Clause 71 - Special procedure: applicable cases

163.     Subsection (2) states that the special procedure outlined in clause 72 (special procedure), rather than the standard procedure outlined in clause 70 (standard procedure), applies to cases where the Regulator determines that it is necessary to exercise specific regulatory functions immediately. The Regulator will act immediately where there is, or the Regulator considers it is likely, that if a warning notice were to be given there would be an immediate risk to the interests of members, or assets, of an occupational or personal pension scheme. Accordingly the Regulator dispenses with the issue of a warning notice and the opportunity to make representations as described in clause 70 (standard procedure)(2)(a) and (b).

164.     Where the Regulator has given a warning notice, or provided an opportunity to make representations under clause 70 (standard procedure) (2)(a) and (b) in relation to a determination whether to exercise a specific regulatory function, and before it has considered the representations the Regulator determines to exercise the function immediately the special procedure in clause 72 will apply. The Regulator will take this course of action where it considers it is likely, that if the function is not exercised immediately there would be an immediate risk to the interests of members, or assets, of an occupational or personal pension scheme.

165.     Subsection (4) outlines the regulatory functions to which this clause applies.

Clause 72 - Special procedure

166.     This clause specifies the considerations the Regulator needs to undertake when initiating special procedures where no notice is given. In the special procedure there is no provision for the issuing of a warning notice or an opportunity to make representations before the Regulator issues a determination notice. The determination notice must be given to all individuals who appear to be directly affected by it. It must also contain details of: the Regulator's requirement to review the determination notice under clause 73; the right of referral to the Tribunal under clause 73(7). The individuals that receive the notice have the right to make representations before the Regulator reviews the determination notice.

167.     The representation will be considered by the Regulator before the review and the final notice (the notice given after the review) is given in accordance with clause 73(e) and that the final notice contains information about the right to referral to the Tribunal; the form and further content of determination notices and final notices; and the way they are given and any time limits that are applied at any stage of the procedure.

168.     Regulatory functions which the special procedure should be used for are: making; amending; or revoking freezing orders (clause 20); making, amending or revoking the period of effect of a freezing order; making, amending, or revoking directions where a freezing order ceases to have an effect; making, amending or revoking an order to notify members of a freezing order; make or revoke an order prohibiting a person being a trustee (Section 3 of the Pensions Act 1995); Section 7 of that Act (the power to appoint a trustee); making an order directing or authorising an occupational pension scheme to be wound-up (Section 11 of the Pensions Act 1995) and the power to wave a disqualification (under Section 29(5) of the Pensions Act 1995).

Clause 73 - Compulsory review

169.     This clause applies to a determination made under clause 71 (special procedure: applicable cases). The Regulator must review its determination to take regulatory action within 28 days. The review may confirm, change or revoke a determination, direction or order made. The Regulator may substitute a different determination, direction or order. The Regulator can deal with matters arising in the review the same way as if the matters had arisen on the original determination and make savings and transitional provisions.

170.     When the Regulator has completed the review of the determination, a final notice (the outcome of the review) must be sent to all the individuals who appear to be affected by it.

171.     If the final notice gives a determination to exercise a different regulatory function than that set out in the original determination, then before the final notice is given, all individuals that appear to the Regulator to be affected by the new proposed action must have the opportunity to make representations in relation to the proposed action. The Regulator must consider these representations. However, this right to make representations on determinations (where they are different to the original) does not apply if the Regulator believes it is necessary to take regulatory action immediately having considering the interests of the individuals who appear to be directly affected.

Clause 74 - duty to have regard to the interests of members etc

172.     This clause requires the Regulator to take into account the interests of the generality of the members of the scheme who will be affected by its actions, as well as the interests of other persons who the Regulator considers will be directly affected, when deciding whether to exercise its regulatory functions, and on the review of them.

Clause 75 - Powers to vary or revoke orders, notices or directions etc

173.     Subject to specified exceptions the Regulator has the power to vary or revoke any determination, notice, direction or order issued in exercising its regulatory functions. Subsection (3) provides that any variation or revocation of an order, notice or direction must be made by a subsequent order, notice or direction as the case may be. Subsection (4) provides that a variation or revocation cannot take effect before the date on which the revocation or variation is made.

The Pensions Regulator Tribunal

Clause 76 - The Pensions Regulator Tribunal

174.     This clause establishes the new Pensions Regulator Tribunal. Schedule 4 sets out detailed provisions in relation to the tribunal. The Lord Chancellor may make procedural rules in relation to the conduct of the Tribunal's hearings.

Clause 77 - References to the Tribunal

175.     This clause provides for the time limits for making references to the tribunal may allow a case to be referred after these periods have elapsed.

176.     The tribunal will hear any reference afresh, and accordingly will be able to consider any evidence relating to a reference whether or not it was available to the Regulator. Its purpose is to determine what action, if any, the Regulator must take in relation to the reference.

177.     The tribunal must inform the Regulator of any directions that the tribunal considers necessary in its determination and or direction which the Regulator must comply with. The tribunal may also on determining a reference make a recommendation to change the Regulator's procedures. An order of the tribunal can be enforced as if it were an order of a county court or in Scotland an order of the Court of Session.

Clause 78 - Appeal on a point of law

178.     There is a right of appeal, with permission, on a point of law only, from decisions of the Tribunal to the Court of Appeal or in Scotland, the Court of Session. There is then a further right of appeal to the House of Lords.

179.     If on appeal the court finds the decision of the tribunal was wrong in law then the court may either send the case back to the tribunal for a re-hearing and re-determination or make a determination itself.

Clause 79 - Redetermination etc by the Tribunal

180.     This clause applies when an application for permission to appeal a decision of the tribunal is made. If the chairman or person who constitutes the chairman of the tribunal for this application believes that the decision of the tribunal was wrong the decision may be set aside and either reheard and re-determined by the same tribunal or one made up of different members.

Clause 80 - Legal assistance scheme

181.     This clause enables the Lord Chancellor to establish, by regulations, a scheme providing legal assistance for cases which go to the Tribunal. The legal assistance scheme may make provision for the kinds of legal assistance that may be provided; the persons by whom legal assistance may be provided; the manner in which applications for legal assistance are to be made; the criteria on which eligibility for legal assistance is to be determined; the persons or bodies by whom applications are to be determined; appeals against refusals of applications; the revocation or variation of decisions; its administration and the enforcement of its provisions.

182.     The condition placed on the legal assistance provided may provide for the recipient of the aid making a contribution.

Schedules

Schedule 1 - The Pensions Regulator

183.     Paragraphs 1-3 of this schedule set out the terms of appointment and tenure for members of the Regulator. These paragraphs further clarify clause 2 by setting out that a person will cease to be a member of the Regulator if:

•      in the case of the chairman of the Regulator, he ceases to hold this position or if he becomes a member of staff of the Regulator;

•      in the case of any other non-executive member, they become a member of staff of the Regulator;

•      in the case of an executive member appointed as one of the five other members of the Regulator appointed by the Secretary of State after consulting the chairman (under clause 2(c)), he ceases to be a member of staff of the Regulator;

•      in the case of the Chief Executive, he ceases to be employed as such.

184.     Paragraph 3 of this schedule sets out that someone will not be prevented from being a member of the Regulator if they have previously been such a member or been a member of the Determinations Panel.

185.     Paragraphs 4-6 of this schedule set out provisions on remuneration which allow for the Secretary of State to determine the remuneration of the non-executive members of the Regulator, and allow for the Regulator to pay (as determined by the Secretary of State) allowances, gratuities or pensions to those who are or have been non-executive members of the Regulator. These paragraphs also provide for the payment of compensation (where it appears to the Secretary of State that such compensation is correct in the circumstances) to a non-executive member of the Regulator who ceases to hold such a position other than at the end of his term of office.

186.     Paragraphs 7 -11 of this schedule set out the staff of the Regulator to consist of the Chief Executive as appointed under this part of the schedule; the other employees of the Regulator as appointed under this part of the schedule; and any additional staff made available by the Secretary of State under this part of the schedule.

187.     Paragraph 12 sets out that in order to appoint a chairman of the Determinations Panel, the chairman of the Regulator must establish an appointments committee (consisting of a chairman (which is to be one of the non-executive members of the Regulator) and one or more people appointed by the chairman of the Regulator from the members of the Regulator). The appointments committee will nominate a suitable person for the office of chairman of the Determinations Panel.

188.     The Regulator is to determine the terms and conditions of employment on the Determinations Panel, subject to the Secretary of State's power to determine the level of remuneration (in paragraph 15). Persons are automatically removed from the Panel if, in the case of the Chairman of the Panel, he ceases to hold that office, or for any other member, he becomes a member of staff of the Regulator. In conjunction with subsection (5) of clause 10, this ensures that members of the Determinations Panel cannot simultaneously be members of either the staff or the Board of the Regulator. However, former members of the Panel, the Regulator, or the staff of the Regulator are eligible to sit on the Determinations Panel.

189.     Paragraph 15-17 allow the Regulator to remunerate members of the Determinations Panel at a level determined by the Secretary of State. They also enable the Regulator to pay (at levels determined by the Secretary of State) allowances, gratuities or pensions to those who are or have been members of the Panel. These paragraphs also provide for the payment of compensation (where it appears to the Secretary of State that such compensation is correct in the circumstances) to a member of the Panel who ceases to hold such a position other than at the end of his term of office.

190.     Paragraph 18 has the effect of allowing the Regulator to establish committees for any purpose with such committees able to establish sub-committees, unless as otherwise prescribed by the Secretary of State.

191.     Paragraphs 19 and 20 enable the Regulator to determine its own procedures. Determination Panel procedures may be determined only by the Panel. The Secretary of State has the power to make regulations prescribing the Regulator's procedures, which would include the Determination Panel's proceedings.

192.     Paragraph 21 allows the Regulator to authorise any executive member; any other member of staff; or, any of its committees (other than the appointments committee and the Determinations Panel) to exercise functions of the Regulator. However, this does not apply with regard to:

•      the non-executive functions of the Regulator, which must be carried out by the Non-Executive Committee;

•      the duty of the Regulator to appoint the chairman and other members of the Determinations Panel and to determine the terms and conditions of their appointments;

•      the functions of the Regulator which are only exercisable by the Determinations Panel (as listed in Schedule 2).

Schedule 2 - The reserved regulatory functions

193.     This Schedule lists all the regulatory functions of the Regulator from relevant legislation including this Bill. Part one lists those from the Pension Schemes Act 1993; Part two from the Pensions Act 1995; Part three specifies the power under the Welfare Reform and Pensions Act 1999; and Part four lists the relevant functions under this Bill.

Schedule 3 - Restricted information held by Regulator: certain permitted disclosures to facilitate exercise of functions

194.     This Schedule provides a list of bodies to whom the Regulator can disclose restricted information, including the functions for which it can be disclosed.

Schedule 4 - The Pensions Regulator Tribunal

195.     This Schedule sets out the detail for the Pensions Regulator Tribunal.

196.     Paragraph 1 sets out that the Lord Chancellor must appoint a panel of individuals who will chair Tribunals (the panel of Chairmen) and the qualifications individuals need for this post. The Lord Chancellor must also appoint a panel (the lay panel) of individuals who appear to be qualified by experience to deal with matters which will come before the Tribunal.

197.     Paragraph 2 sets out that the Lord Chancellor must appoint from the panel of chairmen a President and a Deputy President to preside over the exercise of the Tribunal's functions and the qualification that these individuals should hold. The President can confer functions to the Deputy President as he sees fit. To hold these positions the individuals need to be a member of the panel of chairmen. If the President is absent, his functions can be exercised by the Deputy President or another member of the panel of chairmen who is appointed by the Lord Chancellor.

198.     Paragraph 3 states that each member of each panel (chairmen and lay panel) may hold, vacate, resign or be removed from office in accordance with the terms and conditions of their appointment. A member can be re-appointed if he ceases to hold office.

199.     Paragraphs 4, 5 and 6 set out the Lord Chancellor can determine the pay any member of the Tribunal and a person appointed under paragraph 7(4) and he can appoint staff for the Tribunal and set their remuneration, and which expenses of the Tribunal are to be borne by the Lord Chancellor.

200.     Paragraph 7 sets out the constitution of the tribunal. It specifies that the President must set out how members of a Tribunal are chosen from the panels ('the standing arrangements'), a number of conditions that these arrangements must include and procedures if a member of a Tribunal is unable to sit on the Tribunal. The Tribunal may appoint one or more experts if it feels it needs their technical expertise on a factual matter which may arise.

201.     Paragraph 8 states that the Lord Chancellor may state the times and place the Tribunal will take place.

202.     Paragraph 9 lists provisions that the Lord Chancellor may be included in the rules made under clause 76.

203.     Paragraph 11 states that the Tribunal may by summons require individuals to attend or produce evidence which the Tribunal considers necessary to examine. An individual who fails to attend, or give evidence, is guilty of an offence and can receive a fine not exceeding the statutory maximum. An individual who refuses to produce a document, or alters, conceals or destroys a document which he is required to produce can, on summary conviction, be subject to a fine not exceeding the statutory maximum and on conviction on indictment, to imprisonment for a term not exceeding 2 years or a fine or both.

204.     Paragraph 12 lists rules and procedure surrounding the decisions of the Tribunal. These are:

•      a decision of the Tribunal may be taken by a majority;

•      the decision must state whether it was unanimous or taken by a majority;

•      the decision must be recorded in a document which, contains a statement of the reasons for the decision, and is signed and dated by the member of the panel of chairmen dealing with the reference;

•      the Tribunal must inform each party to the reference of its decision;

•      the Tribunal must as soon as reasonably practicable send a copy of the document which the decision was reported in, to each of the parties to the reference, and to such other persons as appear to be directly affected by the decision;

•      the Tribunal must send the Secretary of State a copy of its decision.

205.     If the Tribunal considers that a party acted vexatiously, frivolously or unreasonably, it can order the individual to pay costs or expenses that were incurred by other individuals party with the proceeding. Also, if the Tribunal considers the determination of the Regulator was unreasonable it can order the Regulator to pay some or all of the costs incurred in the proceedings of the other party.

206.     Paragraph 14 lists amendments to the House of Commons Disqualification Act 1975; paragraph 15 lists amendments to the Northern Ireland Assembly Disqualification Act 1975; paragraph 16 lists amendments to the Parliamentary Commissioner Act 1967; paragraph 17 lists amendments to The Judicial Pensions and Retirements Act 1993; and paragraph 18 lists amendments to the Courts and Legal Services Act 1990.

PART 2 - THE BOARD OF THE PENSION PROTECTION FUND

Summary

207.     The aim of the Pension Protection Fund (PPF) is to provide increased protection for members of defined benefit and hybrid schemes by paying compensation should their employer become insolvent and the pension scheme is underfunded. It will also assume the functions of the existing Pension Compensation Board that pays compensation to both defined benefit and money purchase schemes in cases of fraud and misappropriation of scheme assets. The PPF will be set up as an independent Non-Departmental Public Body governed by a Board, comprising a majority of non-executive members.

208.     The constitution of the Board has been designed to ensure an appropriate balance of independence and accountability. Its main functions will be:

•      to pay out pension and fraud compensation;

•      to manage the calculation and application of the three annual levies (pension compensation, administration and fraud compensation - see below); and

•      to set and oversee the investment strategy.

209.     The PPF will pay compensation as follows:

•      100% of the original pension actually in payment to existing pensioners (i.e. those above the scheme's Normal Pension Age (NPA)). There are some exceptions to this;

•      90% of the pension for deferred pensioners (i.e. those below NPA) subject to a cap, calculated using a combination of individuals' scheme rules and PPF standardised rules;

•      Indexation on rights accrued after 1997 rights in line with the rate of increase in the Retail Prices Index (RPI) capped at 2.5% and all deferred rights revalued in line with the increase in RPI capped at 5% from the assessment date.

•      Survivors' benefits for spouses and, subject to the Civil Partnerships Bill currently before Parliament, civil partners in most cases.

210.     Scheme members will become eligible for PPF compensation when the sponsoring employer is insolvent (and there is no hope of corporate rescue or business rescue with the pensions liabilities attached), and the pension scheme has insufficient assets to buy out the PPF level of benefits.

211.     In order to have sufficient funds to pay compensation, the PPF will charge a compulsory annual levy on all defined-benefit and hybrid schemes (to be collected by The Pensions Regulator) and take in the remaining assets of the pension scheme upon insolvency.

212.     There will be three types of levy:

•      pension protection fund levy (to be calculated on the basis of both scheme features and risk-based factors in the long-term, though scheme features only initially);

•      administration levy (to cover the set-up and ongoing costs);

•      fraud compensation levy (to be paid by both defined-benefit and money purchase schemes if and when a case of fraud occurs).

213.     The intention is to set the levy and maintain it at a steady level. The PPF must consult on the level of the levy whenever it wishes to increase - or decrease - it (or every three years if there has been no change during that period) and may only change it within a set margin (the levy ceiling) from an initial levy set by the Secretary of State.

214.     The PPF will have a procedure for dealing with disputes of fact and law regarding PPF decisions and issues of maladministration. This will include internal dispute resolution procedure, followed if still disputed by referral to the PPF Ombudsman, a new office created specifically to deal with PPF matters. There will be a separate right of appeal (on points of law only) to the High Court if the dispute is still unresolved.

ECHR Considerations

215.     The creation of the PPF has raised questions under Articles 6, 8, 14 and Article 1 of Protocol 1 of the ECHR. Rights of appeal to the PPF Ombudsman have been created to ensure Article 6 compliance insofar as civil rights are engaged. The powers to obtain documents, inspect premises and gather information engage Article 8, but are limited to the powers necessary for the PPF to carry out its tasks and are considered proportionate. An equal treatment provision will allow the PPF to rectify underlying sex discrimination deriving from the scheme rules where they are subsumed into the PPF. Insofar as the PPF payments engage Article 1 of Protocol 1 and Article 14 the structuring of the compensation payments is considered to be justifiable and proportionate.

Chapter 1 - The Board

Establishment

Clauses 81, 82 and 83 - The Board of the Pension Protection Fund; Membership of the Board, Further provision about the Board

216.     These clauses establish that there will be a Board of the Pension Protection Fund (referred to in the Bill as "the Board"). The Board will consist of a chairman (who will be appointed by the Secretary of State); a Chief Executive; and at least five other members (and up to a maximum number prescribed in secondary legislation) appointed by the chairman. At least two of the members are to be appointed from the staff of the Board.

217.     The executive members of the Board are to be the Chief Executive and the two or more members appointed from the staff of the Board. All other members of the Board will be "non-executive members". The majority of the members of the Board are to be non-executive members.

218.     Further provision about the Board of the Pension Protection Fund being contained in Schedule 5.

General provision about functions