Pensions Bill

House of Commons

Session 2003 - 04
Internet Publications
Other Bills before Parliament

Pensions Bill

Pensions Bill
Schedule 7 — Pension compensation provisions
204

Survivors who do not meet conditions for scheme benefits at assessment date
21    (1)
Compensation is payable in accordance with this paragraph where—
(a)
a member of the scheme has died before the assessment date, and
(b)
as a result of that death, a pension, which is attributable to the
member’s pensionable service, is payable to that person’s widow or
5
widower or any other person (“the survivor”) if conditions specified
in the scheme rules are met, and
(c)
the survivor first satisfies those conditions on or after that date.
      (2)
The survivor is entitled to periodic compensation in respect of that pension
(“the pension”)—
10
(a)
commencing if, and when, the pension would have become payable
under the admissible rules, and
(b)
continuing until such time as entitlement to the pension would have
ceased under the admissible rules.
      (3)
The annual rate of the periodic compensation is 100% of the aggregate of—
15
(a)
the initial rate of the pension which would have been payable in
accordance with the admissible rules had the conditions mentioned
in sub-paragraph (1)(c) been satisfied, immediately before the
assessment date, and
(b)
any increases under paragraph 28 (annual increases in periodic
20
compensation).
      (4)
This paragraph is subject to paragraph 30 (power of Secretary of State to
change percentage rates by order).
Compensation in form of dependants’ benefits
22    (1)
Regulations may provide for compensation to be payable, in such
25
circumstances as may be prescribed, to or in respect of prescribed
dependants of prescribed descriptions of—
(a)
members of the scheme, or
(b)
persons with rights to benefits payable under the scheme in respect
of members of the scheme.
30
      (2)
Regulations may in particular—
(a)
provide for compensation in the form of periodic or lump sum
payments,
(b)
for periodic compensation to be payable for a prescribed period,
(c)
apply paragraphs 28 and 29(2) (annual increases in respect of
35
periodic compensation) in respect of compensation in the form of
periodic payments (with or without modifications).
Commutation of periodic compensation
23    (1)
In prescribed circumstances, a person entitled to periodic compensation
under paragraph 5, 8, 11 or 15 may opt to commute for a lump sum a portion
40
of the periodic compensation with effect from the time it becomes payable.
      (2)
Except in such circumstances as may be prescribed, the portion commuted
under sub-paragraph (1) must not exceed 25%.
      (3)
Where a person opts to commute any part of his periodic compensation
under this paragraph, the lump sum payable under sub-paragraph (1) is the
45

Pensions Bill
Schedule 7 — Pension compensation provisions
205

actuarial equivalent of the commuted portion of the periodic compensation
calculated from tables designated for this purpose by the Board.
      (4)
The Board must publish in such manner as it considers appropriate the
tables designated by it for the purposes of sub-paragraph (3).
      (5)
Regulations may prescribe the manner in which an option to commute
5
periodic compensation under this paragraph may be exercised.
      (6)
This paragraph does not apply where—
(a)
before the assessment date, the person concerned has received
benefits under the scheme which were in the form of a lump sum
(otherwise than as a result of the commutation of any part of a
10
pension) and were attributable to his own service under the scheme,
or
(b)
immediately before the assessment date, the person concerned has
rights to a lump sum under the admissible rules (otherwise than by
commutation of any part of a pension) and those rights are
15
attributable to such service.
      (7)
The Secretary of State may, by order, amend sub-paragraph (2) to substitute
a different percentage for the percentage for the time being specified in that
sub-paragraph.
Early payment of compensation
20
24    (1)
Regulations may prescribe circumstances in which, and conditions subject
to which, a person may become entitled to—
(a)
periodic compensation under paragraph 11 or 15, or
(b)
lump sum compensation under paragraph 14 or 19,

before he attains normal pension age (or, in a case to which paragraph 20
25
applies, normal benefit age).
      (2)
The Board must determine the amount of the actuarial reduction to be
applied to compensation where a person becomes so entitled by virtue of
regulations under this paragraph.
      (3)
Where, by virtue of this paragraph, periodic compensation is payable to a
30
person under paragraph 11 or 15 before that person attains normal pension
age—
(a)
paragraph 12(2) applies as if the reference to the date on which the
active member attains normal pension age were a reference to the
date on which the compensation is payable by virtue of this
35
paragraph, and
(b)
paragraph 17(2)(b) applies as if the reference to the date on which the
deferred member attains normal pension age were a reference to the
date on which the compensation is payable by virtue of this
paragraph.
40
Compensation cap on periodic compensation
25    (1)
Sub-paragraph (2) applies where—
(a)
a person is entitled to relevant periodic compensation in respect of a
pension,
(b)
the initial rate of the periodic compensation exceeds the maximum
45
permitted rate, and

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Schedule 7 — Pension compensation provisions
206

(c)
sub-paragraph (4) does not apply in relation to the periodic
compensation.
      (2)
Where this sub-paragraph applies, the initial rate of the periodic
compensation is the maximum rate.
      (3)
Sub-paragraph (4) applies where—
5
(a)
a person is entitled to relevant periodic compensation under this
Schedule in respect of two or more pensions under the same scheme
or two or more connected schemes, and
(b)
the aggregate initial rate (“the uncapped rate”) of the periodic
compensation exceeds the maximum permitted rate.
10
      (4)
Where this sub-paragraph applies—
(a)
the aggregate initial rate of that periodic compensation is the
maximum permitted rate, and
(b)
the initial rate of the periodic compensation in respect of each
pension is such proportion of the maximum permitted rate as the
15
rate of that compensation would (in the absence of this paragraph)
bear to the uncapped rate.
      (5)
Where in a case to which sub-paragraph (4) applies the relevant periodic
compensation first becomes payable on two or more different days, this
paragraph applies with such modifications as may be prescribed.
20
      (6)
For the purposes of sub-paragraph (4) a scheme is connected with another
scheme if the same person is or was an employer in relation to both schemes.
      (7)
In this paragraph—
“maximum permitted rate” means—
(a)
the rate specified by the Secretary of State by order, or
25
(b)
where the person has not attained the age of 65 at the time
he first becomes entitled to the periodic compensation, that
rate as adjusted by the Board in accordance with actuarial
adjustment factors published by it;
“relevant periodic compensation” means periodic compensation
30
under paragraph 3 (in a case to which sub-paragraph (7) of that
paragraph applies), 11 or 15, but does not include any portion of
periodic compensation commuted for a lump sum under
paragraph 23.
Increasing the compensation cap in line with earnings
35
26    (1)
This paragraph applies where, on a review under subsection (2) of section
148 of the Social Security Administration Act 1992 (c. 5) (review of general
level of earnings obtaining in Great Britain) in a tax year, the Secretary of
State concludes that the general level of earnings obtaining in Great Britain
(“the new level”) exceeds the general level at the end of the period
40
mentioned in paragraph (a) or, as the case may be, the date determined
under paragraph (b) of that subsection (“the old level”).
      (2)
The Secretary of State must make an order under sub-paragraph (7) of
paragraph 25 which has the effect of increasing the rate specified for the
purposes of that sub-paragraph by the percentage by which the new level is
45
greater than the old level.
      (3)
The order must provide for the increase to have effect on and after the 1st
April next following the end of the tax year to which the review relates.

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Schedule 7 — Pension compensation provisions
207

Power to impose cap on lump sum compensation
27    (1)
Regulations may make provision limiting, in such circumstances as may be
prescribed, the amount of lump sum compensation payable under this
Schedule to a person in respect of benefits under a scheme or two or more
connected schemes.
5
      (2)
Regulations under sub-paragraph (1) may provide that where the person
has not attained the age of 65 at the time he becomes entitled to the lump
sum compensation, any limit imposed by the regulations is to be adjusted by
the Board in accordance with actuarial adjustment factors published by it.
      (3)
For this purpose “lump sum compensation” means—
10
(a)
compensation payable under paragraph 14 or 19, or
(b)
compensation in the form of a lump sum under paragraph 23
(commutation) in respect of any portion of periodic compensation
payable under paragraph 11 or 15.
      (4)
For the purposes of sub-paragraph (1) a scheme is connected with another
15
scheme if the same person is or was the employer in relation to both
schemes.
      (5)
Where regulations are made under this paragraph, they must make
provision to secure that where paragraph 26 applies, any limit on the
amount of lump sum compensation imposed by the regulations is increased,
20
on and after the 1st April next following the end of the tax year to which the
review mentioned in sub-paragraph (1) of that paragraph refers, by the
percentage mentioned in sub-paragraph (2) of that paragraph.
Annual increase in periodic compensation
28    (1)
This paragraph provides for the increases mentioned in sub-paragraph
25
(3)(b) of paragraphs 3, 5, 8, 11, 15 and 21.
      (2)
Where a person is entitled to periodic compensation under any of those
paragraphs, he is entitled, on the indexation date, to an increase under this
paragraph of—
(a)
the appropriate percentage of the amount of the underlying rate
30
immediately before that date, or
(b)
where the person first became entitled to the periodic compensation
during the period of 12 months ending immediately before that date,
1/12th of that amount for each full month for which he was so
entitled.
35

Paragraph (b) is subject to sub-paragraph (4).
      (3)
In sub-paragraph (2)—
“appropriate percentage” means the lesser of—
(a)
the percentage increase in the retail prices index for the
period of 12 months ending with the 31st May last falling
40
before the indexation date, and
(b)
2.5%;
”indexation date” means—
(a)
the 1st January next falling after a person first becomes
entitled to the periodic compensation, and
45
(b)
each subsequent 1st January during his lifetime;

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Schedule 7 — Pension compensation provisions
208

“underlying rate” means, in the case of periodic compensation under
any of the paragraphs mentioned in sub-paragraph (1), the
aggregate of—
(a)
so much of the amount mentioned in sub-paragraph (3)(a)
of the paragraph in question as is attributable—
5
(i)
to pensionable service under the scheme on or after 6th
April 1997, or
(ii)
to rights which are derived (directly or indirectly) from
rights attributable to pensionable service on or after
that date, and
10
(b)
the amount within sub-paragraph (3)(b) of that paragraph
immediately before the indexation date.
      (4)
This paragraph is subject to paragraph 29 (Board’s power to alter rates of
revaluation and indexation).
Board’s powers to alter rates of revaluation and indexation
15
29    (1)
The Board may determine the percentage that is to be the maximum
revaluation rate for the purposes of paragraphs 12(4) and 17(4), and where
it does so paragraphs 12(5) and 17(5) do not apply.
      (2)
The Board may also determine the percentage that is to be the appropriate
percentage for the purposes of paragraph 28 (and where it does so the
20
definition of “appropriate percentage” in paragraph 28(3) does not apply).
      (3)
Before making a determination under this paragraph the Board must—
(a)
consult such persons as it considers appropriate, and
(b)
publish details of the proposed determination in such manner as it
considers appropriate and consider any representations made in
25
respect of it.
      (4)
The rate determined under this paragraph may be nil.
      (5)
A determination under this paragraph may be expressed so as to have effect
for a limited period.
      (6)
A determination under sub-paragraph (2) may be expressed to have effect in
30
relation to entitlement to compensation relating to all schemes (whether the
Board assumed responsibility for the schemes before or after the time the
determination is made).
      (7)
Notice of any determination under this paragraph must be published in
such manner as the Board considers appropriate.
35
Secretary of State’s powers to vary percentage paid as compensation
30    (1)
The Secretary of State may, on the recommendation of the Board, by order
amend any of the provisions of this Schedule mentioned in sub-paragraph
(2) to substitute a different percentage for the percentage for the time being
specified in the provision.
40
      (2)
The provisions are paragraphs 3(4), 5(3), 7(2), 8(3), 10(2), 11(3), 14(3), 15(3),
19(3), 21(3) (percentage used to calculate periodic or lump sum
compensation entitlement).
      (3)
The Board may make a recommendation for the purpose of sub-paragraph
(1) only in respect of a period for which it has, under paragraph 29—
45

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Schedule 7 — Pension compensation provisions
209

(a)
reduced the maximum revaluation rate for the purposes of
paragraphs 12(4) and 17(4) to nil, and
(b)
reduced the appropriate percentage for the purposes of paragraph 28
to nil in relation to all schemes.
      (4)
Before making a recommendation for the purposes of sub-paragraph (1) the
5
Board must—
(a)
consult such persons as it considers appropriate, and
(b)
publish details of the proposed recommendation in such manner as
it considers appropriate and consider any representations made in
respect of it.
10
      (5)
Subject to sub-paragraph (3), an order under this Schedule may have
effect—
(a)
for a limited period specified in the order;
(b)
in relation—
(i)
to all payments of compensation which fall to be made after
15
such date as may be specified in the order (whether the
entitlement to the periodic compensation first arose before or
after that date), or
(ii)
only to payments of compensation to which a person first
becomes entitled after such a date.
20
Normal pension age
31    (1)
In this Schedule “normal pension age”, in relation to the scheme and any
pension or lump sum under it, means the age specified in the admissible
rules as the earliest age at which the pension or lump sum becomes payable
without actuarial adjustment (disregarding any admissible rule making
25
special provision as to early payment on the grounds of ill health).
      (2)
Where different ages are specified in relation to different parts of a pension
or lump sum—
(a)
this Schedule has effect as if those parts were separate pensions or, as
the case may be, lump sums, and
30
(b)
references in relation to a part of the pension or lump sum to the
normal pension age are to be read as references to the age specified
in the admissible rules as the earliest age at which that part becomes
payable under the scheme without actuarial adjustment
(disregarding any special provision as to early payment on grounds
35
of ill health or otherwise).
      (3)
In any case where the Board is satisfied that it is not possible to identify the
normal pension age from the admissible rules of the scheme, it may, having
regard to those rules, determine how the normal pension age is to be
determined.
40
Scheme rules, admissible rules etc
32    (1)
In this Schedule, in relation to the scheme, the following expressions have
the meaning given by this paragraph—
“scheme rules”,
“admissible rules”,
45
“recent rule changes”, and
“recent discretionary increase”.

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Schedule 7 — Pension compensation provisions
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      (2)
The “scheme rules” means—
(a)
the rules of the scheme, except so far as section 129 of the Pension
Schemes Act 1993, section 117 of the Pensions Act 1995 or section 230
of this Act overrides them,
(b)
any provision of any of those Acts which overrides or modifies any
5
of the rules of the scheme by virtue of one of the provisions
mentioned in paragraph (a), and
(c)
any provision which the rules of the scheme do not contain but
which the scheme must contain if it is to conform with the
requirements of Chapter 1 of Part 4 of the Pension Schemes Act 1993
10
(preservation of benefit under occupational pension schemes).
      (3)
“The admissible rules” means the scheme rules disregarding all recent rule
changes, if the combined effect of those changes and any recent
discretionary increases is that the protected liabilities of the scheme
immediately before the assessment date are greater than they would have
15
been in the absence of those changes and increases.
      (4)
Subject to sub-paragraph (5), “recent rule changes” means—
(a)
changes to the scheme rules which took effect in the period of three
years ending with the assessment date, or were made in that period
and took effect by reference to an earlier time, and
20
(b)
any scheme rules which come into operation on, or operate by
reference to—
(i)
the winding up of the scheme or any associated event,
(ii)
an insolvency event in relation to the employer or any
associated event, or
25
(iii)
any prescribed event relating to the future of the employer as
a going concern.
      (5)
“Recent rule changes” does not include—
(a)
changes attributable to section 129 of the Pension Schemes Act 1993,
section 117 of the Pensions Act 1995 or section 230 of this Act
30
(overriding requirements),
(b)
changes required, or reasonably necessary, to comply with any
enactment, and
(c)
changes of a prescribed description.
      (6)
“Recent discretionary increase” means an increase in the rate of any pension
35
in payment or postponed pension under the scheme which took effect in the
period mentioned in sub-paragraph (4)(a).
      (7)
For the purposes of sub-paragraph (6) an increase (“the relevant increase”)
in the rate of a pension in payment or postponed pension is to be
disregarded to the extent that it does not exceed—
40
(a)
the amount by which the pension in question is required to be
increased by virtue of—
(i)
the admissible rules,
(ii)
sections 13(1) and 109 of the Pension Schemes Act 1993
(c. 48)(requirement to index and pay guaranteed minimum
45
pensions),
(iii)
section 87(3) of that Act (protection of increases in
guaranteed minimum pensions: “anti-franking”), or
(iv)
section 51 of the Pensions Act 1995 (c. 26)(annual increase in
rate of pension), or
50