Clause 30: Treatment in winding up

This section deals with the priority to be awarded to pension credit rights on the winding up of an occupational pension scheme.

Subsection (1) provides for pension credit benefit to be included in the preferential liabilities on the winding up of a scheme to which section 56 of the Pensions Act 1995 applies (that is a salary related scheme subject to the minimum funding requirement (MFR)).

Subsection (2) concerns schemes to which section 56 of the 1995 Act does not apply (that is schemes not subject to the MFR). It gives pensions in payment derived from pension credits the same priority as other pensions in payment. Rights that have not come into payment are accorded the same priority as the rights of deferred members (early leavers). The order of priority is consistent with that for salary related schemes.

Subsection (3) provides that the provisions of subsection (2) override scheme rules.

Indexation

This clause amends the Pensions (Increase) Act 1971 to provide for pensions derived from pension sharing in public service schemes. The Act provides for the index-linking of "official pensions", including those of civil servants, teachers, NHS and local authority staff. Other public service pension schemes apply the Act by analogy.

Subsection (2) inserts a new subsection (2A) in section 3 of the Act. This requires the recipient of pension credit benefit payments to have reached age 55 before indexation increases are paid.

Subsection (3) amends section 8(1) of the Act to remove a parenthetical reference to services, since the concept of services is not relevant to pension credit rights.

Subsection (4) amends section 8(2) of the Act. The beginning date for the application of the Act is the date from which the pension is indexed and is normally the day following the last day of service. Pension credit benefit is specifically excluded because a recipient of such benefit will have no last day of service. A new subsection (8)(2A) provides that a pension derived from a pension credit will begin on the day which the pension sharing order takes effect.

Subsection (5) contains changes and additions to some terms used in the Act.

Clause 32: Other pension schemes

This clause is concerned with pensions in payment derived from a pension share not covered by clause 31 above. It provides for the Secretary of State to protect an occupational pension in payment, derived from a pension share, against inflation. It also provides for the Secretary of State to protect a personal pension derived from safeguarded rights against inflation.

Subsections (1) and (2): we intend to use the regulation-making power to require an occupational pension scheme to index the part of a pension derived from safeguarded rights and/or post-April 1997 occupational pension rights (excluding AVCs) by the retail price index, subject to a cap of 5% per cap per annum. However, for administrative simplicity, schemes will be able to index the whole of the pension if they so choose. Similarly, price indexation up to a 5% cap will apply to personal pensions derived from safeguarded rights. There will be no requirement to index personal pensions derived from non-safeguarded rights but former spouses will be able to purchase an annuity offering protection against inflation if they so choose.

Clause 33: Charges by pension arrangements

Pension arrangements will not be obliged to impose charges and the Government does not intend to impose charges in connection with SERPS rights. Charges can be apportioned between the divorcing couple but unless the pension arrangement is notified how the charges are to be split, they will be attributed to the member. The intention is that pension arrangements should have the option of requiring charges to be paid as a pre-condition to implementation of the pension share. Alternatively they should be able to deduct charges from either the member's pension rights or the pension credit obtained by the former spouse as a result of the pension share.

Subsection (1) enables provision to be made for the recovery of charges from either the member or the former spouse subject to any conditions the Secretary of State may wish to set out in regulations. We intend to use the regulation-making power to require that charges must be reasonable and limited to the costs incurred in implementing the pension sharing order/agreement; and that pension arrangements offer the parties a chance to pay charges at the outset before they can deduct them from the pension credit or the member's pension rights or pension payments.

Subsection (2) provides that regulations made under subsection (1) may include the following provisions;

• subsection (2)(a): postponement of the start of the implementation period. We intend to use the regulation-making power to allow the scheme to postpone the start of the implementation until the administration charges have been met (see also clause 26(3) above;

• subsection (2)(b): we intend to use this provision to allow charges to be recovered from one party where that party has defaulted on meeting the administrative charges, and the charges have been met by the other party;

• subsection (2)(c): we intend to use this provision to provide that, where a pension arrangement deducts charges from a pension credit, the provisions in Schedule 5 about discharge of liability in respect of the credit have effect by reference to the net amount of the credit.

• subsection (2)(d): to permit the scheme to make additional deductions from any transfer or other payment in respect of the member's rights. We intend to use this regulation-making power to permit a salary related scheme to increase the original charge, by an appropriate rate of interest, when the charges are met not at the time the scheme implements the pension sharing order/agreement, but at a later date.

Subsection (3) controls how the regulations about charges will deal with the question of apportionment between the parties. The principle is that apportionment may be settled, if there is a pension sharing order, by provision in the order, and, if there is a pension sharing agreement, by provision in the agreement. If, in either case, there is no such provision, the default setting is that the charges are attributable to the member spouse whose pension is being shared.

Adaptation of statutory schemes

The clause extends statutory powers to establish pension schemes to include the power to provide benefits in respect of pension credit rights to former spouses.

Subsection (1) extends the powers to make statutory schemes so that those schemes may be amended to allow for the use of pension credits to provide benefits to former spouses. The pension credits may arise directly out of rights under the scheme in question, or under a public service pension scheme for which it is specified as an alternative in accordance with Schedule 5 paragraph 2.

Subsection (4) enables statutory schemes to make provision for former spouses regardless of any obligation to consult; this enables schemes which would otherwise be required to consult on changes, detrimental or otherwise, to implement pension sharing without doing so.

Clause 35: Power to extend judicial pension schemes

This clause enables the relevant minister to make regulations in respect of judicial pensions to implement pension sharing in respect of a former spouse's pension credit.

Subsection (1) empowers the relevant minister to make regulations:

(a) to extend the judicial pension arrangements to use pension credits to provide benefits to former spouses. The pension credits may arise directly out of rights under the scheme in question, or from another statutory scheme for which it is specified as a replacement in accordance with Schedule 5 paragraph 2; or

(b) requiring him to refuse transfers in of pension credit rights from another pension scheme.

Subsection (2): the regulation-making power under subsection (1) includes provision for pension credit benefits to be a charge on, and payable out of, the Consolidated Fund.

Subsection (3) defines the relevant minister empowered to make amending regulations.

Supplementary

This clause disapplies the rules on the inalienability of pension rights (to prohibit the assignment, commutation or surrender of pension rights from the member to another person, except on the death of the member) that apply to armed forces pensions and occupational pensions in relation to pension sharing orders and provisions of the kind mentioned in clause 20(1) .

Clause 37: Information

This clause contains provision for pension arrangements to be required to provide the parties to a pension share with information about its implementation.

Chapter II - Sharing of State Scheme Rights

This clause provides that pension sharing is available in relation to shareable state scheme rights, which are defined in subsection (2). The definition essentially encompasses SERPS rights either earned by the member in his or her own right or derived from a pension share in respect of a previous divorce or nullity of marriage.

Clause 40: Activation of benefit sharing

This clause lists the circumstances under which the process of sharing state scheme rights, set out in clause 41, can be triggered in England and Wales, and Scotland. The provisions are analogous to those in clause 20 of this Bill.

Clause 41: Creation of state scheme pension debits and credits

This clause sets out how a pension sharing order/agreement relating to the state scheme will work. The basic state retirement pension will not be subject to pension sharing, but the rights to the additional pension (AP) element of a Category A retirement pension will be. An AP may be payable to an employee who has contributed to the State Earnings Related Pension Scheme (SERPS), that is, in any tax year, paid standard rate Class 1 National Insurance contributions. The pension deriving from a state scheme pension credit will be called the "shared additional pension".

Subsection (1) provides that on the taking effect of the pension order/agreement, the "member" of SERPS is subject to a state scheme debit, and the former spouse becomes entitled to a state scheme credit of the same amount.

Subsection (2) provides that where the order/agreement is expressed in terms of a percentage, the amount of the debit and credit is that percentage of the cash equivalent of the member's state scheme rights immediately before the day on which the order/agreement takes effect .

Subsection (3) provides that where the order/agreement is expressed in monetary terms (that is in Scotland) the credit and debit will be the amount stated or, if less, the cash equivalent mentioned above.

Subsection (4): we intend that regulations made under this clause will contain a table to be applied when calculating a cash equivalent. This will be set by the Government Actuary and based on such actuarial factors as the age of the person whose rights are being valued.

Subsection (5): for the purposes of sharing the state pension, only those tax years prior to that in which the pension sharing order is made will be taken into account.

Clause 42: Effect of state scheme pension debits and credits

Subsection (1) gives effect to Schedule 6.

Subsection (2) provides that for incremental periods from 6 April 2010, section 55C of the Contributions and Benefits Act (inserted by Schedule 6 to this Bill) will be modified to reflect the changes made to section 55 and Schedule 5 of that Act by the Pensions Act 1995. In effect, from April 2010 a person may defer taking the state pension indefinitely and the rate of increment earned will be higher.

Schedules

Schedule 3: Pension sharing orders: England and Wales

See Annex to this commentary which illustrates how Part II of the Matrimonial Causes Act 1973 (as amended by the Family Law Act 1996) will be affected by the Bill.

Paragraph 2 amends section 21 of the Matrimonial Causes Act 1973;

• Sub-paragraph (2) prevents a property adjustment order which either varies, for the benefit of the parties or of children of the family, or either of them, any marriage settlement, or extinguishes or reduces the interests of either of the parties under any marriage settlement from being made relation to a marriage settlement which is a pension arrangement.

• Sub-paragraph (3) inserts a new subsection (2A) to define "pension sharing order" for the purposes of the Act. There are two elements to a pension sharing order. The first is a direction that the rights which one of the parties to a marriage has under a particular pension arrangement, or under SERPS, be subject to pension sharing for the benefit of the other party. The second is the specification of the percentage of the value of the rights which is to be transferred (in accordance with the pension sharing mechanisms) from one party to the other.

• Sub-paragraph (4) inserts a new subsection (5A) which explains what a pension sharing order can relate to. The scope of a pension sharing order is defined by reference to the scope of the pension sharing mechanisms under the law of England and Wales and Scotland (for which provision is made in Part IV of the Bill) or under the law of Northern Ireland (for which provision may be made by separate Northern Ireland legislation). The pension sharing mechanisms extend to rights under pension arrangements and rights under SERPS.

Paragraph 3 inserts new sections 24B to 24G into the Matrimonial Causes Act.

Section 24B(1) gives the court power on application at the appropriate time to make a pension sharing order on application at the appropriate time;

• Subsection (2) specifies the times at which the court can make the order. The definition of "appropriate time" mirrors, so far as relevant, the times when the court can make financial provision and property adjustment orders under the Act.

• Subsection (3) ensures that, wherever practicable, the court will make all the relevant pension sharing orders for a given divorce at once, rather than piecemeal.

• Subsection (4) makes section 24B subject to restrictions contained in this Act and in section 19 of the Family Law Act 1996. Section 19 makes provision for when the court has jurisdiction in relation to divorce. For example, the court has no jurisdiction to make a pension sharing order where neither of the parties was domiciled in England or Wales on the date of the statement of marital breakdown, or habitually resident in England or Wales throughout the preceding year.

Section 24C imposes further restrictions on the court's power to make a pension sharing order. An order cannot be made:

• subsection (1): to take effect before the dissolution of the marriage;

• subsection (2): while the period of reflection and consideration (described in section 7 of the Family Law Act) is interrupted under section 7(8) of that Act;

• subsection (3): where the divorce process has lapsed under section 5(3) or 7(9) of the Family Law Act;

• subsection (4): after the divorce order has been made, except in response to an application made before the divorce order was made, or with leave of the court;

• subsections (5) and (6): where a pension arrangement, or shareable state scheme rights, are the subject of a pension sharing order in relation to the marriage (ie where the order has been made, but has not yet taken effect) or have been the subject of pension sharing between the parties to the marriage (ie where a pension sharing order or agreement has already taken effect);

• subsection (7): where the pension arrangement is subject to a financial provision order which includes provision under the earmarking/attachment provisions (sections 25B and 25C), whether the order was made in relation to the same marriage or a previous one;

• subsection (8) provides the period of reflection and consideration is to have the same meaning as in section 7 of the Family Law Act.

Section 24D makes provision for pension sharing in cases where a marriage is annulled. As with pension sharing on divorce, the court is required, wherever practicable, to make all the relevant pension sharing orders at once, rather than piecemeal. Orders on nullity can be made on or after the granting of the decree of nullity. They cannot take effect unless the decree has been made absolute.

Section 24E imposes restrictions on the making of pension sharing orders in relation to nullity which are equivalent to those imposed by section 24C(5) to (7) on the making of such orders in relation to divorce.

Section 24F requires a pension sharing order to be stayed in accordance with rules made by the Lord Chancellor. The intention is that the rules should require the order to be stayed until the end of the period for giving notice of appeal. If notice of appeal is given within that period, the order will be further stayed until the proceedings on the appeal have come to an end. The purpose is to avoid pension arrangements having to unscramble the implementation of orders because of appeals.

Section 24G enables a court to include provision in a pension sharing order about how the pension sharing charges which may be levied under clause 33, or corresponding Northern Ireland legislation, are to be borne by the parties .

Paragraph 4 extends the application of section 25 of the Matrimonial Causes Act (which lists the factors which the court has to take into account when considering whether and how to exercise its powers to make a financial provision order or property adjustment order) to cover pension sharing orders.

Paragraph 5: Section 25A(1) of the Matrimonial Cause Act imposes a duty on the court when it is deciding to exercise its powers to make financial provision orders and property adjustment orders to consider whether it would be appropriate to exercise its powers to achieve a clean break (that is to terminate all financial obligations between the parties). This paragraph extends the provision to include pension sharing orders.

Paragraph 6 extends the court's power under section 31 of the Matrimonial Causes Act 1973 so that, where the provision applies, the court can make, vary or discharge pension sharing orders as well as financial provision and property adjustment orders.

• Sub-paragraph (2) allows the court to vary, discharge, suspend a provision in or revive operation of a suspended provision of a pension sharing order where no divorce order has been made and no separation order is in force;

• Sub-paragraph (3): adds pension sharing orders to the orders listed in section 31(4A). This sub-paragraph allows the court's powers to be exercised only where the application is made before the court order has taken effect and provided that a divorce order has not been made and a separation order has not been made since the making of the order;

• Sub-paragraph (4): prevents the variation of a pension sharing order taking effect before the marriage is dissolved. The variation of a pension sharing order prevents the order taking effect before the end of the stay period prescribed in relation to the variation;

• Sub-paragraph (5): This sub-paragraph provides that, apart from under the capitalisation of maintenance provisions (see sub-paragraph (6)), pension sharing orders are not to be made on an application to vary any periodical payments order;

• Sub-paragraph (6): adds pension sharing orders to the orders which can be made on the variation to a fixed period or discharge of a periodical payments order. These powers are designed to facilitate a clean break between the parties;

• Sub-paragraph (7): imposes on the making of a pension sharing order under section 31(7B) the same duty as applies under section 24B(3) and the same restrictions as apply under section 24C.

Paragraph 7 inserts section 31B into the Matrimonial Causes Act which provides for a pension sharing order to be automatically discharged where a separation order is made following the pension sharing order. Pension sharing orders can only take effect when a divorce order is made. They cannot take effect if a separation order is made. The pension sharing order therefore becomes redundant, and will be discharged.

Paragraph 8 amends section 33A of the Matrimonial Causes Act by adding pension sharing orders to the list of consent orders which can be made by the court on the basis of prescribed information without further enquiry.

Paragraph 9 inserts a new section 40A of the Matrimonial Causes Act about the powers of the court to which an appeal is made, where that appeal is begun on or after the day on which the pension sharing order takes effect.

• Subsection (2) prevents the court from setting aside or varying the order if the person responsible for the pension arrangement has acted to his detriment following the taking effect of the order (for example, by making a transfer payment to another scheme or arrangement);

• Subsection (3) prevents the court from setting aside or varying the order if the Secretary of State has acted to his detriment following the taking effect of the order.

Schedule 4: Amendments of sections 25B to 25D of the Matrimonial Causes Act 1973

Paragraphs 1 to 3 include amendments to sections 25B to 25D of the Act which are consequential on the pension sharing provisions, and, in particular, on the introduction of the expression "pension arrangement" which encompasses pension rights held in policies of insurance, retirement annuity contracts, as well as occupational pension and personal pension schemes. Accordingly, throughout those sections "pension arrangement" is substituted for "pension scheme" and "person responsible for the arrangement" for "trustees or managers". In addition:

• Paragraph 1(3) provides that section 25B(2) shall cease to have effect.

• Paragraph 1(6) substitutes a new section 25B(5) which provides that orders for payment under subsection (4) may only be expressed in percentage terms. Hitherto, it has been possible for the order to specify an amount or a percentage.

• Paragraphs 1(8) and (9) clarify the wording of section 25B(7) concerning commuted benefits and prevent pension earmarking if the pension arrangement has already been the subject of a pension share by the parties.

• Paragraph 2(5) inserts a new section 25C(4) prohibiting compulsory nominations for death benefits in cases where pension sharing already exists.

• Paragraph 3(3) inserts new provisions into section 25D(2) concerning overpayments, discharge from liability and the valuation of pension rights by the court;

• Paragraph 3(4) inserts new subsections into section 25D giving power to make regulations concerning information and valuations to be provided and the charges that may be levied by pension administrators. Some functions previously exercisable by the Lord Chancellor are in future to be exercised by the Secretary of the State as the latter has overall responsibility for the regulation of pension schemes.

  Note: The overall effect of paragraph 3(3) and (4) is:

  • to extend the current regulation-making powers to require schemes to provide valuations to include other information relevant for pension sharing purposes and to enable them to charge for it; and

  • to extend those powers, and the provision for valuation by the court, to all cases where the effect of pension rights on financial relief is being considered, whether or not a pension attachment order is in contemplation.

• Paragraph 3(5) inserts additional definitions for the purposes of the amendments mentioned.

Schedule 5: Pension credits: mode of discharge

This Schedule sets out the way in which the person responsible for a pension arrangement may discharge his liability in respect of a pension credit.

Funded pension schemes and arrangements

Paragraph 1 sets out how a funded pension scheme is to discharge its liability in respect of a pension credit. The intention is that where a pension credit is derived from a funded scheme, the person responsible for that scheme should first offer to discharge its liability for the pension credit by making a transfer payment to a suitable scheme or arrangement of the former spouse's choice.

• Sub-paragraph (1) limits the application of this paragraph to funded occupational schemes or personal pension schemes.

• Sub-paragraph (2) provides that liability for a pension credit can be discharged by conferring rights on the former spouse within the member's scheme (an internal transfer). The scheme can make the former spouse a member with her consent or in accordance with regulations. We intend to use this regulation-making power where the former spouse does not provide details of an alternative scheme or arrangement to which the scheme can discharge its liability for the pension credit.

• Sub-paragraph (3) provides for the external discharge of liability for a pension credit to enable rights to be set up for the former spouse in another scheme or arrangement.

• Sub-paragraph (3)(a) is self-explanatory but see paragraph 7 below for the pension arrangements which are disqualified as a destination for a pension credit.

• Sub-paragraph (3)(b), as with a transfer of pension rights, there is no statutory obligation on an importing scheme or arrangement to accept a transfer payment.

• Sub-paragraph (3)(c): the transfer payment can be made with the former spouse's consent or in accordance with regulations. We intend to use this regulation-making power where the former spouse does not provide details of an alternative scheme or arrangement to which the scheme can discharge its liability for the pension credit and the scheme does not wish to give the former spouse rights within its own scheme.

• Sub-paragraph (4): the effect of this sub-paragraph is that no account will be taken of the consent of a former spouse to the setting up of rights for her within the scheme or arrangement (an internal transfer), unless the consent is given after receiving a written offer by the scheme or arrangement to discharge its liability by making a transfer payment to another scheme or arrangement of her choice. However, consent given before receiving such an offer will count if it is not withdrawn within a week of receiving such an offer.

Unfunded public service pension schemes

Paragraph 2 sets out how an unfunded public service pension scheme is to discharge its liability in respect of a pension credit.

• Sub-paragraph (1) limits the application of this paragraph to unfunded public service pension schemes.

• Sub-paragraph (2): the effect of this provision is that an unfunded public service pension scheme will only be able to discharge its liability in respect of a pension credit by providing benefits under the scheme (an internal transfer), except where sub-paragraph (3) below applies.

• Sub-paragraph (3) provides that where an unfunded public service pension scheme from which a pension credit derives is closed to new members, an alternative public service scheme may be specified by the appropriate authority to provide the former spouse with pension rights.

• Sub-paragraph (4) sets out how the managers of the scheme may discharge their liability in respect of a pension credit when they specify an alternative scheme under sub-paragraph (3) above. They must ensure that the trustees or managers of the alternative scheme confer on the former spouse appropriate rights under that scheme.

• Sub-paragraph (5) provides for the Treasury to designate "the appropriate authority" for the purposes of sub-paragraph (3).

Other unfunded occupational pension schemes

Paragraph 3 set out how an unfunded occupational pension scheme that is not a public service scheme is to discharge its liability in respect of a pension credit.

The intention is that unfunded occupational pension schemes which are not public service schemes may discharge their liability in respect of the pension credit by conferring rights on the former spouse within the member's scheme. Schemes may also discharge their liability by making a transfer payment to another suitable scheme/arrangement willing to accept it but only with the consent of the former spouse, or where consent is not obtained, in accordance with regulations made by the Secretary of State.

• Sub-paragraph (1): the schemes falling within the scope of this sub-paragraph will be unapproved unfunded retirement benefit schemes (UURBS);

• Sub-paragraph (2) provides that schemes within the scope of sub-paragraph (1) may discharge their liability by granting the former spouse rights within the scheme;

• Sub-paragraph (3) provides that a transfer payment can be made to a "qualifying arrangement", which is a suitable destination for the pension credit and able and willing to accept it, only with the consent of the former spouse, or in accordance with regulations made by the Secretary of State. The regulation-making power will permit transfer without consent if circumstances are identified in which such a transfer is desirable.

Other pension arrangements

Paragraph 4 sets out how liability in respect of a pension credit derived from a policy of insurance or annuity contract is to be discharged.

• Sub-paragraph (1) sets out the pension arrangements to which this paragraph applies.

• Sub-paragraph (2) mirrors the provisions in paragraph 1(3). As in paragraph 1(3), we intend to use the regulation-making power in paragraph (c) where the former spouse does not provide details of an alternative scheme or arrangement to which the arrangement can make a payment for the purpose of discharging its liability for the pension credit. A qualifying arrangement is defined in paragraph 6 and disqualified destinations are dealt with in paragraph 7.

• Sub-paragraph (3) provides that the pension arrangement may discharge its liability for a pension credit with the consent of the former spouse, by entering into a policy of insurance or an annuity contract with the former spouse, provided that it is not a disqualified as a destination under paragraph 7.

• Sub-paragraph (4) enables a pension arrangement to discharge its liability for a pension credit by providing an annuity for the former spouse in prescribed circumstances. We intend to use this regulation-making power to deal with the situation where the pension credit is derived from an annuity in payment to the member.

Paragraph 5: a pension scheme or arrangement will not be taken to have conferred appropriate rights within the scheme (an internal transfer) unless the conditions set out in (a) and (b) are satisfied. We intend to use the regulation-making power in (b) to ensure that in calculating benefits in respect of a pension credit, the actuary should use methods and assumptions which are consistent with the methods and assumptions used for calculating outgoing cash equivalents from that scheme. Appropriate adjustment would be permitted, in respect of incoming transfers, to take account of expected salary increases in cases where "added years" are to be credited for a former spouse who is an active member of the scheme.

Paragraph 6: we intend to use the regulation-making power in sub-paragraph (2)(b) to prescribe requirements with which insurance companies must comply that are broadly consistent with those in Part II of the Occupational Pension Schemes (Discharge of Liability) Regulations 1997.

Paragraph 7 sets out the circumstances in which a pension arrangement will be disqualified as a destination for a pension credit.

• Sub-paragraph (1): the effect of this sub-paragraph is that where a pension credit is derived from a tax-approved scheme or arrangement, then the scheme receiving the pension credit must also be tax-approved to qualify as a destination for it.

• Sub-paragraph (2): we intend to use the regulation-making power to provide that only contracted-out occupational schemes, appropriate personal pension schemes and appropriate policies of insurance or annuity contracts will be permitted as destinations for pension credit rights derived from contracted-out employment.

• Sub-paragraph (3): we intend to use the regulation-making power to ensure that in calculating benefits in respect of a pension credit, the scheme actuary should use methods and assumptions which are consistent with the methods and assumptions used for calculating outgoing cash equivalents from that scheme.

• Sub-paragraph (4): we intend to use the regulation-making power to determine the terms of the annuity contract or insurance policy which will establish it as a suitable destination for a pension credit.

Paragraph 8 provides for the amount of pension credit to be reduced in relation to the discharge of liability for a pension credit by means of an external transfer where a scheme subject to the minimum funding requirement is underfunded on the valuation day.

• Sub-paragraphs (1) and (2): we intend to use the regulation-making power in sub-paragraph (1)(d) to enable the scheme to offer the former spouse a reduced pension credit in circumstances where the former spouse has elected to take a transfer to another scheme or arrangement, having refused the offer of pension credit benefit (without reduction) in the member's scheme. We intend to use the power in sub-paragraph (2) to prescribe that a scheme will be treated as underfunded on the valuation day if the latest actuarial valuation obtained in accordance with section 57 of the Pensions Act (which relates to the valuation of assets and liabilities for the purposes of the minimum funding requirement) shows the scheme as having insufficient assets to fully meet its liabilities. The intention is that the provisions will broadly reflect those set out in regulation 8(4) of the Occupational Pension Schemes (Transfer Values) Regulations. For example, if the latest actuarial valuation shows that the scheme was 20% underfunded, then the amount of the pension credit as calculated on the valuation day may be reduced by the same percentage.

• Sub-paragraph (3) defines the valuation day.

Paragraph 9 is designed to protect the pension arrangement where there is a time lag between the date on which the member's shareable rights under the arrangement become subject to a pension debit and the date on which the arrangement learns about it. We intend to use the regulation-making power to enable an arrangement to reduce the pension debit by the amount necessary to ensure that it does not suffer a financial loss in respect of a bona fide payment made in ignorance of the pension credit.

Paragraph 10 provides a regulation-making power for increasing the amount of a pension credit where there has been a delay in discharging liability in respect of a pension credit in a case where liability falls to be discharged by means of a transfer payment.

• occupational schemes: if a scheme fails without reasonable excuse to make the transfer payment on time then we intend that it should be required to recalculate the cash equivalent as at the date it actually makes the payment and pay that amount or, if higher, the original cash equivalent increased by interest at an annual rate of 1% above base rate between the valuation date and the implementation date.

• personal pension schemes: if the scheme fails without reasonable excuse to make the transfer payment on time, we intend that the member's cash equivalent should be increased by the interest payable on it, at the same rate as that payable for the time being on judgment debts by virtue of section 17 of the Judgment Act 1838, between the date the order or agreement took effect and the date the scheme actually makes the payment, or if it is greater, the cash equivalent recalculated as at the date it actually makes the payment.

Paragraph 13: we intend to use this regulation-making power to refer to guidance published by the Institute of Actuaries and Faculty of Actuaries.