Pension Schemes Bill (HC Bill 12)

Part 1 Categories of pension scheme

Introduction

1 Introduction

(1) 5This Part defines some key expressions used in pensions legislation—

(a) defined benefits scheme - see section 2;

(b) shared risk scheme (sometimes known as “defined ambition”) - see
section 3;

(c) defined contributions scheme - see section 4.

(2) 10The definitions—

(a) do not apply in any public service pensions legislation;

(b) apply in other legislation only where legislation expressly provides for
the definitions to apply.

Categories of scheme

2 15Defined benefits scheme

A pension scheme is a “defined benefits scheme” if—

(a) the scheme provides for all members to be paid retirement income
beginning at normal pension age and continuing for life,

(b) there is a full pensions promise in relation to the retirement income and
any other retirement benefits that may be provided to members, and

(c) the normal pension age in relation to the retirement income and any
other retirement benefits that may be provided to members is fixed.

3 5Shared risk scheme (sometimes known as “defined ambition”)

A pension scheme is a “shared risk scheme” if—

(a) there is a pensions promise in relation to at least some of the retirement
benefits that may be provided to each member, but

(b) the scheme is not a defined benefits scheme.

4 10Defined contributions scheme

A pension scheme is a “defined contributions scheme” if there is no pensions
promise in relation to any of the retirement benefits that may be provided to
the members.

5 Meaning of “pensions promise” etc

(1) 15For the purposes of section 2 there is a “full pensions promise” in relation to a
retirement benefit if—

(a) the scheme provides for there to be a promise, at all times before the
benefit comes into payment, about the level of the benefit, and

(b) the level of the benefit is to be determined wholly by reference to that
20promise in all circumstances.

(2) For the purposes of sections 3 and 4 there is a “pensions promise” in relation to
a retirement benefit if the scheme provides for there to be a promise, at a time
before the benefit comes into payment, about the level of the benefit.

(3) A reference in this section to a promise about the level of a retirement benefit—

(a) 25includes a promise about factors, other than longevity, that will be used
to calculate the level of the benefit,

(b) does not include a promise if, or to the extent that, it consists merely of
a promise that the level of the benefit will be calculated by reference to
an amount available for its provision, and

(c) 30in the case of a benefit the level of which depends on the amount
available for the provision of benefits to or in respect of the member and
one or more other members collectively, does not include a promise
about the factors used to determine what proportion of that amount is
available for the provision of the particular benefit.

(4) 35A scheme provides for there to be a promise if the scheme—

(a) sets out the promise, or

(b) requires the promise to be obtained from a third party.

(5) A scheme also provides for there to be a promise for the purposes of
subsection (2) if the scheme provides for the member to be given—

(a) 40the option of a promise from the scheme, or

(b) the option of requiring a promise to be obtained from a third party,

(whether or not the option is subject to conditions).

(6) A benefit does not fail the test in subsection (1)(b) just because the scheme
confers a discretion to vary the benefit so long as the discretion—

(a) is capable of being used only for reasons related to a member’s
individual circumstances, or

(b) 5is of a description specified in regulations.

(7) When working out for the purposes of sections 2 to 4 what benefits “may be
provided” to a member, take into account—

(a) benefits that may be provided only if the member has been a member
for a certain length of time, and

(b) 10any other benefits that, at a future time, are benefits that may be
provided to the member.

6 Treatment of a scheme as two or more separate schemes

(1) Regulations must provide for a pension scheme that does not fit within any of
the categories to be treated, for the purposes of this Part and any other specified
15legislation, as if it were two or more separate schemes each of which then fits
within one of the categories.

(2) Regulations may provide for other circumstances in which a scheme is to be
treated, for the purposes of this Part and any other specified legislation, as two
or more separate schemes each of which fits within one of the categories.

(3) 20In this section “category” means a category of scheme defined by section 2, 3 or
4.

Interpretation of Part 1 and amendments

7 Interpretation of Part 1

In this Part—

• 25“fixed”, in respect of normal pension age in relation to a benefit, means
  incapable of changing except by an amendment to the scheme rules;

• “full pensions promise” has the meaning given by section 5;

• “legislation” means—

  (a)

  an Act, or

  (b)

  30subordinate legislation as defined by section 21(1) of the
  Interpretation Act 1978;

• “level”, in relation to a retirement benefit, means—

  (a)

  in the case of retirement income, the rate of that income, and

  (b)

  in the case of a retirement lump sum, the amount of that lump
  35sum;

• “normal pension age”, in relation to a benefit for a member of a pension
  scheme, means—

  (a)

  the earliest age at which, or earliest occasion on which, the
  member is entitled to receive the benefit without adjustment for
  40taking it early or late (disregarding any special provision as to
  early payment on the grounds of ill health or otherwise), or

  (b)

  if there is no such age or occasion, normal minimum pension
  age as defined by section 279(1) of the Finance Act 2004;

• “pensions promise” has the meaning given by section 5;

Pension Schemes BillPage 4

• “pension scheme” has the meaning given by section 1(5) of the Pension
  Schemes Act 1993;

• “public service pensions legislation” means—

  (a)

  the Public Service Pensions Act 2013,

  (b)

  5the Superannuation Act 1972, and

  (c)

  any other provision by or under which a public service pension
  scheme is established;

• “public service pension scheme” has the meaning given by section 1(1) of
  the Pension Schemes Act 1993;

• 10“retirement benefit”, in relation to a member of a pension scheme,
  means—

  (a)

  retirement income, or

  (b)

  a retirement lump sum;

• “retirement income”, in relation to a member of a pension scheme, means
  15a pension or annuity payable to the member on reaching normal
  pension age;

• “retirement lump sum”, in relation to a member of a pension scheme,
  means a lump sum payable to the member on reaching normal pension
  age or available for the provision of other retirement benefits for the
  20member on or after reaching normal pension age.

8 Amendments to do with Part 1

Schedule 1—

(a) contains amendments that use expressions defined by this Part, and

(b) replaces references to “money purchase scheme” so as to limit the
25number of different ways of categorising pension schemes.

Part 2 General changes to legislation about pension schemes

Administration and governance

9 Pensions promise obtained from third party

(1) 30Regulations may provide that the trustees or managers of a defined benefits
scheme or a shared risk scheme must not obtain a pensions promise from a
third party unless conditions specified in the regulations are met.

(2) Regulations under this section—

(a) may provide for a specified provision of the regulations to override a
35provision of a scheme to the extent that there is a conflict;

(b) may confer functions on a specified person in connection with enforcement of
the regulations;

(c) may provide for section 10 of the Pensions Act 1995 (civil penalties) to
apply to a person who fails to comply with the regulations.

(3) 40In this section—

• “defined benefits scheme” has the meaning given by section 2;

• “pensions promise” has the meaning given by section 5;

• “shared risk scheme” has the meaning given by section 3.

(4) In section 34(7) of the Pensions Act 1995 (power of investment and delegation
overrides other legislation etc), for the words from “other than” substitute
“other than an enactment contained in, or made under—

(a) this Part,

(b) 5the Pension Schemes Act 1993, or

(c) section 9 of the Pension Schemes Act 2014.”

10 Disclosure of information about schemes

(1) Section 113 of the Pension Schemes Act 1993 (disclosure of information about
schemes to members etc) is amended as follows.

(2) 10In subsection (1)—

(a) in the opening words, for “the persons mentioned in subsection (2)”
substitute “persons of prescribed descriptions”;

(b) in paragraph (ca), omit “to the member” and “by him”.

(3) Omit subsection (2).

(4) 15Before subsection (3) insert—

“(2A) In complying with requirements specified in the regulations, a person
must have regard to any guidance prepared from time to time by the
Secretary of State.”

(5) For subsection (4) substitute—

“(4) 20Where the regulations specify requirements to be complied with in the
case of an occupational pension scheme with respect to keeping
recognised trade unions informed, the regulations must make
provision for referring to an employment tribunal any question
whether an organisation is a recognised trade union.

(4A) 25For the purposes of subsection (4) a trade union is a recognised trade
union in relation to an occupational pension scheme if it is an
independent trade union recognised to any extent for the purposes of
collective bargaining in relation to members and to prospective
members of the scheme.”

(6) 30In subsection (5), for “some or all of the persons mentioned in subsection (2)”
substitute “persons of a prescribed description”.

(7) Omit paragraph 17 of Schedule 12 to the Pensions Act 2004, which is no longer
needed given subsection (3).

Early leavers

11 35Extension of preservation of benefit under occupational pension schemes

(1) Part 4 of the Pension Schemes Act 1993 (protection for early leavers) is
amended as follows.

(2) In section 71 (basic principle as to short service benefit), in subsection (1), for
paragraph (aa) (but not the “or” at the end) substitute—

“(aa) 40he has at least 30 days’ qualifying service and, if he were
entitled to benefit because of this paragraph, all of it would
necessarily be non-salary related benefit,”.

(3) In section 70 (interpretation of Chapter 1: preservation requirements), in
subsection (1)—

(a) after the definition of “relevant employment” insert—

• ““benefits”, in relation to a member of a scheme, means—

  (a)

  5retirement benefit for the member at normal
  pension age, or

  (b)

  benefit for the member’s wife, husband, civil
  partner, widow, widower, surviving civil
  partner or dependants or others on the
  10member’s attaining normal pension age or the
  member’s later death, or

  (c)

  both such descriptions of benefit;”;

(b) in the definition of “long service benefit” omit the words from “and in
this definition “benefits” means” to the end of the definition;

(c) 15at the end insert—

• ““non-salary related benefit”, in relation to a scheme and a
  member of it, means a benefit the rate or amount of
  which is calculated otherwise than by reference to the
  salary of the member.”

(4) 20In section 71, for subsections (7) to (11) substitute—

“(7) In subsection (1), “2 years’ qualifying service” or (as the case may be)
“30 days’ qualifying service” means a period of service of the relevant
duration in which the member was at all times employed either—

(a) in pensionable service under the scheme, or

(b) 25in service in employment which was contracted-out by
reference to the scheme, or

(c) in linked qualifying service under another scheme.

(8) For the purposes of subsection (7)—

(a) a period of service may consist of a single period or two or more
30periods, continuous or discontinuous;

(b) no regard is to be had to whether or not the service was of the
same description throughout the period of service.

(9) A period of service previously terminated is not to count towards the 2
years’ or (as the case may be) 30 days’ qualifying service unless it
35counts towards qualification for long service benefit, and need then
count only to the same extent and in the same way.

(10) Subsection (1)(aa) does not apply in relation to a person’s membership
of a scheme if—

(a) in a case where the benefit would necessarily all be money
40purchase benefit, any period of relevant service began before
the day on which section 36 of the Pensions Act 2014 came into
force (whether or not it also ended before that date);

(b) in any other case, any period of relevant service began before
the day on which section 11 of the Pension Schemes Act 2014
45came into force (whether or not it also ended before that date).

“Relevant service” means service that counts towards the 30 days’
qualifying service for the purposes of subsection (1)(aa).”

(5) In section 36 of the Pensions Act 2014, omit subsections (2) and (3) which are
no longer needed given the earlier provisions of this section.

12 Revaluation of accrued benefits

Schedule 2 contains amendments about the revaluation of benefits.

13 5Transfer values

Schedule 3 contains amendments about transfer values.

14 Restriction on transfers out of public service defined benefits schemes

(1) The Pension Schemes Act 1993 is amended as follows.

(2) In section 93 (scope of Chapter 4 of Part 4: transfer values for early leavers),
10after subsection (1B) insert—

“(1C) The Treasury may by regulations apply this Chapter with prescribed
modifications in relation to a person who is a member of a public
service defined benefits scheme to prevent the person from taking a
right to a cash equivalent in such a way that its value is—

(a) 15transferred to a defined contributions scheme;

(b) converted into a right to collective benefits.”

(3) In section 93, after subsection (2) insert—

“(3) In subsection (1C)—

• “collective benefit” has the meaning given by section 19 of the
  20Pension Schemes Act 2014;

• “defined contributions scheme” has the meaning given by section
  37 of the Public Service Pensions Act 2013;

• “public service defined benefits scheme” means a public service
  pension scheme that is a defined benefits scheme within the
  25meaning given by section 37 of the Public Service Pensions Act
  2013.”

(4) In section 186 (Parliamentary control of orders and regulations), in
subsection (1) (negative procedure), after “Secretary of State” insert “or the
Treasury”.

30Indexation

15 Regulatory own fund schemes exempt from indexation

(1) Section 51 of the Pensions Act 1995 (annual increase in rate of pension) is
amended as follows.

(2) In subsection (1)(a)(ii) (scheme based exemption) after “public service pension
35scheme” insert “or a regulatory own fund scheme (see subsection (9))”.

(3) After subsection (8) insert—

“(9) In subsection (1)(a)(ii) “regulatory own fund scheme” means a scheme
in respect of which Article 17 of Council Directive 2003/41/EC of 3

June 2003 on the activities and supervision of institutions for
occupational retirement provision applies.

(10) Regulations may amend subsection (9) to replace the reference to the
Article mentioned there with a reference to any provision of an EU
5instrument that replaces it (with or without changes).”

16 Power to create other exemptions from indexation

(1) In section 51 of the Pensions Act 1995 (annual increase in rate of pension), after
subsection (5) insert—

“(5A) Regulations may provide that this section does not apply to a pension,
10or part of a pension, of a specified description.

(5B) But regulations under subsection (5A) may not be made in respect of—

(a) a pension, or any part of a pension, under a defined benefits
scheme,

(b) a pension, or any part of a pension, which came into payment
15before the day on which the regulations come into force, or

(c) a pension, or any part of a pension, which is attributable to
pensionable service before the day on which the regulations
come into force.

(5C) Regulations under subsection (5A) may amend this Part.”

(2) 20In section 175(2) of that Act (statutory instruments subject to affirmative
procedure), before paragraph (a) insert—

“(za) section 51(5A),”.

Independent trustees

17 Removal of requirement to maintain register of independent trustees

(1) 25Section 23 of the Pensions Act 1995 (power to appoint an independent trustee
of an occupational pension scheme on the insolvency of the person who is the
employer in relation to the scheme etc) is amended as follows.

(2) In subsection (1), omit paragraph (b) (requirement for the trustee to be
registered in a register maintained by the Pensions Regulator) and the “and”
30before it.

(3) Omit subsections (4) to (6) (regulations to provide for there to be a register of
independent trustees).

Rules about modification of schemes

18 Rules about modification of schemes

(1) 35The Pensions Act 1995 is amended as follows.

(2) In section 67A (the subsisting rights provisions: interpretation), in subsection
(3) (meaning of “protected modification”), after paragraph (a) insert—

“(aa) on taking effect would or might result in any subsisting right of
a member of the scheme which is a right to benefits in respect of

which there is a pensions promise becoming, or being replaced
with, a right to benefits under the scheme rules in respect of
which there is no pensions promise,”.

(3) In subsection (5)(a) of that section, after “paragraph (a)” insert “, (aa)”.

(4) 5In section 124 (interpretation), in subsection (1), at the appropriate place
insert—

• ““pensions promise” has the meaning given by section 5 of the
  Pension Schemes Act 2014;”.

Part 3 10Collective benefits

Introduction to collective benefits

19 Introduction and definition

(1) This Part is about pension schemes under which at least some of the benefits
that may be provided are collective benefits.

(2) 15A benefit is a “collective benefit” if in all circumstances the rate or amount of
the benefit depends entirely on—

(a) the amount available for the provision of benefits to or in respect of the
member and one or more other members collectively, and

(b) factors used to determine what proportion of that amount is available
20for the provision of the particular benefit.

(3) But a benefit is not a collective benefit if—

(a) it is a money purchase benefit, or

(b) it is of a description specified in regulations.

20 Duty to set targets for collective benefits

(1) 25Regulations may require the trustees or managers of a pension scheme to set
targets in relation to any collective benefits that may be provided by the
scheme.

(2) The regulations may, in particular—

(a) impose requirements about the way that targets are expressed;

(b) 30impose requirements about the recording or publication of targets;

(c) require the trustees or managers to set initial targets at a level which
ensures that the probability of meeting the targets is equal to or higher
than a level of probability specified in the regulations;

(d) require the trustees or managers to obtain a certificate from an actuary
35certifying that, in the opinion of the actuary, the initial targets have
been set at a level that complies with regulations under paragraph (c).

(3) Regulations made in reliance on subsection (2)(d) may, in particular—

(a) require the trustees or managers to obtain the certificate from an
actuary who has specified qualifications or meets other specified
40requirements;

(b) make provision about the content of the certificate;