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A

BILL

[AS AMENDED IN PUBLIC BILL COMMITTEE]

TO

Make provision about pension schemes, including provision designed to
encourage arrangements that offer people different levels of certainty in
retirement or that involve different ways of sharing or pooling risk.

Be it enacted by the Queen’s most Excellent Majesty, by and with the advice and
consent of the Lords Spiritual and Temporal, and Commons, in this present
Parliament assembled, and by the authority of the same, as follows:—

Part 1 Categories of pension scheme

1 Introduction

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

(a) 5defined 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) The definitions—

(a) 10do not apply in any public service pensions legislation;

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

2 Defined benefits scheme

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

(a) 15the 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

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

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

(a) 5there 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 Defined contributions scheme

A pension scheme is a “defined contributions scheme” if there is no pensions
10promise in relation to any of the retirement benefits that may be provided to
the members.

5 Meaning of “pensions promise” etc

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

(a) 15the 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
promise in all circumstances.

(2) For the purposes of sections 3 and 4 there is a “pensions promise” in relation to
20a 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) includes a promise about factors, other than longevity, that will be used
to calculate the level of the benefit,

(b) 25does 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) in 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
30one 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) A scheme provides for there to be a promise if the scheme—

(a) sets out the promise, or

(b) 35requires 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) the option of a promise from the scheme, or

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

40(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—

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(a) is capable of being used only for reasons related to a member’s
individual circumstances and meets any other requirements that may
be specified in regulations, or

(b) is of a description specified in regulations.

(7) 5When 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) any other benefits that, at a future time, are benefits that may be
10provided 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
legislation, as if it were two or more separate schemes each of which then fits
15within 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) In this section “category” means a category of scheme defined by section 2, 3 or
204.

7 Interpretation of Part 1

In this Part—

Part 2 Collective benefits

Introduction to collective benefits

8 20Introduction 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) A benefit is a “collective benefit” if in all circumstances the rate or amount of
the benefit depends entirely on—

(a) 25the 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
for the provision of the particular benefit.

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

(a) 30it is a money purchase benefit, or

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

9 Duty to set targets for collective benefits

(1) Regulations 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
35scheme.

(2) The regulations may, in particular—

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

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

(c) require the trustees or managers to set initial targets at a level which
40ensures that the probability of meeting the targets falls within a range
specified in the regulations;

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(d) require the trustees or managers to obtain a certificate from an actuary
certifying 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) 5require the trustees or managers to obtain the certificate from an
actuary who has specified qualifications or meets other specified
requirements;

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

(c) set out matters to which the actuary must have regard;

(d) 10require the trustees or managers to provide a copy of the actuary’s
certificate to a specified person.

(4) In this section “target” means a target, relating to the rate or amount of a
benefit, that is unenforceable.

Contributions

10 15Payment schedule

(1) Regulations may require the trustees or managers of a pension scheme to
prepare a payment schedule showing—

(a) the contributions payable to the scheme in respect of any collective
benefits under the scheme, and

(b) 20the dates on which the contributions are due.

(2) The regulations may require the payment schedule to include other amounts
payable to the scheme and the dates on which they are due.

(3) The regulations may, in particular—

(a) make further provision about the content of the payment schedule;

(b) 25make provision about revising the payment schedule.

(4) The regulations may, in particular, make provision corresponding or similar to
any provision made by section 87 of the Pensions Act 1995 (payment schedules
for certain kinds of scheme).

11 Overdue contributions and other payments

(1) 30Regulations—

(a) may require the trustees or managers of a pension scheme to notify a
specified person of any relevant payments that are overdue;

(b) may make provision for the recovery of those payments.

(2) In subsection (1) “relevant payment” means a payment shown in a payment
35schedule required by regulations under section 10.

(3) Regulations under subsection (1) may, in particular, make provision
corresponding or similar to any provision made by section 88 of the Pensions
Act 1995 (failure to comply with payment schedule for certain kinds of
scheme).

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Investment

12 Statement of investment strategy

(1) Regulations may require the trustees or managers of a pension scheme to
prepare a statement of their investment strategy in connection with any
5collective benefit investments.

(2) The regulations may, in particular, make provision about—

(a) the content of the statement;

(b) reviewing and revising the statement.

(3) The regulations may, in particular—

(a) 10make provision corresponding or similar to any provision made by
section 35 of the Pensions Act 1995 (investment principles for
occupational trust-based schemes);

(b) disapply that section in relation to any investments to which the
regulations apply.

13 15Investment performance reports

(1) Regulations may require the trustees or managers of a pension scheme to
obtain reports about the performance of any collective benefit investments.

(2) The regulations may, in particular, make provision about—

(a) the content of reports;

(b) 20how often reports must be obtained;

(c) the person from whom reports must be obtained.

14 Investment powers

(1) Regulations may make provision about—

(a) the investment powers of the trustees or managers of a pension scheme
25in connection with collective benefit investments;

(b) their powers to delegate decisions in connection with collective benefit
investments (including provision as to liability for delegated
decisions);

(c) the investment powers of any person to whom they have delegated
30decisions in connection with collective benefit investments.

(2) The regulations may, in particular—

(a) make provision corresponding or similar to any provision made by
section 34 or 36 of the Pensions Act 1995 (powers of investment and
delegation and choice of investments for occupational trust-based
35schemes);

(b) disapply those sections in relation to collective benefit investments.

15 Restriction on borrowing by trustees or managers

(1) Regulations may prohibit a person to whom this section applies from
borrowing money or acting as a guarantor except in specified cases.

(2) 40This section applies to—

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(a) the trustees or managers of a pension scheme under which any of the
benefits that may be provided are collective benefits, and

(b) any person to whom they have delegated decisions about collective
benefit investments.

16 5Investment powers: duty of care

(1) Regulations may make provision to prevent any instrument or agreement from
excluding or restricting any liability of the trustees or managers of a pension
scheme, or any person to whom they have delegated decisions, in respect of the
performance of investment functions involving collective benefit investments.

(2) 10The regulations may, in particular—

(a) make provision corresponding or similar to any provision made by
section 33 of the Pensions Act 1995 (duty of care in respect of
investment powers for occupational trust-based schemes);

(b) disapply that section in relation to collective benefit investments.

15Valuation

17 Valuation reports

(1) Regulations may require the trustees or managers of a pension scheme to
obtain a report prepared by an actuary—

(a) valuing the assets held by the scheme for the purposes of providing
20collective benefits, and

(b) assessing the probability of the scheme meeting the targets in relation
to those benefits.

(2) A report required by regulations under this section is referred to in this Part as
a “valuation report”.

(3) 25The regulations may, in particular—

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

(b) require the actuary to certify whether, in the opinion of the actuary, the
probability of the scheme meeting the targets falls within the required
30range or is above or below it;

(c) make further provision about the content of valuation reports;

(d) make provision about how often valuation reports must be obtained.

18 Valuation process

(1) Regulations may make provision about the methods or assumptions to be used
35by an actuary valuing assets, or assessing the probability of a scheme meeting
a target in relation to a collective benefit, for the purposes of a valuation report.

(2) Regulations under subsection (1) may, in particular—

(a) require the trustees or managers of the scheme to determine the
methods or assumptions to be used by the actuary;

(b) 40set out matters that the trustees or managers must take into account, or
principles they must follow, in determining methods or assumptions.

(3) Regulations may—

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(a) make provision about the assets to be taken into account for the
purposes of a valuation report;

(b) require the value attributed to the assets to be reduced by the amount
of any liabilities in respect of administrative expenses or other specified
5matters.

(4) Regulations may require an actuary preparing a valuation report to certify that,
in the opinion of the actuary, any specified requirements imposed by
regulations under this section have been followed.

(5) Regulations—

(a) 10may require an actuary to have regard to guidance issued from time to
time by a specified person when preparing a valuation report;

(b) may impose other requirements on an actuary when preparing a
valuation report.

Dealing with deficits and surpluses

19 15Policy for dealing with a deficit or surplus

(1) Regulations may require the trustees or managers of a pension scheme—

(a) to have a policy for dealing with a deficit or surplus in respect of any
collective benefits that may be provided by the scheme, and

(b) to follow that policy if a valuation report shows a deficit or surplus.

(2) 20For the purposes of this Part—

(a) there is a “deficit” in respect of a collective benefit if the probability of
the scheme meeting a target in relation to the benefit is below the
required range, and

(b) there is a “surplus” in respect of a collective benefit if the probability of
25the scheme meeting a target in relation to the benefit is above the
required range.

(3) Regulations under subsection (1)(a) may, in particular—

(a) require the trustees or managers to consult about the policy;

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

(c) 30make provision about reviewing and revising the policy.

(4) The regulations may, in particular, require the policy—

(a) to be formulated with a view to achieving results described in the
regulations within a period or periods described in the regulations;

(b) to contain provision for a deficit or surplus to be dealt with in one or
35more of a range of ways described in the regulations;

(c) to contain an explanation of the possible effect of the policy on
members in different circumstances.

20 Deficits attributable to an offence or the imposition of a levy

(1) Regulations may provide for an amount to be treated as a debt due from an
40employer to the trustees or managers of a pension scheme that provides
collective benefits in cases where there is a deficit that is attributable to a
specified offence or the imposition of a specified levy.

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(2) The regulations may, in particular, make provision corresponding or similar to
any provision made by section 75 of the Pensions Act 1995 (amounts deemed
to be debts due from an employer).

(3) For the purposes of this section—

21 Payment of amounts out of collective benefit funds

(1) 10Regulations must prohibit the making of payments out of funds held for the
purposes of providing collective benefits except for—

(a) payments made for the purpose of providing those benefits, or

(b) other specified payments.

(2) The regulations may, in particular, make provision corresponding or similar to
15any provision made by section 37 of the Pensions Act 1995 (payment of surplus
to employer in the case of an occupational trust-based scheme).

Transfer values

22 Transfer value: policy for calculating cash equivalent of benefits

(1) Regulations may require the trustees or managers of a pension scheme—

(a) 20to have a policy about the calculation and verification of the cash
equivalent of any collective benefit that may be provided by the
scheme;

(b) to follow that policy in calculating or verifying any cash equivalent.

(2) In this section “cash equivalent” means the cash equivalent mentioned in
25section 93A(1ZB) of the Pension Schemes Act 1993.

(3) The regulations may, in particular—

(a) require the trustees or managers to consult about the policy;

(b) require the trustees or managers to ensure that the policy is consistent
with any requirements imposed by regulations under section 97 of the
30Pension Schemes Act 1993;

(c) make other provision about the content of the policy;

(d) make provision about reviewing and revising the policy.

Winding up

23 Winding up

35Regulations may—

(a) disapply or modify the application of any of sections 73, 73A, 73B and
74 of the Pensions Act 1995 (winding up) in relation to collective
benefits;

(b) make provision in relation to collective benefits corresponding or
40similar to any provision made by those sections.

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