Pension Schemes Bill (HL Bill 63)

Part 4 Pensions flexibilities

CHAPTER 1 Pensions guidance

47 Pensions guidance

5Schedule 3 contains amendments of the Financial Services and Markets Act
2000, and of other legislation, that are about the giving of pensions guidance to
pension scheme members with a right or entitlement to flexible benefits.

CHAPTER 2 Independent advice

Great Britain

48 10Independent advice in respect of conversions and transfers: Great Britain

(1) Where a member of a pension scheme has subsisting rights in respect of any
safeguarded benefits, or a survivor of a member has subsisting rights in respect
of any safeguarded benefits, the trustees or managers must check that the
member or survivor has received appropriate independent advice before—

(a) 15converting any of the benefits into different benefits that are flexible
benefits under the scheme;

(b) making a transfer payment in respect of any of the benefits with a view
to acquiring flexible benefits for the member or survivor under another
pension scheme.

(2) 20The Secretary of State may by regulations make provision about—

(a) what the trustees or managers must do to check that a member or
survivor has received appropriate independent advice for the purposes
of subsection (1), and

(b) when the check must be carried out for the purposes of that subsection.

(3) 25The Secretary of State may by regulations create exceptions to subsection (1).

(4) In subsection (1)(b) the reference to another pension scheme includes a scheme
established in a country or territory outside Great Britain.

(5) Where the trustees or managers fail to carry out a check required by this
section, section 10 of the Pensions Act 1995 (civil penalties) applies to any
30trustee or manager who failed to take reasonable steps to ensure that the check
was carried out.

(6) Failure to carry out a check required by this section does not affect the validity
of any transaction.

(7) In this section—

• 35“appropriate independent advice” has the meaning given by regulations
  made by the Secretary of State;

• “safeguarded benefits” means benefits other than—

  Pension Schemes BillPage 21

  (a)

  money purchase benefits, and

  (b)

  cash balance benefits.

49 Power to require employer to arrange advice for purposes of section 48

(1) The Secretary of State may by regulations specify circumstances in which an
5employer must arrange or pay for a member of a pension scheme, or a survivor
of a member of a pension scheme, to receive appropriate independent advice
for the purpose of satisfying a requirement imposed by section 48.

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

(a) impose limitations on the amount that an employer may be required to
10pay;

(b) prohibit an employer from seeking in any way to recover, from a
member or survivor, costs incurred by the employer in complying with
the regulations;

(c) provide for section 10 of the Pensions Act 1995 (civil penalties) to apply
15to a failure by an employer to comply with the regulations.

(3) In this section “employer” has the meaning given by regulations made by the
Secretary of State.

50 Independent advice: consequential amendments: Great Britain

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

(2) 20In section 99 (trustees’ duties after exercise of option), after subsection (1)
insert—

“(1A) Subsection (2) does not apply if—

(a) the trustees or managers have been unable to carry out the
check required by section 48 of the Pension Schemes Act 2014 by
25reason of factors outside their control, or

(b) the trustees or managers have carried out the check required by
section 48 of the Pension Schemes Act 2014 but the check did not
confirm that the member had received appropriate
independent advice.”

(3) 30In section 101J (time for compliance with transfer notice in respect of pension
credit benefits), after subsection (2) insert—

“(2A) Subsection (1) does not apply if—

(a) the trustees or managers have been unable to carry out the
check required by section 48 of the Pension Schemes Act 2014 by
35reason of factors outside their control, or

(b) the trustees or managers have carried out the check required by
section 48 of the Pension Schemes Act 2014 but the check did not
confirm that the member had received appropriate
independent advice.”

Northern Ireland

51 Independent advice in respect of conversions and transfers: Northern Ireland

(1) Where a member of a pension scheme has subsisting rights in respect of any
safeguarded benefits, or a survivor of a member has subsisting rights in respect
5of any safeguarded benefits, the trustees or managers must check that the
member or survivor has received appropriate independent advice before—

(a) converting any of the benefits into different benefits that are flexible
benefits under the scheme;

(b) making a transfer payment in respect of any of the benefits with a view
10to acquiring flexible benefits for the member or survivor under another
pension scheme.

(2) The Department for Social Development in Northern Ireland may by
regulations make provision about—

(a) what the trustees or managers must do to check that a member or
15survivor has received appropriate independent advice for the purposes
of subsection (1), and

(b) when the check must be carried out for the purposes of that subsection.

(3) The Department for Social Development in Northern Ireland may by
regulations create exceptions to subsection (1).

(4) 20In subsection (1)(b) the reference to another pension scheme includes a scheme
established in a country or territory outside Northern Ireland.

(5) Where the trustees or managers fail to carry out a check required by this
section, Article 10 of the Pensions (Northern Ireland) Order 1995 (S.I. 1995/
3213 (N.I. 22)) (civil penalties) applies to any trustee or manager who failed to
25take reasonable steps to ensure that the check was carried out.

(6) Failure to carry out a check required by this section does not affect the validity
of any transaction.

(7) In this section—

• “appropriate independent advice” has the meaning given by regulations
  30made by the Department for Social Development in Northern Ireland;

• “safeguarded benefits” means benefits other than—

  (a)

  money purchase benefits, and

  (b)

  cash balance benefits.

52 Power to require employer to arrange advice for purposes of section 51

(1) 35The Department for Social Development in Northern Ireland may by
regulations specify circumstances in which an employer must arrange or pay
for a member of a pension scheme, or a survivor of a member of a pension
scheme, to receive appropriate independent advice for the purpose of
satisfying a requirement imposed by section 51.

(2) 40Regulations under subsection (1) may, in particular—

(a) impose limitations on the amount that an employer may be required to
pay;

(b) prohibit an employer from seeking in any way to recover, from a
member or survivor, costs incurred by the employer in complying with
the regulations;

(c) provide for Article 10 of the Pensions (Northern Ireland) Order 1995
5(S.I. 1995/3213 (N.I. 22)S.I. 1995/3213 (N.I. 22)) (civil penalties) to apply to a failure by an
employer to comply with the regulations.

(3) In this section “employer” has the meaning given by regulations made by the
Department for Social Development in Northern Ireland.

53 Independent advice: consequential amendments: Northern Ireland

(1) 10The Pension Schemes (Northern Ireland) Act 1993 is amended as follows.

(2) In section 95 (trustees’ duties after exercise of option), after subsection (1)
insert—

“(1A) Subsection (2) does not apply if—

(a) the trustees or managers have been unable to carry out the
15check required by section 51 of the Pension Schemes Act 2014 by
reason of factors outside their control, or

(b) the trustees or managers have carried out the check required by
section 51 of the Pension Schemes Act 2014 but the check did not
confirm that the member had received appropriate
20independent advice.”

(3) In section 97J (time for compliance with transfer notice in respect of pension
credit benefits), after subsection (2) insert—

“(2A) Subsection (1) does not apply if—

(a) the trustees or managers have been unable to carry out the
25check required by section 51 of the Pension Schemes Act 2014 by
reason of factors outside their control, or

(b) the trustees or managers have carried out the check required by
section 51 of the Pension Schemes Act 2014 but the check did not
confirm that the member had received appropriate
30independent advice.”

Income tax exemption

54 Independent advice: income tax exemption

(1) In Part 4 of the Income Tax (Earnings and Pensions) Act 2003 (employment
income: exemptions), in Chapter 9 (exemptions: pension provision), after
35section 308A insert—

“308B Independent advice in respect of conversions and transfers of pension
scheme benefits

(1) No liability to income tax arises in respect of—

(a) the provision to an employee or former employee of
40appropriate independent advice, or

(b) the payment or reimbursement, to or in respect of an employee
or former employee, of the cost of such advice,

if conditions A to C are met.

(2) Condition A is that the provision, payment or reimbursement is
required by regulations under section 49 or 52 of the Pension Schemes
Act 2014 (power to require employer to arrange independent advice in
respect of conversions and transfers).

(3) 5If condition A is met only as respects part of the payment or
reimbursement because the amount of the payment or reimbursement
exceeds the amount required to be paid or reimbursed, subsection (1)
applies in respect of that part.

(4) Condition B is that the provision, payment or reimbursement is not
10pursuant to relevant salary sacrifice arrangements.

(5) Condition C is that such other requirements as may be specified in
regulations made by the Treasury are satisfied in relation to the
provision, payment or reimbursement.

(6) In this section—

• 15“appropriate independent advice”—

  (a)

  in relation to England and Wales and Scotland, has the
  meaning given by regulations under section 48 of the
  Pension Schemes Act 2014;

  (b)

  in relation to Northern Ireland, has the meaning given
  20by regulations under section 51 of that Act;

• “relevant salary sacrifice arrangements” means arrangements
  (whenever made, whether before or after the employment
  began) under which an employee gives up the right to receive
  an amount of general earnings or specific employment income
  25in return for the provision of appropriate independent advice or
  the payment or reimbursement of the cost of such advice.”

(2) In that Part of that Act, in section 228 (effect of exemptions on liability under
provisions outside Part 2), in subsection (2), after paragraph (d) insert—

“(da) section 308B (independent advice in respect of conversions and
30transfers of pension scheme benefits),”.

(3) The amendments made by this section have effect for the tax year 2015-16 and
subsequent tax years.

CHAPTER 3 Drawdown, conversion of benefits and lump sums

Great Britain

55 35Sums or assets that may be designated as available for drawdown: Great
Britain

(1) In the case of a member of an occupational pension scheme the only sums or
assets that may be designated as available for the payment of drawdown
pension for the member under the scheme are sums or assets held for the
40purposes of providing money purchase benefits to or in respect of the member.

(2) In the case of a survivor of a member of an occupational pension scheme the
only sums or assets that may be designated as available for the payment of

dependants’ drawdown pension for the survivor under the scheme are sums
or assets held for the purposes of providing money purchase benefits to the
survivor.

(3) This section overrides any provision of an occupational pension scheme to the
5extent that there is a conflict.

(4) This section does not apply in relation to sums or assets designated before 6
April 2015.

56 Provision about conversion of certain benefits for drawdown: Great Britain

(1) The Secretary of State may by regulations make provision about the conversion
10of benefits under an occupational pension scheme in circumstances where—

(a) a member of the scheme, or a survivor of a member of the scheme, has
subsisting rights in respect of any flexible benefits other than money
purchase benefits under the scheme, and

(b) the member or survivor exercises an option to convert any of the
15benefits into money purchase benefits for the purposes of enabling
sums or assets to be designated as available for the payment of
drawdown pension or dependants’ drawdown pension.

(2) Regulations under subsection (1) may, in particular, make provision about
how the rate or amount of any benefits not converted are to be calculated in
20future.

(3) In relation to a conversion that takes place before the member or survivor
reaches normal pension age, regulations under subsection (1) may in particular
make provision about—

(a) the manner in which benefits are to be calculated for the purpose of
25converting them into money purchase benefits;

(b) the use of any power to reduce benefits.

(4) Regulations made under this section may include provision for them to
override the provisions of a pension scheme to the extent that there is a conflict.

57 Provision about calculation of lump sums: Great Britain

(1) 30The Secretary of State may by regulations make provision about the calculation
of lump sums in circumstances where—

(a) a member of an occupational pension scheme, or a survivor of a
member of the scheme, has subsisting rights in respect of any flexible
benefits other than money purchase benefits under the scheme, and

(b) 35the member or survivor exercises an option to be paid a lump sum in
respect of any of those benefits.

(2) Regulations under subsection (1) may, in particular, make provision about
how the rate or amount of any remaining benefits are to be calculated in future.

(3) In a case where a member or survivor exercises an option to be paid a lump
40sum before reaching normal pension age, regulations under subsection (1) may
in particular make provision about—

(a) the manner in which benefits are to be calculated for the purpose of
determining the amount available for the payment of the lump sum;

(b) the use of any power to reduce the amount of the lump sum.

(4) Regulations made under this section may include provision for them to
override the provisions of a pension scheme to the extent that there is a conflict.

58 Restrictions on conversion of benefits during winding up etc: Great Britain

(1) In section 73A of the Pensions Act 1995 (operation of scheme during winding
5up period), after subsection (6) insert—

“(6A) During the winding up period no right or entitlement of any member,
or of any other person in respect of a member, to a benefit that is not a
money purchase benefit is to be converted into, or replaced with, a right
or entitlement to a money purchase benefit under the scheme rules.”

(2) 10In section 73B of that Act (sections 73 and 73A: supplementary), in subsections
(1) and (3), after “section 73A(3)” insert “or (6A)”.

(3) In section 135 of the Pensions Act 2004 (restrictions on winding up, discharge
of liabilities etc during assessment period), in subsection (4), before paragraph
(a) insert—

“(za) 15no right or entitlement of any member, or of any other person in
respect of a member, to a benefit that is not a money purchase
benefit is to be converted into, or replaced with, a right or
entitlement to a money purchase benefit under the scheme
rules,”.

59 20Restriction on payment of lump sums during PPF assessment period: Great
Britain

(1) Section 138 of the Pensions Act 2004 (payment of scheme benefits during
assessment period) is amended as follows.

(2) In subsection (1), after “Subsections (2)” insert “, (2A)”.

(3) 25After subsection (2) insert—

“(2A) Benefits in the form of a lump sum may be paid to or in respect of a
member under the scheme rules during the assessment period only in
the circumstances in which, and to the extent to which, lump sum
compensation would be payable to or in respect of the member in
30accordance with this Chapter if—

(a) the Board assumed responsibility for the scheme in accordance
with this Chapter, and

(b) the assessment date referred to in Schedule 7 were the date on
which the assessment period began.”

(4) 35In subsection (3), omit “But”.

(5) In subsection (5), for “subsection (2)” substitute “subsections (2) and (2A)”.

(6) In subsection (6), for “subsection (3)” substitute “subsections (2A) and (3)”.

(7) In subsection (7), after “Subsections (2),” insert “(2A),”.

(8) In subsection (8), after “subsections (2)” insert “, (2A)”.

(9) 40In subsection (9), for “subsections (2) and (3)” substitute “subsections (2) to (3)”.

(10) After subsection (9) insert—

“(9A) Regulations may make provision as to circumstances in which benefits
in the form of a lump sum are to be treated for the purposes of
subsection (2A) as being paid in the circumstances in which lump sum
5compensation would be payable in accordance with this Chapter.

(9B) Regulations may create exceptions to subsection (2A).”

(11) In subsection (12), for “subsection (2)” substitute “subsections (2) and (2A)”.

(12) In subsection (13), after “subsection (2)” insert “, (2A)”.

Northern Ireland

60 10Sums or assets that may be designated as available for drawdown: Northern
Ireland

(1) In the case of a member of an occupational pension scheme the only sums or
assets that may be designated as available for the payment of drawdown
pension for the member under the scheme are sums or assets held for the
15purposes of providing money purchase benefits to or in respect of the member.

(2) In the case of a survivor of a member of an occupational pension scheme the
only sums or assets that may be designated as available for the payment of
dependants’ drawdown pension for the survivor under the scheme are sums
or assets held for the purposes of providing money purchase benefits to the
20survivor.

(3) This section overrides any provision of an occupational pension scheme to the
extent that there is a conflict.

(4) This section does not apply in relation to sums or assets designated before 6
April 2015.

61 25Provision about conversion of certain benefits for drawdown: Northern
Ireland

(1) The Department for Social Development in Northern Ireland may by
regulations make provision about the conversion of benefits under an
occupational pension scheme in circumstances where—

(a) 30a member of the scheme, or a survivor of a member of the scheme, has
subsisting rights in respect of any flexible benefits other than money
purchase benefits under the scheme, and

(b) the member or survivor exercises an option to convert any of the
benefits into money purchase benefits for the purposes of enabling
35sums or assets to be designated as available for the payment of
drawdown pension or dependants’ drawdown pension.

(2) Regulations under subsection (1) may, in particular, make provision about
how the rate or amount of any benefits not converted are to be calculated in
future.

(3) 40In relation to a conversion that takes place before the member or survivor
reaches normal pension age, regulations under subsection (1) may in particular
make provision about—

(a) the manner in which benefits are to be calculated for the purpose of
converting them into money purchase benefits;

(b) the use of any power to reduce benefits.

(4) Regulations made under this section may include provision for them to
5override the provisions of a pension scheme to the extent that there is a conflict.

62 Provision about calculation of lump sums: Northern Ireland

(1) The Department for Social Development in Northern Ireland may by
regulations make provision about the calculation of lump sums in
circumstances where—

(a) 10a member of an occupational pension scheme, or a survivor of a
member of the scheme, has subsisting rights in respect of any flexible
benefits other than money purchase benefits under the scheme, and

(b) the member or survivor exercises an option to be paid a lump sum in
respect of any of those benefits.

(2) 15Regulations under subsection (1) may, in particular, make provision about
how the rate or amount of any remaining benefits are to be calculated in future.

(3) In a case where a member or survivor exercises an option to be paid a lump
sum before reaching normal pension age, regulations under subsection (1) may
in particular make provision about—

(a) 20the manner in which benefits are to be calculated for the purpose of
determining the amount available for the payment of the lump sum;

(b) the use of any power to reduce the amount of the lump sum.

(4) Regulations made under this section may include provision for them to
override the provisions of a pension scheme to the extent that there is a conflict.

63 25Restrictions on conversion of benefits during winding up etc: Northern
Ireland

(1) In Article 73A of the Pensions (Northern Ireland) Order 1995 (S.I. 1995/3213S.I. 1995/3213
(N.I. 22)) (operation of scheme during winding up period), after paragraph (6)
insert—

“(6A) 30During the winding up period no right or entitlement of any member,
or of any other person in respect of a member, to a benefit that is not a
money purchase benefit is to be converted into, or replaced with, a right
or entitlement to a money purchase benefit under the scheme rules.”

(2) In Article 73B of that Order (Articles 73 and 73A: supplementary), in
35paragraphs (1) and (3), after “Article 73A(3)” insert “or (6A)”.

(3) In Article 119 of the Pensions (Northern Ireland) Order 2005 (S.I. 2005/255S.I. 2005/255
(N.I. 1)) (restrictions on winding up, discharge of liabilities etc during
assessment period), in paragraph (4), before sub-paragraph (a) insert—

“(za) no right or entitlement of any member, or of any other person in
40respect of a member, to a benefit that is not a money purchase
benefit is to be converted into, or replaced with, a right or
entitlement to a money purchase benefit under the scheme
rules,”.

64 Restriction on payment of lump sums during PPF assessment period:
Northern Ireland

(1) Article 122 of the Pensions (Northern Ireland) Order 2005 (S.I. 2005/255S.I. 2005/255
(N.I. 1)) (payment of scheme benefits during assessment period) is amended as
5follows.

(2) In paragraph (1), after “Paragraphs (2)” insert “, (2A)”.

(3) After paragraph (2) insert—

“(2A) Benefits in the form of a lump sum may be paid to or in respect of a
member under the scheme rules during the assessment period only in
10the circumstances in which, and to the extent to which, lump sum
compensation would be payable to or in respect of the member in
accordance with this Chapter if—

(a) the Board assumed responsibility for the scheme in accordance
with this Chapter, and

(b) 15the assessment date referred to in Schedule 6 were the date on
which the assessment period began.”

(4) In paragraph (3), omit “But”.

(5) In paragraph (5), for “paragraph (2)” substitute “paragraphs (2) and (2A)”.

(6) In paragraph (6), for “paragraph (3)” substitute “paragraphs (2A) and (3)”.

(7) 20In paragraph (7), after “Paragraphs (2),” insert “(2A),”.

(8) In paragraph (8), after “paragraphs (2)” insert “, (2A)”.

(9) In paragraph (9), for “paragraphs (2) and (3)” substitute “paragraphs (2) to (3)”.

(10) After paragraph (9) insert—

“(9A) Regulations may make provision as to circumstances in which benefits
25in the form of a lump sum are to be treated for the purposes of
paragraph (2A) as being paid in the circumstances in which lump sum
compensation would be payable in accordance with this Chapter.

(9B) Regulations may create exceptions to paragraph (2A).”

(11) In paragraph (12), for “paragraph (2)” substitute “paragraphs (2) and (2A)”.

(12) 30In paragraph (13), after “paragraph (2)” insert “, (2A)”.

CHAPTER 4 Transfers

Rights to transfer benefits

65 Rights to transfer benefits

Schedule 4 contains amendments that confer new statutory rights to transfer
35benefits.