injury and compensation benefits made under this Bill. The schemes are to be made in regulations, which will contain detailed provisions for the payment of pensions or other benefits. These schemes are required to be made in compliance with the framework conditions set out in the rest of the Bill. The creation of a consistent, legal framework for all public service pension schemes was a recommendation of the Independent Public Service Pensions Commission.

17. Subsection (1) enables schemes to be established which provide pensions or other benefits (such as injury and compensation benefits) to the main categories of persons in public service listed in s ubsection (2 ) . The definition of those main categories is further set out in Schedule 1 (to which subsection (3) cross-refers).

18. The detail of specific pension and other benefits schemes is to be set out in regulations. These regulations are called "scheme regulations", as set out in subsection (4).

Clause 2: Responsible authority for schemes

19. Subsection (1) enables those persons or departments listed in Schedule 2 to make scheme regulations for the main categories of persons in public service. The person or department with the power to make scheme regulations for a main category of persons in public service is described in subsection (2) (and in the Bill as a whole) as the "responsible authority" for the scheme.

Clause 3: Scheme regulations

20. Clause 3 contains additional provisions about how the power to make scheme regulations under the Bill may be used.

21. By subsection (1), scheme regulations can make such provision as the responsible authority considers appropriate, provided they are in accordance with the requirements in the rest of the Bill. For clauses that limit the type of provision that may be made, or which require provisions of a specific kind to be included, see for example:

· clause 4, which requires schemes to have a scheme manager who is to be responsible for managing or administering the scheme;

· clause 5, which requires schemes to provide for the establishment of a pension board to assist the scheme manager with certain matters;

· clause 7, which sets constraints on the design of schemes, including requiring schemes that are defined benefits schemes to provide those benefits through a "career average revalued earnings scheme" (or CARE scheme) or such other description of defined benefits scheme as the Treasury may specify in regulations (but not a final salary scheme);

· clause 8, which provides for the revaluation of pensionable earnings of a person in a CARE scheme in accordance with changes in prices or earnings as set out in an annual order made by the Treasury;

· clause 9, which contains requirements relating to the normal pension age of schemes made under this Bill; and

· clauses 10 and 11, which require schemes to contain a mechanism for regular valuations of the scheme and to provide for a cap on the costs to employers of public service schemes.

22. The provisions which can be made include in particular, as subsection (2)(a) says, any matter set out in Schedule 3. That schedule sets out a non-exhaustive list of matters which can be included in scheme regulations for public service pension schemes. If a matter is not mentioned in Schedule 3 that does not prevent it from forming part of such a scheme provided it is within the powers given by clauses 1(1) and 3(1).

23. Scheme regulations may also include consequential, supplementary, incidental or transitional provisions (see s ubsection (2)(b)).

24. Subsection (3)(a) allows scheme regulations to make different provision for different cases, including different provision for different descriptions of persons. This is a common provision in regulation-making powers to ensure that they are appropriately flexible.

25. Subsection (3)(b) allows scheme regulations to amend primary or secondary legislation, irrespective of when it was passed or made. This power may be necessary where legislation is inconsistent with or requires modification as a consequence of scheme regulations. Clause 21(1)(a)(i) further states that any amendment to primary legislation must be made by the affirmative procedure. The meaning of ‘affirmative procedure’ is given in clause 34.

26. Subsection (3)(c) allows scheme regulations to include provisions that have retrospective effect, that is to make changes which have effect in relation to a period that precedes the coming into force of the regulations. Such powers are common in public service pensions legislation. For example, it may be necessary to adjust pension schemes to accommodate changes in law or where the government does not want to delay the benefit of a particular change but needs time to work out the consequences and appropriate method of making the change. Clause 21(1)(a) requires that any retrospective amendments that appear to the responsible authority to have significant adverse effects in relation to members of the scheme must be made by the affirmative procedure. The meaning of ‘affirmative procedure’ is given in clause 34.

27. Subsection (3)(d) allows scheme regulations to give persons who have functions under the regulations discretion in carrying out those functions. This permits ministers or other scheme managers, for example, to make their own decisions within a framework set by scheme regulations.

28. Subsection (4) provides that any scheme regulations made under powers in this Bill require Treasury consent, subject to the exceptions set out in subsection (5). Those exceptions are:

· scheme regulations made by Scottish Ministers in respect of local government workers, fire and rescue workers and members of a police force;

· scheme regulations made by the Welsh Minsters in respect of fire and rescue workers; and

· and scheme regulations made by a Northern Ireland Department.

This carries forward current consent arrangements for these schemes.

29. The Government intends to put in place appropriate arrangements to ensure that requirements for Treasury consent under this clause, or where applicable for the Treasury’s administrative approval of other spending commitments (for which see chapter 1 of Managing Public Money - HM Treasury, October 2007 http://www.hm-treasury.gov.uk/d/mpm_whole.pdf ), are exercised in a way that balances appropriate scrutiny with administrative efficiency. In respect of those devolved authorities for which statutory Treasury consent is not required, an oversight regime for changes to cost-sensitive or repercussive elements will operate in accordance with Memoranda of Understanding between the Treasury and the devolved responsible authorities making those schemes.

30. Subsection (6) provides that the consent of the Department of Finance and Personnel in Northern Ireland is required for scheme regulations made by a Northern Ireland department for teachers, health service workers, fire and rescue workers and members of a police force. That department’s consent is required for the making of the equivalent existing schemes, so the Bill carries forward this requirement to their successor schemes.

Governance

Clause 4: Scheme manager

31. Subsection (1) provides that scheme regulations must provide for a person to be responsible for managing or administering a public service pension scheme set up under Bill powers and any other statutory pension scheme connected to it.

32. That person is referred to in the Bill as the "scheme manager" – see subsection (2).

33. Subsection (3) says that the scheme manager may, in particular, be the responsible authority who, under clause 2(1), is also responsible for making the scheme regulations that create the scheme. The regulations may, however, provide for some other person, or a number of persons, to be responsible for managing or administering the scheme. This allows for flexibility where pension management arrangements have historically operated at a more local level with individual management of each local scheme, such as in the police, firefighters and local government schemes.

34. Subsection (4) explains that another statutory pension scheme is connected to a public service pension scheme set up under clause 1 if and to the extent that it provides for persons of the same description, unless the responsible authority states in scheme regulations that the schemes are not to be regarded as connected (see subsection 5). For example, a public service pension scheme set up under the Bill for the armed forces would be connected to any existing schemes for the armed forces, unless the scheme regulations specify otherwise. The effect is that the regulations must set out the person who is to be responsible for running a new pension scheme in respect of persons set out at s ubsection (2) of clause 1 and any connected predecessor schemes for those persons. This will allow the scheme manager to have administrative responsibility for all relevant existing pension schemes relating to the same service.

35. As an example, in the Armed Forces Pension Scheme, which is centrally-administered, the scheme manager is expected to continue to be the Secretary of State for Defence who is also the responsible authority for that scheme (see Schedule 2). The scheme manager will be responsible for the new armed forces pension scheme and the existing armed forces pension schemes listed in Schedule 5 to the Bill. The Local Government Pension Scheme in England and Wales, on the other hand, is locally-administered. The Secretary of State for Communities and Local Government will be the responsible authority for that scheme and will make its scheme regulations. The scheme managers for the 89 local authority funds will be the local administering authority in respect of those funds. The local authority, as scheme manager, will be responsible for administering the new scheme in respect of local government workers and the pre-existing schemes for local government in the list at Schedule 5.

36. Subsection (5) allows for situations where an existing statutory scheme and its successor scheme are not to be managed together for some or all purposes. For example the new civil service pension scheme is likely to make provision for persons of the same description as are provided for under existing public body pension schemes. However it may be appropriate for some of those existing schemes to continue to be managed separately from the new civil service scheme. The subsection allows for this.

37. The scheme manager has certain specific responsibilities under the Bill (for example, see clause 13 (information)). Scheme managers, whether or not they are also the responsible authority, will be able to delegate aspects of their management and administration responsibilities if the scheme regulations allow (see paragraph 13 of Schedule 3).

Clause 5: P ension b oard

38. This clause requires public service pension schemes that are set up under clause 1 to establish a pension board. The board’s role is to assist the scheme manager in securing the effective and efficient administration of the pension scheme and any statutory scheme connected with it.

39. The pension board will, in particular, be charged with helping the scheme manager to ensure that the scheme is operated to an appropriate standard. They will be responsible for the matters set out in subsection (2). They include securing that schemes are administered in accordance with all relevant legislation concerning the governance and administration of public schemes and any directions given to the scheme by the Pensions Regulator. The pension board will discharge these functions in relation to a public service pension scheme set up under clause 1 and any statutory pension scheme connected with it. This mirrors the provisions for scheme managers. For example, a pension board for a new armed forces pension scheme will also be required to assist and advise the scheme manager in respect of existing armed forces pension schemes.

40. Subsection (1) requires a board to be established to assist the scheme manager in relation to the matters listed in s ubsection (2).

41. Subsection (2) sets out the matters that the pension board must be responsible for assisting the scheme manager to deliver. In all cases, the scheme manager will retain ultimate responsibility for the administration and governance of the scheme. The role of the pension board is to support the scheme manager to fulfil that responsibility and, by virtue of paragraph (b), secure compliance with any requirements imposed by the Pensions Regulator. It will be for the scheme regulations and the scheme manager to determine precisely how the pension board fulfils its responsibilities.

42. Subsection (3) provides that when making scheme regulations the responsible authority must have regard to the desirability of securing the effective and efficient governance and administration of the scheme. The role of the pension board is to help the scheme manager secure those objectives, and in particular to ensure that the scheme complies with its legal and regulatory responsibilities in this area.

43. Subsections (4) and (5) are concerned with conflicts of interest in the pension board. They prevent a person from being a member of a pension board where they have another interest that could prejudice them carrying out the role. Under subsection (4), the scheme manager, who is responsible for appointing the members of the pension board, must ensure that no conflict of interest exists at the time of appointment and while the member continues to serve. This provision would not prevent a person who is a member of the pension scheme to which the pension board relates (or a representative of members, or of employers) from being a member of the pension board. Subsection (5) explains that a conflict of interest means a financial or other interest which is likely to prejudice how a member carries out his or her duties (but not a financial or other interest arising merely from membership of the scheme or a connected scheme). This does not include other interests such as a mandate to represent the interests of scheme members or those of employers (which may be relevant but could not be said to be prejudicial).

44. Subsections (6) and (7) are for the public service schemes that are administered by local authorities and fire and rescue authorities. They make provision for pension boards for the pension schemes for fire and rescue workers in England and Wales and for local government workers in England and Wales, Scotland and Northern Ireland. They allow for scheme regulations in those schemes to provide that where a local authority has appointed a committee to carry out its responsibilities to manage or administer the pension scheme, that committee may also be the pension board. The committee will then have the dual role of responsibility for administering the scheme, and responsibility for ensuring good governance and compliance with requirements imposed by the Pensions Regulator.

Clause 6: Pension board: information

45. Clause 6 is concerned with ensuring that information is available to scheme members and other interested parties so that they can easily see and understand who is a pension board member, how pension scheme members are represented on the pension board and what the responsibilities of the pension board are.

Design

Clause 7: Types of scheme

46. Clause 7 specifies the types of pension scheme that can be set up under the Bill.

47. Subsection (1) provides that the types of scheme which may be provided for in scheme regulations include defined benefits schemes, defined contributions schemes, and schemes of any other description. The meaning of defined contributions and defined benefits schemes is set out in clause 33 (General interpretation). There is therefore a broad power to create pension and benefit schemes of different designs, subject to the restrictions that the rest of the clause applies to defined benefits schemes.

48. Subsection (2) sets out that any defined benefits scheme must be either a career average revalued earnings scheme, or another type of defined benefits scheme specified in regulations made by the Treasury. This is to give effect to the 7th recommendation of the Independent Public Service Pensions Commission, which stated that career average schemes "should be adopted for general use in the public service schemes", but to allow some flexibility in case there is a compelling future need for another type of defined benefits scheme.

49. Subsection (3) stipulates that final salary scheme designs may not be specified by Treasury regulations. They are therefore not a permitted form of defined benefits scheme. This provision is consistent with the conclusion reported in paragraph 14 of the Executive Summary of the Independent Public Service Pensions Commission’s final report, that "final salary does not provide the right design for future public service schemes".

50. Subsection (4) sets out the meaning of "career average revalued earnings schemes" for schemes made under clause 1. In this type of scheme, which is often referred to as a CARE scheme, members build up pension in each year of active membership based on their pensionable earnings in that year. The pension accrued in that way is then revalued each year until the person leaves pensionable service. The measure of revaluation varies from scheme to scheme and will be provided for in scheme regulations subject to the arrangements in clause 8 (Revaluation).

51. Subsection (5) sets out the procedure for Treasury regulations under this clause, which are to follow the negative Commons procedure (as defined in clause 34).

Clause 8: Revaluation

Clause 8 deals with the procedure for revaluing earnings that active members of pension schemes made under clause 1 use to accrue pension benefits, for example, under career average revalued earnings (CARE) schemes. It is concerned with the revaluation of the accrued pension of active members of schemes and not the uprating or indexation of pensions that are deferred or in payment (for the detail of which see the Pensions (Increase) Act 1971, and amendments to that Act in Schedule 8 to the Bill).

By s ubsection (1), clause 8 applies to schemes made under clause 1 of the Bill where scheme regulations provide for the pensions of members of those schemes to be revalued, until those members leave pensionable service of that scheme, by reference to changes in prices or earnings. This will apply to all CARE schemes and, it is envisaged, the vast majority of pension schemes created under the powers in the Bill.

Subsection (2) provides for the Treasury to make orders that specify what the percentage increase or decrease in prices or earnings is for each period of service. Its purpose is to ensure that the same measures of prices and earnings are used and applied for revaluation on a consistent basis across public service schemes.

Subsection (3) sets out that the Treasury may determine by order the change in prices or earnings, by reference to the general level of prices or earnings, which is estimated by the Treasury in a manner that they consider to be appropriate.

Subsection (4) states that an order under this section must be made annually and may make different provision for different purposes. This is to allow for some flexibility in order to give effect to different agreements on revaluation made with representatives of members of different schemes. For example, the agreed scheme design for firefighters includes revaluation of accruals by the general change in earnings, whereas the agreed scheme design for civil servants includes revaluation of accruals by the general change in prices.

Subsection (5) sets out the procedure for Treasury orders under this clause, which are to follow the negative Commons procedure (as defined in clause 34).

Subsection (6) disregards any gap in pensionable service of up to five years for the purposes of s ubsection (1), such that accruals are revalued during the gap as if the person was an active member. This is to allow those persons who have taken a break from pensionable service of less than five years to be treated for pension purposes as if they had remained in pensionable service in the scheme. It relates only to the revaluation of benefits they have already accrued in the scheme and does not give them pensionable rights in relation to the years that they have not served in the public sector.

Clause 9: Pension age

This clause provides for the normal pension age and deferred pension age of members of most public service pension schemes to be the same as their state pension age, or 65, whichever is greater.

Subsection (1) requires a scheme made under the powers in clause 1 to make the normal pension age for members of that scheme the same as their state pension age, or 65, whichever is greater. The floor of age 65 is to account for the gender disparity in state pension ages at present, which is due to be equalised at 65 by 2018. "Normal pension age" is defined in s ubsection s ( 5 )(a) and ( 6 ) as the earliest age at which a member of the scheme is entitled to receive unreduced benefits upon retirement from active membership. "State pension age" is defined in s ubsection ( 5 )(c) by reference to a person’s pensionable age as set out in Schedule 4 to the Pensions Act 1995 (or Schedule 2 to the Pensions (Northern Ireland) Order 1995 for members of Northern Irish schemes). The government announced in its 2012 Budget that there will be an automatic review of state pension age to ensure it keeps pace with increases in longevity.

A link between normal pension age and state pension age was the 11th recommendation of the Independent Public Service Pensions Commission. Its purpose is to manage the increasing costs of longevity improvements by providing for scheme members to work for longer in order to draw a full scheme pension.

Subsection (2) excepts fire and rescue workers who are firefighters, members of police forces, and members of the armed forces from the requirement to link normal pension age to state pension age in s ubsection (1), and provides instead that their normal pension age should be 60. These groups have historically had lower pension ages than other public servants in recognition of the unique characteristics of the work they do.

The 14th recommendation of the Independent Public Service Pension Commission’s report was for the government to consider a normal pension age of 60 for those fire and rescue workers who are firefighters, members of police forces, and members of the armed forces whose current normal pension age is below that figure, subject to regular review.

Subsection (3) requires a scheme made under the powers in section 1 to make the deferred pension age for members of that scheme the same as their state pension age, or 65, whichever is greater. Again, the floor of age 65 is to account for the gender disparity in state pension ages at present. "Deferred pension age" is defined in s ubsection s ( 5 )(b) and (6) as the earliest age at which a member of the scheme is entitled to receive unreduced benefits under a scheme for which they have left active service before reaching normal pension age.

Subsection (4) requires any changes to normal or deferred pension age that occur as a result of a change in state pension age to apply to the calculation and payment of all benefits earned in a scheme, including benefits accrued before the change in state pension age.

This clause also applies to new schemes set up for other public bodies (see clause 27(1) (new public body pension schemes)).

The effect of this clause is therefore to require normal and deferred pension ages in schemes made under powers in this Bill or governed by provisions in it to change in line with any change to state pension age. With the exceptions set out in s ubsection ( 2 ) (so far as relating to normal pension age), if state pension age increases by one year, the relevant normal and deferred pension ages would automatically increase by one year. The increase would apply to all benefits earned in a scheme set up under the Bill where the normal and deferred pension age have been linked to state pension age. This will mean that if the state pension age changes, an active member of a scheme set up under the power in clause 1 will take all of their pension entitlements in that scheme at the new normal pension age, including those earned before the change to state pension age. It will not affect pension benefits that were accrued before the scheme member transferred into the public service pension scheme set up under or governed by the Bill. Those pension benefits may be taken at the normal pension age for the scheme in which they were accrued, and on the terms that apply to that scheme.

Cost Control

Clause 10 : Valuations

68. This clause sets out that schemes must be actuarially valued in accordance with Treasury directions.

69. Subsection (1) requires scheme regulations to provide for actuarial valuations that will cover both pension schemes that are created by or governed by this Bill and connected schemes. Clause 4(4) defines a connected scheme as one which covers employees who are employed in the same kind of public service as the new scheme provided they are not excepted from this rule under scheme regulations. This is subject to subsection (3)(e).

70. Subsections (2) and (3) set out that the valuations must be carried out in accordance with Treasury directions. Those directions may specify key details on how valuations should be carried out, including:

· how and when the valuation is to be carried out;

· the time periods over which a valuation will measure a scheme’s assets and liabilities;

· the data, methodology and assumptions to be used in valuations;

· the matters that must be covered by the valuations (which may relate to the outputs that must be produced);

· how the valuations of new and connected schemes will be combined; and

· the time period for implementing changes to the employer contribution rate as a result of the outputs of the valuation.

71. The matters that will be specified are expected to include the employer contribution rate – that is the costs to be paid by employers that are members of the scheme.

72. Subsection (4) requires the Treasury to consult the Government Actuary before making, revoking, or amending directions.

Clause 1 1 : Employer c ost cap

73. This clause requires scheme regulations to set an employer cost cap, and sets out how this cap should be set, measured and operated.

74. Subsections (1) and (2) require scheme regulations to set a rate, known as the employer cost cap, which is to be used for measuring the costs of a scheme made under clause 1 and, subject to Treasury directions made under this clause, those of any connected schemes as defined in clause 4(4).

75. Subsection (3) provides that the cap is to be set in accordance with Treasury directions.

76. Subsection (4) gives examples of what those Treasury directions may cover. They may, in particular, specify how the first valuation under clause 10 will be taken into account when setting the cap, and how costs, or changes in costs, at subsequent valuations are to be taken account when measuring the costs of the scheme against the employer cost cap (that is, the figure that will be compared to the level of the cap at subsequent valuations).

77. The directions may also specify to what extent the costs of connected or other schemes are to be taken into account when setting the employer cost cap.

78. Subsection (5) requires the Treasury to make regulations to determine how the cap will operate. Treasury regulations will:

a. set margins either side of the cost cap beyond which action must be taken to bring the costs back within the margins; and

b. specify the target cost (within those margins) that the scheme should return to if the costs of the scheme go beyond those margins.

79. Subsection (6) makes provision for scheme regulations to specify the processes to be followed to reach agreement on the action to be taken if the cost of the scheme arising from a second or subsequent valuation does not fall within those margins. A default process may be specified if there is no agreement.

Subsection (7) sets out that the action taken to bring the scheme costs within the margins may include an increase or decrease in members’ benefits or contributions.

Subsection (8) allows Treasury regulations to make consequential and supplementary provision, and allows regulations to make different provision for different schemes with regard to the way the employer cost cap is set, measured and operated.

Subsection (9) sets out that Treasury regulations under this clause are subject to the negative Commons procedure (as defined in clause 34).

Clause 1 2 : Employer contributions in funded schemes

83. Clause 12 provides for the setting of the rate of employer contributions in defined benefits schemes with a pension fund, most notably the funded Local Government Pension Schemes. The clause requires an actuarial valuation of the pension fund to inform the setting of the employer contribution rate.  It provides for an independent review of the valuation and employer contribution rates to check that they are appropriate and requires remedial action to be taken where that review identifies a problem.

84. Subsection (1) provides that the pension schemes to which the clause applies are defined benefits scheme set up under the Bill which have a pension fund. These will be the Local Government Pension Schemes in England and Wales, the Local Government Pension Schemes in Scotland, the Local Government Pension Scheme in Northern Ireland and any other funded defined benefits schemes established under clause 1 in the future.

85. Subsection (2) requires the scheme regulations of a funded scheme made under clause 1 to set the employer contribution rates so that they meet two specified objectives. These objectives are to ensure that the rate of employer contributions are set at a level that is sufficient to ensure the solvency and long-term cost efficiency of the scheme, which will take into account the current and anticipated liabilities of the scheme.

86. These terms are not defined in the Bill. Long-term cost efficiency implies that the rate must not be set at a level that gives rise to additional costs, for example deferring costs to the future would be likely to result in those costs being greater overall than if they were provided for at the time. Solvency means that the rate should be set at such a level as to ensure that the scheme’s liabilities can be met as they arise.

87. Subsection (3) provides that scheme regulations must require the pension fund to be subject to actuarial valuation. Provisions in the scheme regulations will require the scheme actuary to set the employer contribution rate for the employers who contribute to the pension fund. There are 89 pension funds in the Local Government Pension Scheme in England and Wales, 11 pension funds in the Local Government Pension Scheme in Scotland and 1 pension fund in the Local Government Pension Scheme in Northern Ireland. Each pension fund will undertake a separate actuarial valuation and will set its own employer contribution rate or rates for the employers who participate in that fund.

88. Subsections (4), (5), and (7) require an appropriately qualified person to be appointed by the responsible authority to review the actuarial valuation and employer contributions rates and publish the findings of that review. The review will consider whether the valuation is in compliance with the scheme regulations, whether it is consistent with other valuations under the scheme, and whether the employer contributions rate was set as required by subsection (2).

89. The purpose of the review is to provide an independent verification of the assessment of the scheme’s assets and liabilities and to confirm whether appropriate employer contributions will be paid to meet those liabilities. The independent person’s report must be published.

90. Subsection (6)(a) provides that where the review identifies a problem with the valuation or the employer contribution rates the independent person may recommend how these can be corrected.  Regardless of whether the review recommends actions or not, the scheme manager of the scheme is required by s ubsection ( 6 ) (b) to take steps to remedy any problem identified by the review.  The scheme manager is also required to set out publicly what actions have been taken and why. 

91. Where there has been an adverse review, subsection (6)(c) provides that the responsible authority may require the scheme manager to report on progress in taking remedial steps. The responsible authority may also require the scheme manager to take such steps as he or she considers are needed to correct the problem. These powers are expected to be used as a last resort, for example where the scheme manager is not in the opinion of the responsible authority taking appropriate remedial steps, or is delaying doing so.

92. For the local government pension schemes, the scheme manager will be the relevant local authority that is an administering authority for that scheme. The responsible authority for the local government schemes is: in England and Wales, the Secretary of State; in Scotland, the Scottish Ministers; and in Northern Ireland, the Department for Finance and Personnel in Northern Ireland.

Administration

Clause 1 3 : Information

93. Clause 13 is concerned with the collection and publication of information about schemes under clause 1 of the Bill. It allows the Treasury to direct schemes to publish information or to provide information to the Treasury, and to specify how and when that information is to be published or produced.

94. The purpose of the clause is to improve the transparency of public service pension schemes. It is intended to be used to ensure that information is publicly available to allow comparisons to be made across schemes on their financial position, costs to members and other taxpayers, their assets and liabilities (including how those are managed), membership demographics and administration and governance standards. It is intended to allow for matters such as the format, methodology and data to be included in published information to be set centrally and applied consistently across all of the public service schemes in UK. This is intended to ensure that information is produced to common standards and timing which will make it easier to compare public service pension scheme information and make it easier for members and taxpayers to hold schemes to account.

95. Responsible authorities will remain able to publish information independently. The clause is also intended to allow the Treasury to collect centrally all of the information it requires to carry out its functions under the Bill, for example the setting of valuations methodologies under clause 10.

96. Subsection (1) allows the Treasury to direct schemes to publish information themselves or to provide it to the Treasury. Information provided to the Treasury may be collated and published centrally.

97. Subsection (2) explains that the information referred to in s ubsection (1) relates to information on the scheme itself and other statutory schemes that are connected with it.

98. Subsection (3) gives example of the types of information which schemes may be directed to publish or provide. It includes, for example, scheme accounts and information about scheme membership.

99. Subsection (4) provides that a Treasury direction may specify how and when information is to be published or provided.

100. Subsection (5) stipulates that a Treasury direction cannot require schemes to publish or provide information that could not otherwise be lawfully provided. This protection means that schemes cannot be required to publish or provide information in breach of data protection obligations or the laws which govern the confidentiality of an individual’s tax and social security affairs.

Clause 1 4 : Records

101. Clause 14 allows the Secretary of State (or in Northern Ireland, the Department of Finance and Personnel in Northern Ireland) to make regulations requiring scheme managers of pension schemes made under clause 1 (and any connected schemes) to keep specified records. This will include, for example, information about contributions due to the scheme. The regulations may also cover new public body schemes (and any connected schemes) by virtue of the application of clause 14 to such schemes by clause 27.

102. Regulations under this clause are subject to the negative procedure (for which see clause 34).

Clause 1 5 : Regulatory o versight

103. Clause 15 makes provision about the regulatory responsibility of the Pensions Regulator, established under Part 1 of the Pensions Act 2004 (and the Pensions (Northern Ireland) Order 2005), in relation to the governance and administration of public service schemes made under the Bill, connected schemes and other public service pension schemes (which will include for example certain existing public service schemes listed in Schedule 5 and new public body schemes created after April 2015).

104. Subsection (1) introduces Schedule 4, which amends the 2004 Act and the Pensions (Northern Ireland) Order 2005 to extend the Pensions Regulator’s role in respect of those schemes.

105. Subsection (2) provides a power for the Secretary of State to make consequential provision to the amendments set out in Schedule 4 by order, and also for the Secretary of State to make further or connected provision for the regulation of public service pension schemes within the meaning of the Pensions Act 2004 by order. By s ubsection (3), a Northern Ireland department has a corresponding power in relation to Northern Ireland.

106. Subsection ( 4 ) provides that the power at s ubsection s (2) and (3) includes a power to amend primary legislation (including this Bill).

107. Subsection ( 5 ) allows for an order under this clause to make different provision for different purposes, enabling the correct level of regulatory oversight to be applied in each individual circumstance, if required.

108. Subsection (6 ) provides that where such an order makes amendments to primary legislation, it will be subject to the affirmative procedure. In other cases, such orders will be subject to negative procedure. ‘Affirmative procedure’ and ‘negative procedure’ are defined in clause 34.

Transitional

Clause 16 : Closure of existing pension schemes

109. Clause 16 provides that benefits may not be provided under existing pension schemes in relation to service after the closing date for the scheme. Its effect is to bring to an end further accrual of pension benefits in existing schemes except where transitional arrangements have been agreed to allow those who are closest to retirement to continue to accrue benefits under the scheme. The transitional arrangements for each scheme vary within the parameters set centrally by Government.

110. Subsection (1) prohibits the provision of benefits under an existing scheme for service after the closing date for that scheme as provided by s ubsection (4).

111. Subsection (2) specifies that "existing schemes" for the purposes of this Bill are listed in Schedule 5.

112. Subsection (3) provides that the above restriction does not apply to defined contribution schemes or to the benefits specifically excepted by Schedule 6, which are injury and compensation benefits.

113. Subsection (4) sets out that the closing date mentioned in subsection (1) is 5 April 2015, or, in the case of the Local Government Pension Schemes in England and Wales and in Northern Ireland, 1 April 2014. These schemes plan to bring regulations for reformed schemes into force one year earlier than the other major public service schemes.

114. Subsection (5) permits scheme regulations to provide exceptions to the prohibition in s ubsection (1) for (a) persons who were, or were eligible to be, members of an existing scheme as at 1 April 2012 and (b) for other persons who ceased to be, or to be eligible to be, members of existing schemes before that date. This provision is permissive, but not mandatory, so schemes may decide not to adopt transitional arrangements if they so wish. It is anticipated that schemes will in practice all provide the transitional protections that have been agreed in consultations prior to the introduction of this Bill.

115. Such exceptions may, by s ubsection (6), be framed in particular by reference to a person reaching normal pension age under their existing scheme, or another age, or to the satisfaction of another condition before a particular date. These exceptions are to permit the various transitional arrangements that have been agreed as part of developing reformed public service pension schemes, and to enable delivery of the new Fair Deal policy (to which clause 26 and Schedule 9 are also relevant).

116. Subsection (7) allows for additional transitional provisions for those who do not fall within the categories that scheme regulations provide under s ubsection (6). These provisions may extend qualified transitional arrangements for up to a further four years. This subsection allows the impact of reformed schemes to be moderated for those who fall just outside the main categories for whom transitional protection has been agreed. This is typically those people who are between 10 and 14 years from retirement in their existing schemes. These ‘tapering’ provisions have also been agreed following extensive consultations, and are designed to afford protection to those scheme members who do not benefit from full exemption under transitional agreements. For example, in the NHS pension scheme reforms members who are between 10 and 13.5 years of their normal pension age will have limited protection with linear tapering so that the further they are from reaching normal pension age before a particular date, the less the transitional protection they receive.

117. Subsection (8) allows the arrangements under s ubsections (5) and (7) to be provided by amending existing schemes through scheme regulations.

118. Subsection (9) clarifies that death in service benefits are included within the prohibition of s ubsection (1).

119. Subsection (10) sets out what is meant by a relevant local government scheme in subsection (4).

Clause 1 7 : Closure of existing injury and compensation schemes

120. Subsection (1) permits scheme regulations to provide for the closure or restriction of existing schemes that provide for the payment of benefits relating to compensation for loss of office on grounds of redundancy, and for injury benefits, as listed in Schedule 6. No date has been set for the closure of these injury and compensation schemes.

121. The schemes listed in Schedule 6 relate to employment in the armed forces, civil service, fire service, local government, NHS, the police and teaching. These injury benefit and compensation schemes are for the most part separate from the pension schemes for those workforces and their membership is not restricted to persons who are members of those pension schemes.

122. If such schemes are closed, clause 1 of the Bill provides powers for replacement schemes to be made in those workforces in the future (see clause 1 and paragraph 2 of Schedule 3).

Subsection (3) provides for schemes to make exceptions to subsection (1). This power could be used to provide for transitional provisions for current members.

124. Subsection (4) provides that the closure or restriction may be achieved by amending the existing schemes using scheme regulations made under the Bill.

Clause 18: Final salary link

125. This clause introduces Schedule 7, which sets out the final salary link that applies to past service in final salary schemes prior to the closing date.

Procedure for s cheme regulations

Clause 1 9 : Consultation

126. Clause 19 obliges the responsible authority to consult those likely to be affected before making or changing scheme regulations. The current procedures for making changes to current public service pension schemes vary from scheme to scheme. In some schemes, there is no requirement for consultation, while others require members to consent to certain changes or allow certain members to opt out of changes. The clause provides a standard requirement for those responsible for making schemes to consult before doing so.

127. Subsection (1) requires the responsible authority (that is, the minister or authority responsible for making scheme regulations for a public service pension scheme) to consult the persons (or their representatives) who it considers are likely to be affected by the proposed change before any change is made.

128. Subsection (2) requires the responsible authority to publish a list of those people that the authority anticipates would normally be consulted as part of the obligation under subsection (1). This list must be kept up to date.

129. The purpose of the list is to make the consultation process more transparent by providing an indication of the organisations and people with whom consultations within a particular scheme are likely to be conducted.

130. Subsection (3) allows any consultation that took place before the commencement of this clause to satisfy the requirements of subsection (1). It is a permissive rather than mandatory provision. It means that schemes do not need to wait until this clause is brought into force before they consult on making scheme regulations, because a consultation carried out before the clause comes into force will satisfy its requirements provided it is compliant in all other respects.

Clause 20 : Consultation and r eport

131. The Chief Secretary to the Treasury said in a statement to the House of Commons on 20 December 2011 that the reforms legislated for under this Bill are designed to last for at least 25 years. He announced his intention to include provisions in primary legislation that will ensure a high hurdle is set for future Governments to change the design of the schemes.

132. The enhanced consultation and report process for changes to protected elements for a period of 25 years are the Government’s way of giving effect to that commitment.

133. Subsection (1) sets out that the processes in subsections (2) to (4) are to be followed in the event that the responsible authority wishes to make changes to the new pension schemes for public service that impact on certain elements (the "protected elements") which have been identified for enhanced protection. The process protects those elements from modification for 25 years from 1 April 2015 (the "protected period") unless the process is followed.

134. The processes also apply (without time limits) where the responsible authority proposes to make retrospective changes which appear to the responsible authority to have significant adverse effects in relation to members of a scheme.

135. Subsections (2) to (4) set out the two parts of the required process. Where a change is proposed to the protected elements during the protected period, the responsible authority must consult those who appear likely to be affected with a view to reaching agreement with them and must lay a report before the appropriate legislative authority. The requirement to consult with a view to reaching agreement is a higher standard than applies under clause 19 (consultation).

136. The responsible authority proposing the change must consult those who appear likely to be affected, either directly or through their representatives (s ubsection (3)).

137. Subsection (4) provides that the report to the appropriate legislative authority must say why a modification to a protected element is proposed within the protected period, having regard to the general desirability of not making such changes in that period.

138. Subsection (5) gives the meaning of certain terms used in this clause, including the "protected elements".

139. Subsection (6) creates an exception for changes to the protected elements that are caused by the operation of the employer cost cap under clause 11.

Clause 21: Other procedure

140. Clause 21 sets out the legislative procedures which apply to the making of scheme regulations. A higher level of parliamentary scrutiny is required in each case if scheme regulations are used to amend primary legislation or to make retrospective amendments that appear to the responsible authority to have significant adverse effects in relation to members of schemes.

141. Subsection (1) provides that scheme regulations are subject to the affirmative procedure if they amend primary legislation or make retrospective provision that may adversely affect members of schemes. They are subject to the negative procedure in other cases. The meaning of the affirmative and negative procedures in each of the forums in which scheme regulations may be made is set out in clause 34.

142. Subsection (2) provides that when scheme regulations subject to the negative procedure are combined with regulations subject to the affirmative procedure, the combined regulations are subject to the affirmative procedure.

New schemes: supplementary

Clause 22: Extension of schemes

143. This clause allows schemes made under clause 1 to be extended to persons who are not in the main categories of persons in public service specified there. This is similar to the process whereby public servants who are not civil servants are admitted to the Principal Civil Service Pension Scheme by inclusion within Schedule 1 of the Superannuation Act 1972, but is designed to provide a more streamlined and transparent process.

144. Subsection (1) enables scheme regulations to make provision for pension and other benefits to public service employees who do not fall within the core description of public worker set out in clause 1 for that scheme.

Subsection (2) allows scheme regulations to deem persons to fall within a given description of persons in public service where they do not fall within that description.

146. Subsection (3) permits scheme regulations to specify persons who though not in public service may potentially be covered by a scheme made under clause 1. They are potentially covered by a scheme because the further step set out in subsection (5) is needed to make the scheme actually relate to some or all of these persons.

147. Subsection (4) gives discretion to the responsible authority to specify under subsection (3) any persons not in public service whom it considers appropriate.

148. Subsection (5) allows the responsible authority to determine which of the persons who have been specified in scheme regulations under subsection (3) are in fact to be covered by the scheme. This gives the responsible authority the ability to admit some or all of a class of specified persons.

149. The eligibility of those who are not in public service to join a scheme under this clause is therefore a two stage process. First, the persons whom the scheme may cover must be specified in the scheme regulations. That is likely to be done by a generic description. Then the responsible minister must determine which of those persons are permitted to be members of the scheme. As subsection (5) says, the determination may cover some or all of the specified group.

Subsection (7) notes that subsection (6) is subject to any special provisions in the scheme regulations for such persons.

151. Subsection (8) requires the responsible Minister to publish a list of the persons for whom a determination has been made under subsection (5). That list provides a comprehensive and up to date record of the non-public service membership of the relevant scheme. This list must be kept up to date.

152. Subsection (9) allows determinations under subsection (5) to have retrospective effect. This means that the eligibility of persons to join the scheme can be backdated so that it takes effect from a date before the date of the determination. For example, if it is decided in 2016 that a group of persons may enter a scheme, but the scheme regulations are updated later in 2017, it will be possible to admit them with effect from 2016 when the decision was made. Section 1 of the Superannuation Act 1972 contains a similar power to allow the membership of the Principal Civil Service Pension Scheme to be extended with retrospective effect, which is used in similar circumstances.

153. Between them, clause 1(2) and clause 22 determine the scope of schemes made under this part. Clause 22 is expected to be used more by so-called "mixed" public service schemes which have traditionally included members from a wide range of employers (such as the civil service and the local government scheme). It is less likely to be used by schemes that draw their membership from a narrower range of employers or occupations such as the police or teachers’ schemes.

154. Examples of people who would not be captured by clause 1(2) but who have historically been able to join public service pension schemes include: employees of employers with Admitted Body Status (under LGPS (Administration) Regulations 2008) who can join the LGPS; and groups that have been granted Direction Status (under the Superannuation (Miscellaneous Provisions) Act 1967) who can enter a particular public service pension scheme.

Clause 23: Non-scheme benefits

155. This clause allows scheme managers and employers to make payments towards the provision of pensions and other benefits that are not delivered through a scheme made under clause 1 for persons who could have access to such schemes. This will enable employers to contribute to private occupational pension schemes where members of public service schemes wish to take out or retain private occupational pensions in addition to or instead of being members of public service schemes (such as the Civil Service Partnership Scheme), or wish to make additional payments towards extra pensions in a private occupational scheme.

Clause 2 4 : Consequential and minor amendments

156. This clause introduces Schedule 8, which contains consequential and minor amendments to primary legislation that are required because of the provisions in the Bill. These amendments include amendments to existing scheme legislation as well as provisions in wider pension legislation to allow the Bill to operate properly.

Existing schemes: supplementary

Clause 25: Existing local government scheme s

157. Clause 25 provides for regulations made under section 7 of the Superannuation Act 1972 and Article 9 of the Superannuation (Northern Ireland) Order 1972) for the purpose of providing for benefits in relation to service after 1 April 2014 to have effect as if they were scheme regulations made under clause 1 of this Bill. This clause will only apply to regulations under which benefits are provided to or in respect of service on or after 1 April 2014. In other words, it will only apply to regulations that are open to active members on or after 1 April 2014, and will not apply to previous regulations that operate closed schemes. The clause provides that the regulations may only have effect as if they were scheme regulations if they could have been made under the Bill. That is, they must comply with all the requirements and restrictions placed on scheme regulations by the Bill.

158. It has been decided that reformed schemes for the Local Government Pension Schemes in England and Wales, and Northern Ireland, which are made under section 7 of the 1972 Act and Article 9 of the 1972 Order, are to be brought into force one year earlier than the other major public service schemes. This is because, as a funded scheme, this will enable the Department of Communities and Local Government and the Northern Ireland Government to bring forward savings from reform earlier so that they will then be available for other purposes. By allowing these regulations to take effect as if made under clause 1 these schemes will be able to introduce reforms on their chosen timetable while still being able to take advantage of the full powers of this Bill and the protections included in them.

Clause 26 : Existing schemes for civil servants : extension of access

159. This clause introduces Schedule 9 which amends the Superannuation Act 1972 and the Superannuation (Northern Ireland) Order 1972 to extend access to schemes made under section 1 of that Act and Article 3 of that Order.

P ublic body pension scheme s

Clause 27 : New public body pension schemes

160. There are a number of final salary pension schemes for those in public service aside from the main schemes for civil servants, local government workers, NHS, teachers, police, fire and rescue services, the armed forces, and the judiciary. Many of these are pension schemes run for the staff and office holders of non-departmental public bodies, arms length bodies and similar bodies and offices (‘public bodies’).

161. The Government’s policy is to reduce the number of different pension schemes that operate across the public service. It is anticipated that most of these pension schemes will be reformed by moving the staff and office holders into one of the new schemes established under clause 1 of the Bill. However, where that is not possible or appropriate public bodies may be allowed to reform their current schemes or to set up new bespoke pension schemes on reformed lines. This clause deals primarily with the latter situation.

162. This clause imposes constraints on the design of new pension schemes that may be created under the power in clause 28(4) for those bodies and offices whose pension schemes are closed by clause 28(2) and whose members cannot join one of the schemes established under clause 1. It also governs the design of pension schemes that are set up in the future or established under future legislation for public bodies (unless future legislation makes specific, different provision).

163. Subsection ( 1 ) identifies provisions of the Bill which apply to new public body pension schemes. They ensure that such schemes contain the same core design, cost control and governance features of the reformed schemes that will be established under clause 1.

164. Subject to that, the rules of such schemes can make such provision as the public authority establishing the scheme considers appropriate because clause 3(1) applies to them.

165. By subsection ( 3 ) the Treasury (or for Northern Ireland bodies (as defined by subsection (4)) or offices, the Department of Finance and Personnel in Northern Ireland) must consent to any new public body pension scheme which is established after this clause is commenced. For the meaning of ‘public body pension scheme’ and ‘new public body pension scheme’ see subsection (5).

Clause 28 : Closure of certain existing public body pension schemes

166. Many public authorities have the power to make pension schemes for their employees and office-holders. These include schemes for employees and office holders of non-departmental public bodies, arms length bodies and similar bodies and offices (public bodies).

167. Clause 28 applies to such bodies if they are listed in Schedule 10. It requires the authority responsible for a body listed in Schedule 10 to close the pension schemes of those bodies to future accrual. Where possible, it is intended that pensions for the body’s employees in future will be provided instead through one of the reformed, unfunded public service pension schemes, such as the civil servants’ pension scheme.

168. In exceptional cases public authorities will be permitted to establish new schemes of their own, for example where there are special considerations that make it inappropriate for their employees to join one of the major unfunded schemes. In such cases, a new scheme may be set up but must include the core standards of the reformed unfunded schemes as set out by clause 27.

169. Subsection (1) provides that the clause applies to a pension scheme which relates to members or staff of a body, or the holder of an office, listed in Schedule 10.

170. Subsection (2) places a duty on the public authority which is responsible for a body listed in Schedule 10 to close that body’s pension scheme for future service after a date that is to be determined by the authority. The precise date in each case will be a matter for discussion and consultation but it is anticipated that all schemes covered by this subsection will have closed to future service by 5 April 2018 at the latest.

171. Subsection (3) allows pension schemes which are required to be closed under s ubsection (2) to continue to provide benefits by way of exception for certain members who are eligible for transitional protection. Where transitional protection is offered, it is expected to be on the same basis and timing as transition in the schemes that are closed under clause 1 (that is, based upon a starting date for transitional protection of 1 April 2012). Subsections (6) and (7) of clause 16 apply to transitional arrangements in these closed public body schemes.

172. Subsection (4) allows the public authorities responsible for bodies or offices listed in Schedule 10 to establish new pension schemes for staff or office-holders where it is not possible for those persons to become members of one of the major schemes established under clause 1. Clause 27 provides details of the types of scheme that may be established in such cases. It is expected that most of these persons will in practice join one of the major schemes. Doing so provides consistency of treatment to all public service staff and offers the potential for savings on administration.

173. Subsection (5) prevents a public authority which closes a scheme in accordance with subsection (2) from using the statutory or other power on which the closed scheme was based to establish a new scheme. Its purpose is to ensure that replacement schemes will only be made using the power in subsection (4).

174. Subsection (6) provides that subsections (2) and (3) supersede any conflicting deed of trust or law relating to trusts.

175. Subsection (7) allows the Treasury by order to add public bodies and offices to Schedule 10, and to remove public bodies and offices from Schedule 10. Subsection (8) provides that such orders may also make consequential and supplementary provision, including amendments to legislation. Although the affirmative procedure is the presumption for regulations that amend primary legislation, the policy intention to reform public body schemes is already known. New schemes will be based on principles set out in primary legislation by this Bill and any consequential amendments to primary legislation would be minor and technical.

176. Subsection (9) provides that Treasury orders under subsection (7) are subject to the negative procedure (as defined in clause 34).

177. Subsection (10) allows subsection (1) to be used to close schemes made before or after clause 28 comes into force.

178. Subsection (11) indicates that the provisions of Schedule 7, which provides for a "final salary link", apply for the benefit of members of public body schemes closed under this clause.

Clause 29 : Existing public body pension schemes: pension age

179. This clause allows the normal pension age and deferred pension age of members of public body pension schemes established before the clause comes into effect to be the same as their state pension age. The link may only apply to benefits accrued under the scheme after the provision to establish that link took effect.

180. A link between normal pension age and state pension age was a recommendation of the Independent Public Service Pension Commission. Its purpose is to manage the increasing costs of greater longevity by requiring scheme members to work for longer in order to draw a full scheme pension.

181. Paragraph (b) allows any changes to normal or deferred pension age that occur as a result of a change in state pension age to apply to the calculation and payment of all benefits earned in a scheme, including benefits accrued after the creation of the link but before the relevant change in state pension age.

182. The effect of this clause is therefore to allow existing public body pension schemes to include a provision to link normal and deferred pension ages so that they change in line with any change to state pension age. If state pension age increases by one year, the normal and deferred pension ages would automatically increase by one year, and the increase would apply to all benefits earned in the scheme.

Parliamentary and other pension s chemes

Clause 3 0 : Great offices of state

183. Clause 30 and Schedule 11 amend the pension arrangements for future incumbents of the great offices of state, which are the offices of Prime Minister, Lord Chancellor and the House of Commons Speaker.

184. The effect of these provisions is that the current special pension arrangements that apply to the great offices of state will cease to apply in relation to future office holders. Instead, pension and severance payments will be provided to and in respect of these office holders on the same basis as Ministers and certain other office holders listed in paragraph 16(2) of Schedule 6 to the Constitutional Reform and Governance Act 2010.

185. Clause 30 introduces Schedule 11 which contains amendments to existing legislation, which are required to give effect to the changes to the pension arrangements for the great offices of state.

Clause 3 1 : Parliamentary and other pension s cheme s : pension age

186. Clause 31 provides that where a scheme under paragraph 12 (MPs’ pension scheme) or 16 (Ministerial pension scheme) of Schedule 6 to the Constitutional Reform and Governance Act 2010 links the normal pension age under the scheme to state pension age, the scheme can provide for a change in the normal pension age in consequence of the link to apply to benefits that have accrued as well as other benefits under the scheme. The application is restricted to benefits that have accrued after the addition of the link to the scheme.

187. The clause inserts new paragraph 29A into Part 2 of Schedule 6 to the Constitutional Reform and Governance Act 2010 which specifies the provisions that can be included in schemes made under that schedule. The new paragraph means that, if it is decided (following the consultation requirements set out in Schedule 6 to the Constitutional Reform and Governance Act 2010) that the normal pension age of a scheme under paragraph 12 or 16 of the schedule should be the same as state pension age, the scheme can also provide for benefits that have accrued under the scheme to be subject to this link.

188. The new paragraph makes it clear that paragraph 19 of Schedule 6 to the Constitutional Reform and Governance Act 2010, which gives special protection to accrued rights under the schemes, does not apply in relation to any such provision.

Clause 3 2 : Members of the European Parliament

189. This clause inserts new subsections (3B) and (3C) into section 4 of the European Parliament (Pay and Pensions) Act 1979 (which allows for the creation of pension schemes in respect of Representatives to the European Parliament). The new subsections mean that if the scheme in future links the normal pension age under the scheme to state pension age, the scheme can provide for benefits that have accrued under the scheme to be subject to the link. The application is restricted to benefits that have accrued after the addition of the link to the scheme.

190. The clause also inserts new subsection (3D) into section 4 of the European Parliament (Pay and Pensions) Act 1979. This ensures that the MEPs’ scheme can continue to contain provisions that are in the scheme for MPs. In particular it ensures that scheme managers may continue, once power to make new schemes passes to IPSA, to make small (under £5,000) payments from the Consolidated Fund to the beneficiaries of deceased members before probate. Commencement of paragraph 38 of Schedule 6 to the Constitutional Reform and Governance Act 2010 would otherwise remove this power.

191. There are currently only 6 active members of the pension scheme made under the European Parliament (Pay and Pensions) Act 1979. Article 25 of the Statute for Members of the European Parliament (European Parliament Decision 2005/684/EC Euratom) provided that existing representatives would be able to opt for the "national system applicable hitherto in respect of the salary, transitional allowance and pensions for the entire duration of their membership of the European parliament." The active members of the scheme are those who exercised this option. The pension scheme is closed to new members.

General

Clause 34: Regulations, orders and directions

192. Subsection (1) provides that scheme regulations made by the Minister for the Civil Service, the Secretary of State, and Welsh Ministers must be made by statutory instrument. Scheme regulations made by Northern Ireland departments are to be made by statutory rules.

193. The clause also sets out the meaning of "affirmative procedure", "negative procedure" and "negative Commons procedure" in the relevant legislatures.

Subsection (6) provides that Treasury directions made under the Bill may be varied or revoked.

Final

Clause 3 6 : Extent

195. This Bill extends to England and Wales, Scotland and Northern Ireland. However, where the Bill amends or repeals a legislative provision in another Act, the amendment or repeal has the same extent as the provision it amends or repeals.

Clause 3 7 : Commencement

196. This clause provides when and how the provisions of the Bill are to come into force.

197. The provisions listed in subsection (1) come into force automatically on the day the Bill is enacted. They include the provisions to extend access to the existing Principal Civil Service Pension Scheme (and the Northern Ireland equivalent scheme) in clause 26 and Schedule 9; the provisions to reform the pension arrangements of the great offices of state in clause 30 and Schedule 11; and the general provisions the Bill sets out in clauses 33 to 38.

198. By subsection (2), the remaining provisions are to be brought into force on such day or days as appointed by the Treasury in an order. By subsection (3) such an order may appoint different days for different purposes, and may make provisions with transitional, transitory or saving effect.

S chedule 1 : Person s in public service: definition s

199. Schedule 1 contains definitions of the persons in public service listed in clause 1(2) for whom schemes may be made under clause 1.

S chedule 2 : Responsible authorities

200. This schedule lists the ministers and departments who may exercise the power under clause 1 to make scheme regulations for the main categories of persons in public service set out in that clause.

S chedule 3: Scope of scheme regulations: supplementary matters

201. This schedule contains a list of the type of provision that may, in particular, be included in scheme regulations made under clause 1. It is not an exhaustive list, but only an indication of what can be included in scheme regulations.

202. Paragraph 1 allows for scheme regulations to set out details of the persons who are eligible for membership of the scheme and the conditions that apply to eligibility. Scheme regulations may relate to a narrower class than those who could be covered by the scheme (for example where some of those workers belong to other public service schemes).

203. Paragraph 2 provides a non exhaustive list of some of the benefits for employees that may be written in to regulations, including pensions; benefits payable on death (including death in service); and compensation payments for death, injury or redundancy.

204. Paragraph 3 provides a non-exhaustive list of some of the types of people to whom benefits can be paid under the regulations of the scheme. This includes active, deferred and pensioner members, pension credit members, and their surviving spouses, civil partners and dependants.

205. Paragraph 4 allows for regulations to set out any conditions for making payments to members.

206. Paragraph 5 allows for regulations to set out the circumstances in which benefits can be assigned to other persons and any restrictions on such assignment.

207. Paragraph 6 allows for regulations to set out how and when benefits can be forfeited or suspended.

208. Paragraph 7 allows for regulations to set out how schemes may recover any benefits that have been overpaid.

209. Paragraph 8 allows for scheme regulations to exclude double recovery of compensation or damages, including by modifying rights to compensation or damages where two sources of compensation or damages would otherwise be available for the same matter.

210. Paragraph 9 allows for regulations to set out provisions for the making of contributions by employers and employees, including contribution rates. Interest may be charged on the late payment of contributions, whether by employees or employers.

211. Paragraph 10 allows for regulations to set out how transfers of accrued pension "pots" will work and also any lump sum payments that can be made, in order to enable pension benefits to be transferred into, out of, or between schemes.

212. Paragraph 11 allows for regulations in schemes which are funded to detail how such funds will be administered and managed, including their investment arrangements and strategy, provisions for trustees and training, and how funds will be wound up.

213. Paragraph 12 provides a non-exhaustive list of the provisions that may be included in regulations that relate to the administration and management of the scheme. The scheme manager in centrally-run schemes will be the responsible authority. In the context of locally administered schemes such as the local government pension scheme, the manager will be the administering authority, and the responsible authority may give directions or guidance to the manager. Administrators may also provide or publish information.

214. Paragraph 13 allows for scheme regulations to provide for the functions of the scheme manager or responsible authority to be delegated, and for further delegation of such functions.

215. Paragraph 14 allows for scheme regulations to provide for employers to make payments to the scheme manager, including contributions to the administrative cost of the scheme and additional payments where a failure by the employer to comply with obligations under the scheme has increased those administrative costs. Interest can also be provided for under this paragraph.

216. Paragraph 15 allows for regulations to set out the steps to be taken by schemes for resolving disputes and appeals. Schemes may provide for questions of law that have to be decided by the responsible authority to be determined instead by a court of law.

S chedule 4 : Regulatory oversight

Part 1 of the schedule contains amendments to the Pensions Act 2004, in relation to the regulatory responsibility of the Pensions Regulator for public service pension schemes.

218. Paragraph 2 amends section 11 of the Pensions Act 2004 to require the Pensions Regulator to include in its annual report information on the exercise of the Regulator’s functions in relation to public service pension schemes. This requirement will mean that the Regulator will have to provide information publicly about how it is carrying out the new role introduced by this Bill.

219. Paragraph 3 amends section 13 of the Pensions Act 2004:

a) to allow the Pensions Regulator to issue an improvement notice referring to a code of practice issued under new section 90A (see below); and

b) to ensure that certain provisions in the Bill fall within the definition of "pensions legislation" so that improvement notices can be issued if they are breached.

220. Paragraph 4 inserts new section 14A to allow the Pensions Regulator to appoint an appropriately skilled person to help a pension board carry out its functions. The pension board will be responsible for assisting the scheme manager in the administration and governance of the scheme. If the board is having difficulty in appropriately performing that role, expert help may be necessary. The pension board must have regard to the advice of the appropriately skilled person, and the skilled person’s costs are to be met by the scheme manager.

221. Paragraph 5 amends section 17 to provide that the Pensions Regulator may intervene and help to recover contributions that are owed to a public service pension scheme by an employer in that scheme.

222. Paragraph 6 makes consequential amendments to section 70 inserting references to pension board members to reflect the new pension board structure.

223. Paragraph 7 inserts a new section 70A requiring the scheme manager of a public service pension scheme to notify the Pensions Regulator of an employer’s failure to pay pensions contributions on time if that failure is likely to be something that the Pensions Regulator would consider to be materially significant in the exercise of its functions (for example in considering whether the employer is fulfilling its obligations and being satisfied that the scheme is being managed properly). Failure to report can lead to a civil penalty.

224. Paragraph 10 adds record keeping (as required by clause 14 of the Bill) to the list of provisions in section 73 of the 2004 Act, in respect of which the Pensions Regulator may enter premises to investigate compliance.

225. Paragraph 11 amends section 89 of the Pensions Act 2004, requiring the Regulator to notify the scheme manager before making a report under that section in respect of a public service pension scheme. This requirement will mean that the scheme manager is aware that the Regulator intends to issue a report about the scheme and can choose to take remedial action in advance if they wish. The scheme manager cannot prevent the Regulator issuing a report.

226. Paragraph 12 inserts new section 89A requiring the Regulator to report concerns to the scheme manager where the Regulator has reasonable grounds to suspect or believe that a member of the pension board has misappropriated any assets of the scheme, or has a conflict of interest in relation to the investment of assets in the scheme. Under this Bill the Pensions Regulator does not have a formal role in relation to funding or investment for the funded schemes. However, in the course of undertaking oversight of administration and governance of the schemes it is possible that the Regulator may be made aware of inappropriate behaviour by a member of the pension board in relation to the scheme assets or investments. As the scheme manager is responsible for setting up and appointing the pension board, it is appropriate that any concerns are directed to the scheme manager to address. Privilege attaches to any such report (unless it is shown that it is maliciously motivated). The section also makes clear that a conflict of interest in relation to investment of assets does not arise merely from any person being a member of the relevant scheme.

227. Paragraph 14 inserts new section 90A, allowing and, in certain cases, requiring the Pensions Regulator to issue codes of practice for public service schemes. A list of matters that codes must cover is set out at subsection (2). The requirement to issue codes of practice is at the core of the Pensions Regulator’s new role in relation to public sector schemes. In order to help ensure schemes meet good standards of administration and governance those involved in administering them need to know what standards they should be aiming to achieve. This section is similar to section 90 of the 2004 Act and replicates the provisions of that section regarding revision of codes of practice, effect of failing to observe codes of practice, admissibility in evidence, the scope of codes of practice, and the procedures relating to them. The paragraph also contains a power for the Secretary of State to prescribe other matters which must be covered by codes if in the future it is considered necessary to do so.

228. Paragraph 19 amends the Pensions Act 2004 by inserting a new section 248A into that Act to place a requirement on members of the pension board to have knowledge and understanding about the scheme and the law relating to pensions and any other prescribed matters. As the pension board is responsible for assisting the scheme manager in the administration of the scheme it is appropriate that those individuals carrying out this role should have appropriate knowledge about the scheme they are helping to run. This provision is similar to section 247 of the Pensions Act 2004 which places requirements on trustees to have knowledge and understanding about the scheme which they are running and the law relating to pensions more generally.

229. Paragraph 21 amends the Pensions Act 2004 by inserting a new section 249B into that Act to place a requirement on the scheme manager of a public service pension scheme to have an adequate system of internal control. Internal controls are necessary for an effectively functioning pension scheme and it is therefore appropriate that schemes should be required to have adequate procedures.

230. Part 2 of the schedule (paragraphs 23 to 43) makes equivalent amendments to the Pensions (Northern Ireland) Order 2005, to allow the various amendments contained above to have effect in relation to regulation of pensions in Northern Ireland.

S chedule 5: Existing pension schemes

231. Schedule 5 contains a list of powers that are used to make schemes, the provision of benefits under which is restricted by clause 16 in relation to service after the closing date set by that clause. Because the restrictions on existing schemes are not to apply to the provision of injury and compensation benefits, where a power can be used to make both pension schemes and injury and compensation schemes, injury and compensation benefits are excepted from the scope of the restriction.

232. Paragraphs 1 to 33 list powers to make existing schemes and any applicable exceptions, in respect of;

(a) civil servants at paragraphs 1 and 2;

(b) the judiciary at paragraphs 3 to 15;

(c) local government workers at paragraphs 16 to 18;

(d) health service workers at paragraphs 19 and 20;

(e) teachers at paragraphs 21 and 22;

(f) fire and rescue workers at paragraphs 23 to 25;

(g) members of police forces at paragraphs 26 to 27; and

(h) the armed forces at paragraphs 28 to 33.

233. The meaning of the terms "compensation benefits" and "injury benefits" is set out in clause 33.

S chedule 6: Existing injury and compensation schemes

234. Schedule 6 lists powers to make existing injury or compensation schemes. Clause 17 permits scheme regulations to close these at a future date, subject to any exceptions provided for by the scheme regulations.

235. Paragraphs 1 to 23 list the powers under which existing injury and compensation schemes are made. Where a power may be used to provide other benefits (such as pensions), the relevant paragraph specifies which benefits are covered by the schedule. This covers:

(a) civil servants at paragraphs 1 and 2;

(b) the judiciary at paragraphs 3 and 4;

(c) local government workers at paragraphs 5 and 6;

(d) health service workers at paragraphs 7 and 8;

(e) teachers at paragraphs 9 and 10;

(f) fire and rescue workers at paragraphs 11 and 12;

(g) members of police forces at paragraphs 13 and 14;

(h) the armed forces at paragraphs 15 to 21; and

(i) compensation schemes for loss of office at 22 and 23.

236. The meaning of the terms "compensation benefits" and "injury benefits" is set out in clause 33.

S chedule 7 : Final salary link

237. Final salary scheme pension benefits accumulated up until the date that existing schemes close by virtue of either clause 16(1) or clause 28(2) are to be calculated in relation to the member’s final salary at the point they retire or otherwise leave pensionable service, not the point at which their final salary scheme was closed. This final salary link applies to all past service in final salary schemes prior to the closing date.

238. Paragraph 1 deals with a person who remains in an old scheme for their past service and becomes a member of a new scheme under clause 1 or clause 28(4). If their service in the old scheme and in the new scheme is continuous then, in determining the person’s final salary for the purposes of the old scheme, their service in the old scheme is to be regarded as having ended when their service in the new scheme ends, and their pensionable earnings from their new scheme service are to be regarded as derived from the old scheme service.

239. Paragraph 2 makes the same provision in the case of a person who moves to a different public service pension scheme (such as a move from the NHS Pension Scheme into the Local Government Pension Scheme) when the old scheme is closed, and whose benefits under their original old scheme are transferred to their new employer’s old scheme. Sub-paragraph (3) provides that in paragraph 2 a transfer of rights to benefit from one old scheme to another includes the making of a transfer payment in respect of such rights.

240. Paragraph 3 sets out what is meant by continuous service in paragraphs 1 and 2. Any period when the person was in pensionable service in another public service or new public body scheme, and any gap in pensionable service that does not exceed 5 years in length, are to be disregarded, and in such circumstances service is to be considered continuous.

241. Paragraph 4 makes it clear that if the person has had periods of service with two or more different new schemes under clause 1 or clause 28(4), it is pensionable service with the last of those schemes that is to be taken into account when calculating the member’s final salary under paragraphs 1 or 2.

242. This schedule sets the minimum level of final salary link that applies to all the schemes closed under clause 16(1) or clause 28(2). However it is not exclusive and scheme regulations can (subject to the consent requirements in clause 3) make provision for the final salary link to apply in additional circumstances, so long as this is not inconsistent with what is said in the schedule.

S chedule 8 : Consequential and minor amendments

243. Schedule 8 contains minor and consequential amendments to primary legislation.

244. Many of the amendments in this schedule annotate powers to make pension or other benefit schemes, where applicable, to note that they are subject to the restrictions placed on the use of those powers by clauses 16 and 17 (that is, restrictions on benefits provided under existing schemes). They are not commented on further in these notes.

Paragraph 4: Pensions (Increase) Act 1971

245. This paragraph adds pensions made under the Bill to the list of official pensions in Schedule 2 of the Pensions (Increase) Act 1971. The effect is to provide for the annual uprating of deferred pensions and pensions in payment under the mechanism which that Act provides.

Paragraph 5: Pensions (Increase) Act (Northern Ireland) 1971

246. This paragraph adds pensions made under the Bill to the list of official pensions in Schedule 2 of the Pensions (Increase) Act (Northern Ireland) 1971 for the same purpose as the previous paragraph but in relation to Northern Ireland.

Paragraph 19: House of Commons (Administration) Act 1978

247. This paragraph contains an amendment to allow members of the House of Commons Staff Pension Scheme to join the civil service pension scheme.

Paragraph 22: Local Government and Housing Act 1989

248. This paragraph amends the Local Government and Housing Act 1989 to provide that where pension boards in the local government pension scheme are established as a committee of the local administering authority, their members will all be entitled to vote in proceedings of the committee.

Paragraph 24: Pension Schemes Act 1993

249. This paragraph amends the Pension Schemes Act 1993, in respect of schemes made under clause 1, to allow a deferred pension age that is linked to state pension age (see clause 9), to be greater than 65.

Paragraph 34: Human Rights Act 1998

250. This paragraph makes a consequential amendment to enable UK judges of the European Court of Human Rights to continue in membership of a pension scheme established under the Bill when they are appointed to the European Court.

Paragraph 37: Constitutional Reform Act 2005

251. This paragraph relates to the Lord Chancellor’s function in being consulted prior to any scheme regulations being made which provide for members of the judiciary. It makes this a protected function which cannot be removed from the Lord Chancellor via machinery of government changes. This is because, as the Lord Chancellor is the constitutional representative of the judiciary, it would be inappropriate for this function to be removed.

Paragraph 38: Parliament (Joint Departments) Act 2007

252. This paragraph contains an amendment to allow members of the House of Commons Staff Pension Scheme to join the civil service pension scheme.

S chedule 9: Existing schemes for civil servants : extension of access

253. Paragraphs 1 to 3 of Schedule 9 amend the Superannuation Act 1972 so as to extend access to the schemes under that Act which provide for superannuation benefits for civil servants.

254. Currently, admission to the Principal Civil Service Pension Scheme (PCSPS) and other schemes made under section 1 of the Superannuation Act 1972 is restricted to those in the employment in the civil service or those in an employment or office listed in Schedule 1 to the Act. Restrictive criteria apply to adding employments or offices to Schedule 1. Members of the PCSPS who are compulsorily transferred out of the civil service to an independent provider of public services are therefore not able to retain membership (instead the current Government Fair Deal policy applies, requiring the new employer to provide a broadly comparable pension and advantageous bulk transfer terms).

255. The current Fair Deal policy is due to be amended to allow people under the above circumstances to retain access to their public service pension before the new schemes are introduced. Due to the restrictions on access to the PCSPS, the new Fair Deal policy would not be able to apply without a change to the primary legislation. Schedule 9 aims to make this change to allow access to people who are not currently entitled to access under the 1972 Act. The schedule will come into force at Royal Assent, to ensure that the new Fair Deal policy can be implemented in relation to the PCSPS with immediate effect. Any delay may mean that staff who are being moved out of the civil service would miss the opportunity to remain in their current pension arrangements and may affect the Government’s ability to deliver improvements to public service delivery.

256. New subsection (4A) for section 1 of the 1972 Act provides that that section will also apply to persons serving in an employment or office specified under new section 1A of the 1972 Act, which is inserted by paragraph 3.

257. Paragraph 3 inserts new section 1A which gives the Minister for the Civil Service the power to specify employments and offices for the purposes of the new section 1(4A) of the 1972 Act.

258. New section 1A(1) provides that the Minister may specify in a list the employments and offices which will qualify persons for admission to a scheme by virtue of new section 1(4A). An employment or office may be specified only if subsection (2),(3) or (4) of section 1A is satisfied.

259. Subsection (2) applies where staff are transferred to a new employer after these provisions come into force, and so would otherwise cease to be entitled to membership of the PCSPS. If persons serving in that office or employment would have been eligible to be members of the scheme on the point of transfer, the Minister can specify the office or employment for the purposes of new section 1(4A). The staff will then be entitled to retain access to the scheme.

260. Subsection (3) applies where staff were transferred to a new employer before the provisions come into force and so have ceased to be members, or to be entitled to membership of the PCSPS. If persons serving in that office or employment would have been eligible to be members of the scheme before the transfer then the Minister can specify the employment or office for the purposes of section 1(4A). The staff will then be entitled to regain access to the scheme.

261. Subsection (4) allows the Minister to specify an employment or an office in particular cases where he determines that it is appropriate to do so and the employment or office comes within a description set out in regulations. The general principle is that access under these provisions is for individuals who were entitled to access to the PCSPS at the point when they are moved to a new employer and the intention is that subsection (4) will only be used in exceptional cases as circumscribed by the descriptions in the regulations and the determination of the Minister.

262. Subsection (5) will allow access to be granted by virtue of subsection (4) with retrospective effect. This provision will allow the scheme to deal with historic anomalies.

263. Subsection (6) requires the list of employments and offices which qualify persons for access to the PCSPS (and any amendments to the list) to be published. Regulations made by the Minister for the Civil Service under subsection (7) will set out the information that the published list must contain. It is intended that this will include details of the employments and offices specified, the name of the employers, the dates from which access through this route is granted and the circumstances that must exist for access to continue.

264. Those who gain access to the PCSPS through this route will move into the new schemes once they are established under the Bill and the closing date as set out in clause 15 has passed, as for other members: except for those who are protected by transitional provisions. In the new schemes, access will be extended where required under the procedure in clause 22.

265. Paragraphs 4 to 6 of Schedule 9 make equivalent provision to those in paragraphs 1 to 3 in respect of the civil service scheme for Northern Ireland which is made under the Superannuation (Northern Ireland) Order 1972.

S chedule 10 : Public bodies whose pension schemes are required to be closed

266. Clause 28 provides that those public authorities which have made a pension scheme in respect of staff of a body or the holder of an office that are listed in Schedule 10 must close the scheme.

267. Schedule 10 lists the public authorities (non-departmental public bodies, arms length bodies and similar bodies and offices) that must close their schemes. Members of those schemes will either join one of the reformed public service schemes set up under clause 1 or a new scheme established under clause 28(4).

S chedule 1 1 : Prime Minister, Lord Chancellor and Common Speaker

268. Paragraph 1 amends the Constitutional Reform and Governance Act 2010:

a. to remove the current exclusions that apply in respect of payment from the Parliamentary Contributory Pension Fund1 under the MPs’ and Ministerial pension schemes to holders of the great offices of state (paragraph 1(2) and (3)(b));


1 This is the pension fund that pays out pensions to MPs, Ministers and other office holders in Parliament.

b. to allow the holders of the great offices of state to become members of the Ministerial pension scheme (paragraph 1(3)(a)).

269. Paragraph 2 amends section 4 of the Ministerial and other Pensions and Salaries Act 1991, to enable severance payments under this section to be paid to the holders of the great offices of state.

270. Paragraphs 3 to 5 close the existing arrangements that govern pensions for and in respect of the great offices of state.

271. Paragraph 7 makes clear that the changes being made relate to the pension provision of future holders of the great offices of state and do not remove the entitlement of those who have held this office (or their dependants) prior to the commencement of these provisions. This means that the entitlement of current and former Prime Ministers, Lord Chancellors and Commons Speakers to benefits is unchanged.

272. This change will have financial implications. Currently, the pension entitlements of the great offices of state are met through the Consolidated Fund and those benefits already earned under the current arrangements will continue to be paid from the Consolidated Fund to current and former holders of great offices of state. This includes those holders of the great offices of state who have chosen to sign a waiver to their entitlements and receive benefits comparable with those provided under the Ministerial Pension Scheme. In future the employing departments of holders of the great offices of state will pay employer contributions from departmental resources and will also pay member contributions as set out in the Ministerial Pension Scheme rules.

FINANCIAL EFFECTS

273. It is currently estimated that the reforms to Public Service Pension Schemes which this Bill will allow for will lead to a fall in the net cost of Public Service Pensions of 0.1 per cent of GDP between 2016-17 and 2061-62.1


1 Office of Budget Responsibility - Fiscal sustainability report 2012 pp.72

PUBLIC SECTOR MANPOWER

274. The provisions contained within the Public Service Pensions Bill have no substantial effect on public service manpower.

SUMMARY OF THE IMPACT ASSESSMENT

The Impact Assessment considers two policy options; retaining those public service pension reform policies which had been announced prior to the introduction of this Bill, and adding the reforms which this Bill will make possible to these pre-existing reforms. It concludes that the latter is the Government’s preferred option.

EUROPEAN CONVENTION ON HUMAN RIGHTS

276. T he Chancellor of the Exchequer has made a statement of compatibility under section 19(1)(a) of the Human Rights Act 1998 .

277. Many of the clauses establish powers which can be used by responsible authorities, including Secretaries of State, Welsh Ministers, Scottish Ministers, and Northern Ireland Departments. The responsible authorities who may exercise these powers are all public authorities for the purposes of the Human Rights Act 1998 (‘HRA 1998’). It is unlawful for a public authority to act in a way which is incompatible with a Convention right: section 6(1) HRA 1998. It would therefore be unlawful for a responsible authority to exercise any of the powers conferred by the Bill, including making scheme regulations, incompatibly with Convention rights. Any incompatible exercise will be open to judicial scrutiny and can be struck down by the Courts.

278. It is not anticipated that the Bill will have human rights implications, apart from the following provisions:

(a) Clause 3: Scheme regulations. This allows for scheme regulations to contain provisions with retrospective effect. Such retrospective changes may constitute an interference with property within the meaning of Article 1 Protocol 1. They may also constitute discrimination within the meaning of Article 14.

(b) Clause 8: Revaluation. In the rare case that the general rate of prices and/or earnings falls, revaluation could take place according to a negative percentage, which will have the effect of shrinking the value of the accrued pension of an active member and constitute an interference with property within the meaning of Article 1 Protocol 1. The same issue arises in respect of clause 27, which makes similar provision for NDPB schemes.

(c) Clause 9: Pension Age. A change in state pension age would mean that scheme members take their pensions accrued under the new schemes at an earlier or later age. This would constitute an interference with property within the meaning of Article 1 Protocol 1. The exception for members of police forces, firefighters, and armed forces may also amount to discrimination within the meaning of Article 14. The same issues arise in respect of clauses 27 and 29 (which make similar provisions for NDPB pension schemes) and clauses 31 and 32 (which make similar provisions for Parliamentary and other pension schemes).

(d) Clause 11: Employer Costs Cap. This provides for a mechanism that, if in the future scheme costs rise outside margins of a costs cap set by the Treasury, scheme regulations will take steps to bring costs back into that level, by adjusting contribution levels, accrual rates, or reducing benefits. If this future event occurs, it may be an interference with possessions within the meaning of Article 1 Protocol 1. The same issue arises in respect of clause 27 which makes similar provision for NDPB schemes.

279. Clause 16: Closure of existing schemes, which prevents scheme members from accruing any further rights in their existing schemes, does not engage Article 1 Protocol 1 because this Article does not guarantee an open-ended right to acquire further possessions such as benefits in the current pension schemes. Nor is there any discrimination on the grounds of age under Article 14 (as under current transitional plans the younger members of the scheme will be affected more by the changes) as Article 14 cannot apply in isolation, and in any case the provision of transitional and tapering protection for older members (who have less time to prepare for the change and are accordingly more vulnerable) itself shows why any interference would be justified and proportionate.

General principles of law

280. Article 1 of Protocol 1 to the ECHR provides that every natural or legal person is entitled to the peaceful enjoyment of his possessions. No-one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The concept of "possessions" is wide (covering both contributory and non-contributory benefits) but not unlimited. A deprivation of possessions or interference with their peaceful enjoyment may be justified if it (a) is subject to conditions provided for by law; (b) is for a legitimate aim in the general interest; and (c) strikes a fair balance between the rights of the owner of possessions and the public interest: in striking a fair balance any interference with the right must be reasonable and proportionate to the legitimate aim pursued.

281. Pensionable benefits that have already been earned or accrued (through length of service, payment of contributions, or otherwise) are widely accepted to be ‘possessions’ within the meaning of Article 1 Protocol 11. Article 1 Protocol 1 also extends to the legitimate expectation of obtaining effective enjoyment of a possession2. However, Article 1 Protocol 1 does not guarantee an open-ended right to acquire further possessions such as benefits in the current pension schemes3.


1 R (Carson) v Secretary of State for Work and Pensions [2005] UKHL 37

2 Kopecky v Slovakia, App No 44912/98, Judgement of 28 September 2004

3 Markx v Belgium, ibid

282. The general principles applied by the Courts in deciding whether interference with possessions is lawful are1:


1 Hutten-Czapska v Poland (2006) 42 EHRR 15 and (2007) 45 EHRR 4

(a) The principle of lawfulness presupposes that the applicable provisions of domestic law are sufficiently accessible, precise, and foreseeable in their application.

(b) The principle of a legitimate aim presupposes the existence of a general interest in the community which is inherent in the need for a fair balance.

(c) The principle of fair balance requires an investigation to ascertain whether any person bears a disproportionate and excessive burden, and whether in turn this has been fairly balanced with the legitimate aim.

283. The Government is entitled to a margin of appreciation in the fields of social and economic policy. The margin is broader when Parliament creates primary legislation than when a Minister of State uses a power to create secondary legislation1. Although the Government recognises that much of the details of schemes will be contained in secondary legislation, the framework laid down in primary legislation will have been done so with appreciation of how it is likely to affect human rights, and so a broader margin of appreciation will apply than otherwise would.


1 R (Sinclair Collis) v Secretary of State for Health [2011] EWCA Civ 437

284. Further, the specific context of these reforms is a difficult economic climate in which the Government should be allowed latitude in the tools it uses to steer a course through such a climate. Similar arguments in the field of state non-contributory state benefits have been recognised in the case of Muller 1 which stated "Because of its public importance, the social security system must take account of political considerations, in particular, those of financial policy." This case concerned state benefits, but given the ruling in RJM 2 that Article 1 Protocol 1 applies equally to non-contributory state benefits where entitlement to them arises under law, there is a clear analogy between state benefits as ‘possessions’ within the meaning of Article 1 Protocol 1 (funded from general taxation) and public service pension schemes as ‘possessions’ within the meaning of Article 1 Protocol 1 (which are, in the main, funded from general taxation and are, in any case, all underwritten by funds from general taxation).


1 Muller v Austria, (1975) 3 DR 25, paragraph 31

2 R (RJM) v Secretary of State for Work and Pensions [2008] UKHL 63

(a) Lawfulness

285. In terms of lawfulness, it is not generally considered that there will be any viable challenge. Primary legislation will clearly set out the provisions which may give rise to interference with Convention rights. Most of these will have been widely publicised and will have formed the basis of extensive consultation.

(b) Legitimate aims

286. In terms of legitimate aims, it is considered that public sector pension reform is, generally, a legitimate aim of the Government. The Independent Public Service Pensions Commission chaired by Lord Hutton carried out a careful and detailed investigation into public sector pension provision as a whole. They concluded that "long term reforms were urgently required to public sector pension provision due to rising costs due to increased longevity, unequal treatment of members in the same pension scheme, unfair sharing of costs between the employer, the employee, and the taxpayer, and barriers to increasing the range of public service providers1". They recommended that public service pensions be reformed in a way that is "affordable and sustainable, adequate and fair, supporting productivity, and transparent and simple2".


1 IPSPC Final Report, Executive Summary, paragraph 1

2 IPSPC Final Report, Executive Summary, paragraph 5

(c) Fair Balance

287. In terms of fair balance, it is considered that the Bill does constitute a fair balance between the interests of the members of public service pension schemes, and fairness to the taxpayer who underwrites them. Public service pension reform is justified by the need to address rising longevity and the rising costs of public sector schemes, the risks and costs of which have so far fallen entirely upon the taxpayer. This macro-economic judgement has been recognised by the Courts as the preserve of Government policy which should not be interfered with, short of manifest unfairness or impropriety, which the Bill does not constitute. The new pension schemes still constitute a pension of real value in excess of that which could be purchased on the private market. Further, the proposed new pension schemes remove an existing bias in favour of higher paid workers and increased longevity gives workers with a later pension age a longer life to enjoy a proportionally similar retirement.

Further provisions

288. There are a number of provisions in the current legislation pertaining to existing schemes which provide additional protection to members of schemes. These include, inter alia:

(a) Consent locks, where a change cannot take place without the consent of scheme members.

(b) Opt in provisions, where a change cannot affect an individual scheme member until they have indicated their willingness (often by a set procedure) for it to apply.

(c) Opt out provisions, where a scheme member in certain circumstances (and often by a set procedure) opts that the change not apply to them.

289. The lack of such features in the new schemes set up under the powers in this Bill does not amount to an interference with possessions contrary to Article 1 Protocol 1. These features, and any rights which accrue as a result of them, are features of the existing schemes, and Article 1 Protocol 1 does not guarantee an open-ended right to acquire further possessions such as benefits in the current pension schemes. Features of other, pre-existing, schemes will not transfer across to the new schemes set up under the Bill.

Prepared 13th September 2012