Schedule 6: Effect of state scheme pension debits and credits

The Schedule inserts sections 45B, 55A, 55B, and 55C into the Contributions and Benefits Act.

Paragraph 2 inserts section 45B. This provision covers how and when deductions will be made from an additional pension;

• Subsection (1) provides for the reduction of the weekly rate of additional pension where a person becomes subject to a state scheme pension debit.

• Subsections (2) to (7) explain how the reduction in the additional pension will be calculated. If a person becomes subject to the debit in or after the tax year immediately before he reaches pensionable age, the additional pension will be reduced by a weekly amount which is of an actuarially equivalent value to the state scheme debit. If, however, the debit is made before the tax year immediately before a person reaches pensionable age, the additional pension will be reduced by that weekly amount, expressed in terms of the valuation day, multiplied by the earnings factor percentage for the relevant tax year specified in the latest annual Revaluation of Earnings Factors Order (the current order is SI 1998/1137).

Paragraph 3 inserts sections 55A - 55C

Section 55A covers how and when a person will become entitled to a shared additional pension.

• Subsections (3) to (6) are similar to the provisions in section 45B (3), (4), (6) and (7), other than that they refer to the calculation of the shared additional pension. If a former spouse becomes entitled to a state scheme credit in or after the tax year immediately before she reaches pensionable age, the shared additional pension will be a weekly amount which is of an actuarially equivalent value to the credit. If, however, the credit is made before the tax year immediately before she reaches pensionable age, the additional pension will be that weekly amount, expressed in terms of the valuation day, multiplied by the earnings factor percentage for the relevant tax year specified in the latest annual Revaluation of Earnings Factor Order (the current order is SI 1998/1137).

Section 55B provides for the shared additional pension to be reduced in the same way as the additional pension where it is subject to pension sharing. The section mirrors section 45B.

Section 55C provides for the shared additional pension to be increased where entitlement is deferred. The section is a counterpart to section 55.

Schedule 8: Part V: Retirement Pensions.

Part V inserts a new subsection (4A) into section 48A of the Contributions and Benefits Act. The new subsection provides that a pensioner who is not the widow or widower cannot gain an increase to a category B retirement pension of half of the weekly rate of additional pension payable to the deceased member.

Schedule 9: Consequential amendments

Paragraph 1: section 37 of the Matrimonial Causes Act 1973 gives the court power to restrain the future disposal of, or future dealings with, property to protect an applicant's pending claims for financial provision on divorce. It also gives the court power, in certain circumstances, to set aside dispositions that have already been made. Paragraph 1 amends subsection (1) to include proceedings for a pension sharing order.

Paragraph 2 adds a new paragraph (fa) to paragraph 3 of Schedule 1 to the Supreme Court Act 1981. Paragraph 3 lists the proceedings in the High Court that are assigned to the Family Division. By paragraph (fa) all proceedings relating to debits and credits arising under clause 21(1) or 41(1) of the Bill are assigned to the Family Division.

Paragraphs 3 to 5 amend the Matrimonial and Family Proceedings Act 1984.

Paragraph 4 amends section 17 of the Act. This enables the court to make a pension sharing order on an application for financial relief in relation to a marriage dissolved or annulled overseas. A pension sharing order may not be made where the court has jurisdiction solely by virtue of a matrimonial home within the jurisdiction.

Paragraph 5 amends section 21 of the Act by adding provisions about pension sharing to the list of provisions that shall apply to orders made under section 14 and 17 of the Act.

Paragraphs 6 to 12 concern miscellaneous amendments to sections 8, 10, 12A, 16(2), and 27 of the Family Law (Scotland) Act 1985 consistent with the changes to sections 25B, 25C and 25D of the Matrimonial Causes Act 1973 above.

Paragraphs 13 to 21 amend the Contributions and Benefits Act .

Paragraphs 14 and 15: the amendments to section 20 and section 21 are consequential upon the provisions for the sharing of SERPS rights set out in Schedule 3 of the Bill, which inserts a new section 55A "shared additional pension" into the Act.

Paragraph 16 amends section 39 to ensure that the reduction in the member's additional pension as a consequence of pension sharing is also reflected in any widowed mother's allowance or widow's pension payable on the member's death.

Paragraph 17 amends section 43, which is concerned with which category of retirement pension a person receives when he is entitled to more than one. The new subsection (6) to section 43 provides that shared additional pension is not covered by the term "retirement pension". Thus, a person may receive it in addition to any category of retirement pension.

Paragraphs 18 to 20 amend sections 48A to 48C to ensure that the reduction in the member's additional pension in consequence of pension sharing is also reflected in any Category B pension payable on the member's death.

Paragraph 21 amends section 54(1) to provide for an election by a person to be treated as not having become entitled to a Category A or B retirement pension to apply also to any shared additional pension to which he may be entitled.

Paragraphs 22 to 26 amend the Administration Act 1992 to take account of the shared additional pension that will become payable to the former spouse in pension sharing cases.

Paragraphs 27 to 40 amend the Pension Schemes Act 1993.

Paragraphs 28 and 29 are consequential upon the creation of safeguarded rights in clause 28 of the Bill.

Paragraph 30 amends section 83 which contains provisions for revaluing the benefits of early leavers from occupational schemes from the date on which pensionable service ends until the scheme's normal pension age (NPA). The new subsection (1A) excludes benefits payable by virtue of pension credit rights, except, in the case of salary-related occupational pension schemes, to the extent that the benefits are payable by virtue of rights which involve the member being credited with added years of pensionable service.

Paragraph 31 amends section 85 to make it clear that the revaluation provisions in Chapter II of Part IV of the Act do not apply to such alternatives to pension credit as may be prescribed under the regulation-making power at section 101D(2)(b) inserted by clause 29 of the Bill.

Paragraphs 32 to 34 amend sections 93, 93A and 94 of the Act to exclude rights which are attributable to a pension credit from the provision relating to "Transfer Values" for members of occupational and personal pension schemes in Part IV of Chapter IV of the Act. (Separate provisions for Transfer Values in respect of pension credit rights are contained in Chapter II of Part IVA of the Act as inserted by clause 29 of the Bill.)

Paragraph 35 inserts a new subsection (4) to section 96 of the Act to enable an occupational or personal pension scheme to prevent a member from making an application to exercise his right to a cash equivalent without also giving the trustees or managers of the scheme a transfer notice in respect of his pension credit rights under section 101F (as inserted by clause 29 of the Bill).

Paragraph 36 amends section 98 so that its operation is not affected by anything that happens in relation to rights under a personal pension scheme attributable to a pension credit. There are separate transfer provisions for pension credit rights and other rights.

Paragraph 37: the effect of this amendment is that where an application under Chapter IV of Part IV of the Act depended on the giving of a transfer notice under section 101F, the application under Chapter IV of Part IV can only be withdrawn if the notice is also withdrawn.

Paragraph 38 inserts a reference to Chapters I and II of Part IVA into section 129(1) of the Act and a reference to Chapter II of Part IVA into section 129(2) of the Act. Section 129 is concerned with the relationship between statutory requirements and scheme rules.

Paragraph 39 inserts a reference to section 25D of the Matrimonial Causes Act 1973 and Part IV of this Bill into section 178(a) of the Act. Section 178(a) gives the Secretary of State a regulation-making power to provide who is treated as a manager of an occupational pension scheme. The paragraph also inserts a reference to Chapter 1 of Part IVA into section 178(b) of the Act. Section 178(b) gives the Secretary of State a regulation-making power to provide who is to be treated as a trustee of a pension scheme for the purposes of various parts of the Act.

Paragraph 40 inserts a definition of "pension credit" and "safeguarded rights" into the general interpretation section of the Act.

Paragraphs 41 to 61 amend the Pensions Act 1995.

Paragraph 42: the amendment to section 3(2)(a) of the Act extends the circumstances in which the Occupational Pensions Regulatory Authority (OPRA) may prohibit a person from being a trustee of a scheme to include serious or persistent breaches of duty under Chapter II of Part IVA of the Pension Schemes Act 1993 (pension credit benefit transfer values).

Paragraphs 43 to 47: the effect of the amendments to sections 16, 17, 18, 20 and 21 of the Act is to exclude members whose only rights are attributable to a pension credit from the statutory consultation procedures relating to member-nominated trustees.

Paragraph 48: section 38 provides a power to enable the trustees of a scheme to defer the winding up of the scheme. The effect of the amendment is to give the trustees the option of either deferring winding up the scheme and permitting no new members to be admitted to it or admitting no new members except pension credit members.

Paragraph 49: the effect of the amendment to section 51(6) is to exclude pensions derived from pension credit rights from the requirements to index pensions in payment in section 51 of the Act.

Paragraph 50: the amendment to section 53 is consequential upon the amendment to section 51(6) above.

Paragraph 51: section 67 imposes restrictions on the power to alter occupational pension schemes to enhance the security of entitlements and rights accrued by members. The effect of this amendment is to bring former spouse members within the scope of section 67 and give them the same protection as that enjoyed by other members.

Paragraph 52: the amendment to section 68(2) extends the powers to alter occupational pension schemes or modify them by resolution to enable them to accommodate pension credit rights.

Paragraph 53: the amendment to section 73 in clause 30 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 Act applies. The new subsection (3A) will ease administration. It will mean that a scheme will not be required to separately identify the part, if any, of pension credit rights which is derived from voluntary contributions.

Paragraph 54: this amendment will enable a scheme to which section 73 applies to discharge its liability for pension credit benefit on winding up under section 74(3)(b).

Paragraphs 55 to 57: the effects of the amendments to sections 91, 92 and 93 of the Act are to include pension credit rights within the provisions concerning assignment, forfeiture, bankruptcy etc that relate to occupational pension schemes.

Paragraph 58: amends section 99(2) of the Act to enable an inspector to enter the premises of an occupational pension scheme in connection with the provisions relating to pension credit transfer values inserted into Chapter II of Part IVA of the Act by clause 29 of this Bill.

Paragraph 59: extends the definition of member in section 124(1) of the Act to include a pension credit member and makes other consequential amendments to the interpretation of Part I of the Act consequential upon the Bill.

Paragraph 60 and 61 amend section 166 and section 167(4) of the Act to reflect the changes from "pension scheme" to "pension arrangement" in, respectively, sections 25B to 25D of the Matrimonial Causes Act 1973 and the corresponding provisions in of the Family Law (Scotland) Act 1985.

Schedule 10: Repeals

Part II: Pensions on Divorce etc.

--    The Matrimonial Causes Act 1973 [section 25B(2) and part of section 25D(2)]

--    The Matrimonial and Family Proceedings Act 1984 [part of section 21]

--    The Family Law (Scotland) Act 1985 [section 10(10) and (11) and section 12A(10)]

--    The Family Law Act 1996 [section 9(8), sections 16 and 17]

Part III: Pension Sharing

--    The Pensions (Increase) Act 1971 [part of section 8(1)(a)]

--    The Pension Schemes Act 1993 [part of section 178(a)]

--    The Pensions Act 1995 [part of section 3(2)(a) and section 38(2)]

Part V: Welfare

CHAPTER I: SOCIAL SECURITY BENEFITS

CLAUSES 44-46: BENEFITS FOR WIDOWS AND WIDOWERS

These clauses replace the benefits currently paid to widows with a new set of bereavement benefits, which may be paid to both men and women. A consultation document, A new contract for welfare: SUPPORT IN BEREAVEMENT (Cm 4104), was published in November 1998 setting out the Government's proposals. Those proposals have subsequently been carried forward into the new legislation, although some elements of these reforms are due to be introduced through secondary legislation.

Background

Since 11 April 1988, there have been three principal benefits available to women who have been widowed. They are each based upon the National Insurance contributions record of the late husband rather than that of the widow herself. Even if the late husband failed to satisfy the contribution conditions, there may be an entitlement to benefit if his death was caused by an industrial accident or disease. The three benefits are:

• Widow's Payment - a single, tax-free payment of £1,000;

• Widowed Mother's Allowance (WMA) - a taxable benefit for widows with dependent children or who are expecting their late husband's baby. It comprises a basic allowance for the widow herself, an allowance in respect of each additional child, and any Additional Pension (i.e. State Earnings Related Pension (SERPS)) for which she qualifies. It ends when the only or youngest child ceases to be a dependant;

• Widow's Pension - a taxable benefit for widows who are not entitled to WMA or whose WMA has ceased. It is made up of a basic pension and an Additional Pension (SERPS); the calculated amount of benefit varies, depending on the woman's age when she was widowed or stopped receiving WMA.

Entitlement to both WMA and Widow's Pension ends if the widow re-marries. In addition, neither of these benefits are payable for any periods during which she and a man live together as husband and wife. Similarly, a Widow's Payment is not payable if, at the time of her husband's death, she is living together as husband and wife with another man.

Summary of changes

The changes introduced by this part of the Bill consist of :

• a "Bereavement Payment" of £2,000 paid to both widows and widowers on bereavement. This doubles the value of the current lump sum paid to widows;

• a "Widowed Parent's Allowance" equivalent to Widowed Mother's Allowance, and including any Additional Pension (SERPS) - for parents who are bereaved of their husband or wife. Entitlement continues until the youngest or only dependent child in the family is aged 16 or up to age 19 if still in full-time further education. This benefit will be available to fathers already widowed when the scheme comes into force;

• widows and widowers aged 45 and over with no dependent children will receive a weekly, age-related benefit (with no SERPS component) for six months. This is to be known as a "Bereavement Allowance";

• only men and women widowed before the new provisions take effect will have entitlement to Incapacity Benefit on the basis of their late spouses' contributions.

The package of proposals includes two further measures which can be introduced by regulations using existing powers:

• £10 of a person's Widowed Parent's Allowance will be disregarded in assessing entitlement to income-related benefits (such as Income Support);

• men and women aged 55 and over at the start of the new arrangements who are widowed during the subsequent five years and whose entitlement to the Bereavement Allowance has expired, will have special access to Income Support. In other words, they will not be required to claim Jobseeker's Allowance and meet its conditions of being available for and actively seeking work. In addition, a new premium will be available in the income-related benefits to ensure that these recipients retain an income which is at least equivalent to the amount of the Bereavement Allowance.

Commentary on clauses

Clause 44: Bereavement Payment

Subsection (1) replaces the Widow's Payment with a new benefit, which will be payable to both men and women - to be known as the "Bereavement Payment". Section 36 of the Contributions and Benefits Act which provided for the Widow's Payment is therefore substituted by a new section, which refers to "person" and "spouse" rather than "woman" and "husband". It enables the Bereavement Payment to be paid to men or women whose spouse dies on or after the date on which the provision comes into force ("the appointed day").

• The inserted sections 36(1)-(2) set out the entitlement conditions for the Bereavement Payment. These duplicate the existing conditions for a Widow's Payment.

• The inserted section 36(2) preserves the principle which prevented a widow from receiving a Widow's Payment if, at the time of her husband's death, she was living together with another man as husband and wife. That same principle will apply with Bereavement Payment where the surviving spouse is, at the time of the late spouse's death, living together as husband and wife with a person of the opposite sex. There is no definition of "living together as husband and wife" in legislation, but the concept has been well developed in social security case law.

Subsection (2) replaces Part II of Schedule 4 to the Contributions and Benefits Act, so that the amount of the Bereavement payment will be £2,000. Widow's Payment is worth £1,000.

Clause 45: New allowances for bereaved spouses

This clause introduces two new benefits for bereaved spouses - Widowed Parent's Allowance and Bereavement Allowance. It does so by inserting four new sections into the Contributions and Benefits Act: sections 36A, 39A, 39B and 39C (the current benefits are defined at sections 37-40). All references below are to sections of the Contributions and Benefits Act.

The inserted section 36A sets out when the new benefits, and when the existing scheme, should apply. It provides that:

• as a transitional provision, the existing arrangements will continue to apply for all people whose spouses die before "the appointed day" (when the new benefits come into force):

--    If they are women, they will still be able to claim Widowed Mother's Allowance, Widow's Pension and Incapacity Benefit (on the basis of their husbands' contributions), under the current rules. Then, if a widow is aged 45 or over when her Widowed Mother's Allowance ends, she will still be entitled to receive Widow's Pension and/or Incapacity Benefit. If she is under 45, she will still be entitled to receive Incapacity Benefit;

--    If they are men, they will still be entitled to Incapacity Benefit on the basis of their wives' contributions (as provided by the existing section 41), if they meet the qualifying conditions;

--    The one difference is that existing widowed fathers will be entitled to the new Widowed Parent's Allowance, if they satisfy the qualifying conditions on the appointed day.

• the two new benefits (defined in the new sections 39A, 39B and 39C) will apply for all people whose spouses die on or after the appointed day. These people will not be entitled to Incapacity Benefit on the basis of their spouses' contributions.

The inserted section 39A provides for the Widowed Parent's Allowance. It reproduces the rules which currently apply to Widowed Mother's Allowance (set out in section 38), but extends the new benefit to widowers.

The inserted section 39B provides for the Bereavement Allowance. Most of the entitlement conditions of Widow's Pension (in section 38) are retained, but with the following exceptions:

--    the benefit is available for widowers who meet the conditions of entitlement;

--    the benefit is only payable for a maximum period of 26 weeks beginning with the date of death;

--    no additional pension (State Earnings Related Pension - SERPS) will be paid with the benefit (though note the provisions for SERPS in Retirement Pension for widows and widowers in clause 46).

The inserted section 39C provides for the rates at which the two new benefits are payable.

--    Under subsection (1), the weekly rate of Widowed Parent's Allowance will be calculated in the same way as for Widowed Mother's Allowance now. This means that the inclusion of an additional pension (SERPS) will continue to be made on the basis of existing legislation. The 50% reduction in the value of SERPS from April 2000-which was provided for in the Social Security Act 1986-will remain unchanged (subsection (4)).

--    Subsection (2) makes provision for the weekly rate of a Bereavement Allowance. It is to be paid at a basic rate only with no additional pension.

--    Subsection (5) preserves for Bereavement Allowance the rules which vary the amount of benefit according to the age of the widow when her husband dies or when her entitlement to Widowed Mother's Allowance ends. There is a 7% deduction from the full rate of benefit for each year she is aged under 55 at that date-and, once determined, the amount stays fixed. The same rule applies to all surviving spouses for Bereavement Allowance.

Clause 46: Additional Pension

The clause inserts a new section - section 48BB - into the Contributions and Benefits Act. This provides for the amount of Additional Pension (State Earnings Related Pension - SERPS) that widows and widowers should receive when they reach pensionable age, based on their spouses' contributions.

Background

Legislation is already in place to ensure that those who are widowed, whether men or women, are able to use "substitution" provisions to help them achieve a basic Retirement Pension if their own contribution record during the period of marriage is inferior to that of their spouse. Section 48 of the Contributions and Benefits Act provides for circumstances in which a former spouse's contributions can be treated as if they were those of the pensioner, and section 52 contains additional provision for surviving spouses.

Under the existing scheme, widows who receive Widowed Mother's Allowance or Widow's Pension are paid an amount of Additional Pension with their weekly benefit, based on their husbands' contribution records. This benefit continues until they reach pensionable age. They are then entitled to a "Category B" Retirement Pension (i.e. a pension based on their husband's National Insurance contributions) paid at the same level.

The new scheme is different, in that Bereavement Allowance is to be paid for 26 weeks only, and without any Additional Pension (see clause 45). So, unless they are still receiving Bereavement Allowance or Widowed Parent's Allowance when they reach pensionable age, future widows and widowers will have a period before retirement when they are not receiving any bereavement benefit or Additional Pension.

But the intention is that, once they do reach pensionable age, and provided they have not remarried, they should have the same amount of Category B Retirement Pension as if they had been receiving a benefit with Additional Pension continuously since their date of bereavement. That is to say, their Retirement Pension should be exactly the same as if they had been claiming under the current system. Therefore, this clause provides for the same entitlement rules, but by reference to the new bereavement benefits.

The inserted section 48BB

The inserted subsections (1) and (2) relate to widows and widowers who are still receiving Widowed Parent's Allowance when they reach pensionable age. The power entitles them to a Category B Retirement Pension, on the basis of their spouses' contributions, at the same weekly level as their Widowed Parent's Allowance.

The inserted subsections (3) and (4) relate to all other widows and widowers who were previously entitled to Widowed Parent's Allowance or Bereavement Allowance at any time. When they reach pensionable age, they will also be entitled to a Category B Retirement Pension on the basis of their spouses' contributions-calculated by the same rules as if they had been receiving Widow's Pension. The inserted subsections (5) to (8) provide these rules.

• The inserted subsection (8) provides the same age-related calculation as the new section 39C inserted by clause 45 of this Bill: it reduces the Additional Pension by 7% for every year the pensioner was aged below 55 at the time of bereavement.

The inserted subsection (9) raises the amount of Additional Pension to the same level as if it had been increased by the annual uprating Order every year since the date of the spouse's death.

Schedule 8: Consequential amendments

Part I of Schedule 8 makes the necessary amendments to the Contributions and Benefits Act, the Administration Act and the Pensions Schemes Act 1993, so that they refer correctly to the new bereavement benefits.

CLAUSE 47: WORK-FOCUSED INTERVIEWS

This clause will facilitate the implementation of a "Single Work-Focused Gateway" into the benefit system, specifically by taking powers so that claimants of certain social security benefits take part in work-focused interviews when they are asked to do so. It provides for the circumstances in which work-focused interviews may be required and sets out what will happen if people do not take part in the interviews.

Background

The measure will support plans to introduce a Single Work-Focused Gateway into the benefit system for people of working age who are not in full-time employment. These proposals were put forward in A new contract for welfare: THE GATEWAY TO WORK (Cm 4102), published in October 1998. The Single Work-Focused Gateway is intended to provide a more streamlined service, by providing claimants with a single point of contact for all of their benefit requirements.

• After claimants make initial contact to supply basic information such as the benefits to be claimed, and other details relevant to the claim, they will be allocated a personal adviser. The adviser will carry out work-focused interviews with each individual, assessing their job potential, and provide access to a range of help and information on work, benefits and services such as childcare. These new arrangements will be piloted in 12 areas, commencing in June 1999, although participation in work-focused interviews will initially be on a voluntary basis, pending the passing of this Bill.

Most of the arrangements for operating the Single Work-Focused Gateway will be introduced using existing powers. There are already comprehensive powers to require those claiming Jobseeker's Allowance (who will make up the majority of claimants entering the gateway) to attend work-focused interviews. However there are no general provisions to require a person claiming any benefit other than Jobseeker's Allowance to have an interview about work. The legislative provisions in this clause will require individuals claiming certain other benefits to take part in work-focused interviews with a personal adviser as a condition of receipt. It will not place any requirement on them beyond taking part in interviews. For example, they will not be required to attend training courses or seek work.