Clause 30: Revaluation

New section 148A: Revaluation of low earnings threshold

New section 148A(1) to (8) provides for the Secretary of State to make orders to increase the amount of the Low Earnings Threshold. The figure of £9,500 is in 1999/00 terms. It will be increased to take account of rises in national average earnings both before the beginning of the first appointed year and annually thereafter. This will be done by making an order in the year before State Second Pension is introduced which takes account of increases in average earnings. In order to ensure that full years are taken into account the increase will be measured over the period from 1 October 1998 to 30 September in the year before State Second Pension is introduced. This will allow time for the order to be made to take effect from the start of the first appointed year. Subsequently, orders will be made each year to take account of increases in national average earnings. The review period will normally begin from the end of the previous period unless a change of circumstances requires a different period to be used. In all cases amounts are to be rounded to the nearest £100.

231. Subsections (3) and (4) clarify how section 148 of the Administration Act applies where the surplus in earnings factors is to be revalued for SERPS. The way in which earnings factors are revalued for calculating the amount of Additional Pension (where the date of death or reaching state pension age is from 6 April 2000 onwards) was changed by section 128 of the Pensions Act 1995 which inserted section 44(5A) into the Contributions and Benefits Act. The purpose of this change was to require the surpluses in a person’s earnings factors to be revalued rather than the earnings factors themselves. Subsections (3) and (4) make clear that where there is a requirement under section 44(5A) of the Contributions and Benefits Act to revalue the surplus in a person’s earnings factors in order to calculate the amount of their Additional Pension under section 45 of that Act, there is no requirement also to revalue the earnings factors themselves.

Clause 31: Supplementary

232. Subsection (1) provides for supplementary amendments to the Contributions and Benefits Act.

233. Subsection (2) extends to State Second Pension the provision in section 21(5A) of the Contributions and Benefits Act whereby National Insurance contributions paid or treated as paid have effect as if they had been paid on the whole of earnings up to the Upper Earnings Limit.

234. Subsections (3) and (4) clarify the provisions in sections 44(5A) and 45 of the Contributions and Benefits Act on calculating Additional Pension entitlement under SERPS, where the date of death or reaching state pension age is from 6 April 2000 onwards. The calculation is to be based on the “adjusted”, that is revalued, amount of the surplus in the earnings factor. (See also the note to subsections (3) and (4) of clause 30).

235. Subsection (5) inserts definitions of “first appointed year” and “second appointed year” in section 122(1) of the Contributions and Benefits Act. State Second Pension is to begin from a date (“the first appointed year”) to be appointed by order. The precise date will depend upon the necessary operational systems to deliver State Second Pension being in place. The earliest date for implementation will be April 2002. Additional Pension is accrued up to and including the year before the year in which state pension age is reached. So those reaching state pension age in the year beginning 6 April 2003 will be the first to have accrued any entitlement to State Second Pension.

236. The “second appointed year” will also be appointed by order. This will be the date from which the flat-rate Stage 2 of State Second Pension will be introduced for those with a significant part of their working life ahead of them. It is intended that Stage 2 will not be introduced until stakeholder pension schemes have become established.

237. Subsection (6) provides for the orders appointing the first or second appointed years to be made without being subject to Parliamentary control.

Clause 32: Home responsibilities protection

238. Clause 26 inserts sub-paragraph (7A) into paragraph 5 of Schedule 3 to the Contributions and Benefits Act. It provides for regulations to be made for those precluded from regular employment by responsibilities at home to supply the necessary information for this to be taken into account when assessing their pension entitlement. This happens automatically for a person who receives Child Benefit for a child under 16 in any year in which they do not meet the Qualifying Earnings Factor. Those meeting the prescribed conditions for caring for a sick or disabled person have to supply the necessary information. Currently such notifications can be made at any time up to state pension age, and awards can be backdated to 1978.

239. The Government intends to bring in regulations which will require notifications to be made by the end of the third year following the year in which the qualifying caring activity took place. This requirement will only apply to qualifying periods following the introduction of State Second Pension. It is to ensure that entitlement to State Second Pension on the grounds of caring activity is established and recorded timeously. It will also determine any years to be excluded from the requisite number of years in the calculation of the basic Retirement Pension.

Chapter II: Occupational and Personal Pension Schemes

Selection of trustees and of directors of corporate trustees

241. Section 16, as amended, will require trustees to ensure that arrangements are put in place for at least one-third of the trustees to be nominated and selected by scheme members. There will be two routes under which member-nominated trustees can be nominated and selected; a statutory route, the nature of which will be determined by reference to section 16 and regulations under section 16, where the trustees are responsible for the precise details of the arrangements and for their implementation; and an alternative route under section 18A (see clause 35) where arrangements for the nomination and selection of the scheme trustees are proposed by the employer and implemented by the trustees. Section 16 and regulations made under section 16(9) will apply to both routes (but section 18A(3) allows provision different from that made by regulations under section 16(9) for the scheme specific route). Equivalent provisions apply in relation to trustee companies.

Clause 33: Member-nominated trustees

242. Clause 27 amends section 16 to provide a revised statutory framework for appointing member-nominated trustees (MNTs).

243. The revised provisions make no distinction between “arrangements” and “appropriate rules” so subsections (2) to (4) remove references to “appropriate rules” from section 16 of the Pensions Act.

244. Subsection (5) incorporates the substance of section 20(3) of the Pensions Act into section 16. Member-nominated trustees must serve a term of office of between three and six years and be eligible for reselection. The existing section 16(6), which provides for the determination of the minimum number of member-nominated trustees, and for this number to be exceeded only if the employer agrees, remains unchanged.

245. Subsection (6) incorporates the substance of section 20(5) of the Pensions Act by inserting a new subsection (6A) into section 16. An employer may require that a non-member can only stand for nomination as a member-nominated trustee if the employer approves.

246. Section 16(7), which provides for all member-nominated trustees to have the same powers, remains unchanged.

247. Section 16(8), which provides for member-nominated trustees to stand down if they cease to be a member, remains unchanged.

248. Subsection (7) introduces two new subsections to section 16. The new section 16(9) is a regulation-making power that will be used to prescribe what is meant by “nominated and selected by members”, and to further stipulate details of the arrangements the trustees are required to make for nominating and selecting member-nominated trustees. The intention is to give trustees flexibility to adopt arrangements that best suit the circumstances of the scheme, for example by dividing the membership into separate constituencies. Regulations will provide that all active and pensioner members must be given the opportunity to make nominations. The new section 16(10) incorporates the provisions of section 17(4) of the Pensions Act into section 16. As now, the regulations will provide for exemptions for certain types of scheme. Schemes that are currently exempt will continue to be so.

249. Subsection (8) repeals section 17 of the Pensions Act (employer's right to propose alternative arrangements).

Clause 34: Corporate trustees

250. Clause 28 makes similar changes to section 18 of the Pensions Act for member-nominated directors in schemes where the trustee is a company, to the changes in section 16 for individual trustees.

251. In addition, subsection (2)(a) extends the scope of section 18 to include all schemes where there is a trustee company and there is no trustee of the scheme who is not a company.

252. Subsection (7) modifies section 18(8) to ensure that the membership of different schemes will be aggregated where the trustee company is trustee for more than one scheme, unless the trustee company decides otherwise.

253. Subsection (9) repeals section 19 and 20 of the Pensions Act (employer’s right to propose alternative arrangements and meaning of appropriate rules).

Clause 35: Employer's proposals for selection of trustees or directors

254. This clause introduces a new section 18A. The new section makes provison for the employer to propose arrangements for nominating and selecting trustees of the scheme or directors of a corporate trustee of the scheme.

New section 18A: Employer's proposals for selection of trustees or directors

New section 18A(1)(a) gives employers the right to propose arrangements for nominating and selecting trustees. Subsection (1)(b) ensures the arrangements provide for at least one third of the trustees to be MNTs, and that the other requirements of section 16(3) to (7) apply. Subsection (1)(d) requires that the proposal is approved by scheme members. Subsection (1)(d) also incorporates the regulation making power similar to that contained in section 21(7) which will enable a statutory consultation procedure for seeking member approval for the proposal to be prescribed. This will be largely the same as the current procedure that is provided in Schedule 1 to the Occupational Pension Schemes (Member-nominated Trustees and Directors) Regulations 1996, although the procedure may be tightened to reduce any opportunity for abuse. Regulations made under subsection (1)(e) will impose additional conditions on employers, for example to give notice to the trustees of the intention to propose arrangements. Section 18A(2) makes the equivalent provision for trustee companies. Once approved, the trustees are charged with implementing the arrangements.

New section 18A(3) allows regulations governing arrangements under an employer’s proposal to provide for different nomination and selection arrangements from those made under the statutory route. For example, the employer will be able to propose that nominations for trustees are made by organisations representing members (such as Trades Unions and pensioner organisations) as well as members themselves.

New section 18A(4)(a) provides the power to make regulations governing the manner and time in which trustees must implement approved arrangements. This is similar to the current power under section 21(4)(a). Trustees will be given six months following approval to ensure that the arrangements are made, and trustees appointed. Regulations under subsection 18A(4)(b) will determine when approval of section 18A arrangements cease to have effect. As now, approval will last for six years. They will also determine what happens when approval of arrangements ceases to have effect without the existing arrangements having been re-approved or fresh arrangements approved.

New section 18A(5) enables regulations to be made about approval of arrangements for the purpose of section 18A. Regulations under subsection 18A(5)(a) will give Opra the discretion to treat proposals as approved in certain circumstances where there is a breach of the requirements of the approval process. Regulations under subsection 18A(5)(b) will provide for proposals to be treated as approved by persons who do not object. The existing section 21(8)(b) allows the approval process to operate in this way. Regulations will, as now, provide for proposals to be approved if not more than 10% of those consulted object.

New section 18A(6) disapplies the section as far as it applies to member-nominated trustees in cases where all the trustees comprise all the members, or where there is only a corporate trustee (or trustees).

New section 18A(7) is a regulation making power to disapply the section for schemes of a prescribed description. This provision is required in addition to the exemptions from sections 16 and 18 because those sections impose a mandatory requirement on all trustees, whereas this section only applies if the employer chooses to propose scheme specific arrangements. In practice, section 18A will be disapplied for the same classes of scheme that are exempt from sections 16 and 18.

Clause 36: Non-compliance in relation to arrangements or proposals

256. Clause 30 contains various consequential amendments to section 21 of the Pensions Act 1995.

257. All references to appropriate rules are removed, as are references to sections 17 and 19 (which are repealed).

258. A new subsection (2A) has been added to section 21 to enable the Occupational Pensions Regulatory Authority (Opra) to impose sanctions on an employer who fails to carry out the statutory consultation procedure properly. The equivalent provision is currently in sections 17(5) and 19(5). Opra already has the power under section 21 to impose sanctions on trustees who fail (without reasonable cause, in the case of individual trustees) to comply with the requirements. Opra can prohibit a trustee, or impose a financial penalty.

Winding-up of schemes

260. Scheme rules or the trust deed setting up the scheme set out the events which may trigger the cessation and winding-up of an occupational pension scheme. These generally are the employer's insolvency, notice from the employer that he no longer wishes to sponsor the scheme, or failure by the employer to pay contributions within a specified period. It is the trustees or managers who are required to carry out the winding-up.

261. Winding-up can be a time-consuming task, sometimes taking many years, particularly where the scheme records have not been well kept. During this time members may feel particularly vulnerable.

262. The measures aim to ensure that a trustee is in place following the insolvency of the employer so that decisions can be made about the future of the scheme. Where winding-up has started, trustees or managers will be required to make reports to Opra if winding up is not completed within a specified period of time and Opra will be able to direct action to speed the process along. Opra will also be able to modify scheme rules where they need to be changed to allow winding-up to proceed.

Clause 37: Information to be given to the Authority

263. This clause inserts three new sections into the Pensions Act 1995. It also amends section 118 of that Act to allow these new sections to be modified by regulations to impose the duties on other people (see Clause 31(4)). Sections 26A, 26B and 26C set out circumstances in which trustees or managers of schemes or scheme administrators are required to notify Opra during the insolvency of the employer.

264. Subsection (1) amends references in section 22 of the Pensions Act 1995 to include the new inserted section 26A. Subsection (2) inserts sections 26A, 26B and 26C.

New section 26A: Information to be given to the Authority in a s. 22 case

265. New section 26A sets out the circumstances in which the trustees or managers of a scheme must make a report to Opra, where the scheme has to have an independent trustee during the insolvency of the employer (sections 22 and 23 of the Pensions Act 1995).

New section 26A(1) requires the trustees of a scheme, where the scheme has to have an independent person in place as trustee during the insolvency of the employer, to notify Opra that there appears to be no independent trustee unless they have been told by the insolvency practitioner or official receiver that he is satisfied that one of them satisfies the independence test, or they have reasonable grounds to believe that the practitioner or official receiver is satisfied that one of them does so. The notification must be made as soon as reasonably practicable.

New section 26A(2) places on those involved with the administration of the scheme a requirement similar to that in subsection (1) where there are no trustees.

New section 26A(3) sets out the circumstances where no notification to Opra is required. These are where it appears that the insolvency practitioner or official receiver intends to appoint an independent trustee and that he will do so within a specified period.

New section 26A(4) removes the requirement for a report to be made under subsection 2 by those involved with the administration of the scheme where it appears that Opra are already aware that the scheme has no trustees.

New section 26A(5) ensures that the requirement in subsection (1) covers later situations where the practitioner or receiver is no longer satisfied that the independence test is met, even though he may previously have told the trustees that it was met.

New section 26A(6) defines whether the practitioner or receiver is satisfied as to a person's independent status by reference to the independence test in section 23.

New section 26A(7) provides that section 10 of the Pensions Act 1995 applies to trustees who fail to take reasonable steps to ensure compliance with the requirements to notify Opra regarding the independent trustee. Section 10 allows Opra to impose financial penalties.

New section 26A(8) provides that section 10 of the Pensions Act 1995 applies to any one who fails to comply with the subsection (2) requirement to notify Opra that there are no trustees.

266. The new section 26B sets out the circumstances in which reports must be made to Opra on the insolvency of the employer where the scheme is not required to have an independent trustee (section 22 of the Pensions Act 1995).

New section 26B(1) requires the persons involved (if any) in the administration of a trust scheme, where there is no requirement for an independent trustee, to notify Opra where the employer of the scheme is the sole trustee and he becomes insolvent, unless they have an assurance from the employer. For multi-employer schemes this will apply only where all the employers are insolvent.

New section 26B(2) provides that for the purposes of this section an employer's assurance has been received if the employer has told the persons involved in the administration of the scheme that there is no reason why the employer should not continue to act as a trustee of the scheme, he does not withdraw that statement, and the trustees of the scheme have not changed since the employer has made that statement.

New section 26B(3) removes the requirement for a report to be made under subsection (2) where it appears that Opra are already aware of the situation or where the prescribed period has not elapsed, or at any other time which is prescribed.

New section 26B(4) provides that section 10 of the Pensions Act 1995 applies to any one who fails to comply with the requirements in this section.

New section 26C: Construction of ss. 26A and 26B

267. The new section 26C sets out further details relating to the requirements in new sections 26A and 26B.

New section 26C(1) sets out who is considered to be involved in the administration of the scheme for the purpose of the requirements in sections 26A and 26B. For example, those persons who are involved in the administration of the scheme in their professional capacity, such as actuaries and auditor, the fund manager, the employer of the scheme, their employees, agents or contractors who carry out administration tasks, are not considered to be involved in the administration of the scheme.

New section 26C(2) provides that regulations may add to the list of those who are not considered to be involved in the administration of the scheme.

New section 26C(3) provides that wherever there is a requirement in section 26A or 26B to do something "as soon as reasonably practicable", that may be replaced by time limits specified in regulations.

268. Subsection (3) makes a consequential amendment to section 118(2) of the Pensions Act 1995 to allow for regulations to exempt schemes from the new requirements in sections 26A to 26C.

269. Subsection (4) inserts a new section 118(3) into that Act to allow for regulations to modify sections 26A and 26B so as to impose the notification duty on persons other than trustees and other than those involved in the administration of the scheme.

Clause 38: Modification of scheme to secure winding-up

270. This clause inserts a new section 71A into the Pensions Act. This is to extend Opra's existing powers to modify scheme rules, to enable winding up to continue.

New section 71A: Modification by Authority to secure winding-up

New section 71A(1) enables Opra to modify scheme rules to ensure that the scheme is properly wound up but only where the scheme is being wound up and the employer is insolvent.

New section 71A(2) only allows Opra to modify scheme rules where they have been asked by the trustees or managers to do so. The request cannot be made in advance. As with the modification itself, the request may be made only while the scheme is being wound up and the employer is insolvent.

New section 71A(3) requires that unless regulations provide otherwise, the application to Opra must be in writing.

New section 71A(4) allows regulations to set out the detail of the information which is contained in, or documents which must accompany, the application. The regulations may also provide for certain people to be told about the request for a modification; what the notification must contain; for the time limit in which they will have to contact Opra to make representations; and how Opra must deal with the request for modification.

New section 71A(5) limits Opra's powers to modify scheme rules to the minimum necessary to enable the scheme to be wound up properly and for any modification to be restricted to those which would not have a significant adverse effect on accrued rights or benefit entitlements under the scheme.

New section 71A(6) makes it clear that any modification made by Opra will be as effective in law as if it had been made under scheme rules and without any requirement to obtain consent before any modification can be made.

New section 71A(7) allows regulations to exempt certain types of schemes in particular circumstances or for the requirements in the section to apply with modifications in particular circumstances.

New section 71A(8) sets out the circumstances in which an employer is to be treated as insolvent for the purpose of this clause. The circumstances are those which trigger the application of section 22 of the Pensions Act 1995 (or would trigger it if that section applied to the scheme) ie. where an insolvency practitioner or official receiver takes up office. These terms are defined in section 22(3) by reference to the Insolvency Act 1986.

New section 71A(9) excludes public service pension schemes from this section.

Clause 39: Reports about winding-up

271. This clause introduces a number of provisions including a requirement for trustees or managers to make reports to Opra, a definition of when a scheme begins to wind up and a requirement for records to be kept of a decision to wind up a scheme.

New section 72A: Reports to Authority about winding-up

New section 72A(1) introduces a requirement for trustees or managers of a scheme which began to wind up after a specified date to make regular reports to Opra about the progress of winding up.

New section 72A(2) allows regulations to specify when the first report should be made to Opra. That period will be within a specified period of the date on which winding up began, or the date on which the winding-up was brought within the section (if later).

New section 72A(3) sets out the timing of subsequent reports to Opra which must be made at no more than twelve-monthly intervals after the date of the previous report. If the last report was made late the next one must still be made no later than twelve months after the last one was due.

New section 72A(4) allows Opra to extend the deadline for making any follow-up reports, provided the extension is before the report is due. Opra can only extend the interval by up to twelve months, and can only grant the extension within the time limit, not after it. There is no similar power to extend time for the first report.

New section 72A(5) provides that the deadline which is extended under subsection (4) can only be extended by up to twelve months.

New section 72A(6) allows more than one extension of the deadline for the follow-up report, but the total extensions for that report must not exceed the twelve-month limit mentioned in subsection (5).

New section 72A(7) provides that regulations may make requirements as to the reports to Opra, including how the reports should be made, and what they must contain.

New section 72A(8) provides that regulations may provide for circumstances in which reports need not be made to Opra, and may vary the twelve-monthly period in which further reports must be made. It also provides that regulations may alter the periods in which follow-up reports must be made.

New section 72A(9) applies sections 3 and 10 of the Pensions Act 1995, so that Opra may prohibit from being a trustee someone who fails to take reasonable steps to ensure compliance, and may impose a financial penalty on a trustee or manager who fails to comply with the requirements.

273. Subsection (3) adds to the requirements in section 49 regarding records, by inserting a new section 49A. The new section 49A requires trustees or managers of an occupational pension scheme to keep written records of their decision to wind up the scheme, of decisions about when steps should start to be taken for the purposes of winding-up the scheme, and of any decision to defer winding-up. It provides that regulations may extend the requirements to any person, who although not a trustee or manager, can nevertheless make a decision to wind the scheme up. Sanctions under sections 3 and 10 of the 1995 Act can be imposed for non-compliance. Where regulations extend the requirements to other persons, sanctions may be provided for in regulations (under section 10(3) of that Act).

Clause 40: Directions for facilitating winding-up

274. This clause inserts new section 72B which allows Opra to direct that specific information should be provided, or action taken within a prescribed timescale, where a scheme has begun winding up. It also inserts new section 72C which imposes sanctions on those not complying with Opra's directions.

New section 72B: Directions by Authority for facilitating winding-up

New section 72B(1) provides that where a scheme has begun winding up, Opra will have power to give directions if they feel it is appropriate to do so on any of the grounds in subsection (2).

New section 72B(2) sets out the grounds Opra may take into account. It also allows regulations to prescribe further circumstances in which Opra may give directions.

New section 72B(3) limits Opra's powers to direct to where the first report has been made, or should have been made, to Opra under new section 72A.

New section 72B(4) allows regulations to provide that in certain circumstances Opra may only give directions when asked to do so by the trustees or manager of schemes.

New section 72B(5) provides that a direction from Opra must be given in writing, and can be given to trustees or managers, persons involved in the administration of the scheme or persons prescribed in regulations

New section 72B(6) sets out requirements that can be imposed by a direction. They include providing information to the trustees or managers, or persons prescribed in regulations (which may include Opra), and requiring other steps to be taken.

New section 72B(7) allows Opra to extend the time limit for persons to comply with the direction, on more than one occasion if necessary, where Opra consider it appropriate to do so.

New section 72B(8) allows for regulations to limit what Opra may require in their directions and sets out requirements as to when and how applications must be made for an extension to the period for complying with the direction.

New section 72B(9) sets out who is considered to be involved in the administration of the scheme for the purposes of these requirements. It is almost identical to new section 26C(1) (see clause 37).

New section 72B(10) provides that regulations may add to the list of those who are not considered to be involved in the administration of the scheme. It is identical to new section 26C(2) (see clause 37).

New section 72C(2) provides that section 3 of the Pensions Act 1995 (Opra may prohibit a person from being a trustee) applies to any trustee who fails to take reasonable steps to ensure compliance, and has no reasonable excuse.

New section 72C(3) applies section 10 of the 1995 Act (financial penalties) to any trustee or manager who fails to take reasonable steps to ensure compliance, and has no reasonable excuse.

New section 72C(4) applies section 10 to anyone else who fails to comply with a direction, and has no reasonable excuse.

New section 72C(5) provides that any duty of non-disclosure is not a reasonable excuse for failure to supply information in accordance with directions from Opra. The statutory duty to comply with directions will mean that a person complying with a direction will not be in breach of the non-disclosure duty.