Schedule 8 - Restricted information held by Board: certain permitted disclosures to facilitate exercise of functions

409.     This schedule sets out the list of bodies to which the Board may disclose restricted information, where the information is relevant to the functions set out in the second column.

PART 3 - SCHEME FUNDING

Summary

410.     This Part of the Bill sets out the statutory framework for the scheme funding requirements which will replace the Minimum Funding Requirement (MFR). The MFR, introduced from April 1997, applies to most private sector defined benefit occupational pension schemes. Schemes currently subject to the MFR are required to hold a minimum level of assets to meet their pension liabilities, as assessed on the basis of the MFR test, and to make good any shortfalls against the MFR within specified timescales. In carrying out MFR valuations actuaries must use a prescribed actuarial method, and a prescribed set of actuarial assumptions.

411.     Under the arrangements set out in this Part of the Bill, schemes will not be required to fund to a common funding measure. Pension scheme trustees will be required to agree with the sponsoring employer a strategy for funding the pension commitments and for correcting any funding deficits, and to set this out in a Statement of Funding Principles. The new funding framework carries forward the existing statutory requirements for regular actuarial valuations and for a scheme to have in place a schedule of contributions.

412.     The provisions in this Part of the Bill are compliant with the provisions of the European Directive on the Activities and Supervision of Institutions for Occupational Retirement Provision 2003/ 41/ EC (IORP) Directive.

Introductory

Clause 178 - Pension schemes to which this Part applies

413.     This clause sets out the scope of the scheme funding provisions. It provides for this Part of the Bill to apply to every occupational scheme apart from money purchase schemes. The clause also provides a power for regulations to exclude other schemes from the scope of this Part, and the intention is that the scheme funding provisions will broadly apply to those schemes to which the Minimum Funding Requirement currently applies, subject to the scope of the provisions of the IORP Directive.

Scheme funding

Clause 179 - The statutory funding objective

414.     This clause requires schemes subject to this Part to be funded to meet a statutory funding objective that they have sufficient and appropriate assets to cover their technical provisions. This requirement reflects the provisions of the IORP Directive.

415.     A scheme's "technical provisions" means the amount required, on an actuarial calculation, to provide for its liabilities. Subsection (3) gives powers to prescribe the liabilities to be taken into account for these purposes and the manner in which assets, liabilities and technical provisions should be determined. For instance, the IORP Directive relates technical provisions to members' accrued pension rights. It also requires technical provisions to be calculated "on the basis of actuarial methods recognised by the competent authorities of the home Member State".

416.     Subsection (4) provides for trustees or managers to choose the method and assumptions appropriate for the calculation of their scheme's technical provisions according to regulations and guidance (including guidance which may be issued by a prescribed body such as the Faculty and Institute of Actuaries).

417.     Subsection (5) prevents a scheme from taking advantage of any provision in the scheme rules that would otherwise permit the liabilities taken into account for the purposes of this Part to be limited to the assets held by the scheme.

Clause 180 - Statement of funding principles

418.     This clause requires the trustees or managers of a scheme to prepare, periodically review and if necessary revise a statement of funding principles. The statement of funding principles is a written statement of the trustees' policy for ensuring that the statutory funding objective is met, and such other matters as may be prescribed. These will include key information relating to the funding of the scheme, including, for example: the scheme's funding objective or objectives; the arrangements for seeking the employer's agreement on the funding of the scheme; and the implications of the scheme's funding policy for the scheme's investment policy. Additionally, subsection (2) requires that the statement records any decisions by the trustees or managers on:

•      the methods and assumptions to be used in calculating the scheme's technical provisions; and

•      the period over which a failure to meet the statutory funding objective would be rectified.

419.     Subsection (3) enables regulations to set out the period within which the statement of funding principles must be prepared, and setting out requirements for its review. It is intended that the statement of funding principles should be reviewed at least every three years.

420.     The Regulator will be able to impose a penalty on trustees who do not take reasonable steps to comply with these requirements.

Clause 181 - Actuarial valuations and reports

421.     This clause requires the trustees or managers of a scheme to arrange for a written valuation of the assets and technical provisions of the scheme from the scheme actuary. Subsection (1) provides for such valuations to be undertaken annually, although valuations may take place every three years if the trustees arrange for actuarial reports for the intervening years.

422.     Subsection (2) defines the various terms used in this Part:

•      an actuarial valuation is a written report, valuing the scheme's assets and calculating its technical provisions, prepared and signed by the scheme actuary;

•      the effective date of an actuarial valuation is the date by reference to which the assets are valued and the technical provisions are calculated;

•      an actuarial report is a written report, prepared and signed by the scheme actuary, on changes to the scheme's technical provisions since the last actuarial valuation;

•      the effective date of an actuarial report is the date at which the information in the report relates to.

423.     Subsection (3) cross-refers to subsection (1) and stipulates that the intervals referred to in subsection (1) are the intervals between the effective dates of successive valuations.

424.     Subsection (4) enables regulations to require the trustees or managers to ensure that a valuation or report is provided within a prescribed period of its effective date.

425.     Subsection (5) makes clear that the requirements of this clause do not affect any power or duty of the trustees or managers to obtain valuation or reports more frequently, or on other occasions than those required by subsection (1).

426.     Subsection (6) enables regulations to set out further requirements in relation to the actuarial valuation or report, such as its format and content.

427.     Subsection (7) requires the trustees or managers to make the valuation or report available to the employer within seven days of its receipt.

428.     Subsection (8) enables the Regulator to impose a penalty on trustees or managers who have not taken reasonable steps to comply with these provisions.

Clause 182 - Certification of technical provisions

429.     This clause requires that, when the actuary carries out a valuation, he must certify the calculation of the scheme's technical provisions.

430.     The certificate must state whether, in the actuary's opinion, the calculation of the technical provisions: is in accordance with prescribed methods and assumptions that have been determined in accordance with prescribed principles; is consistent with any prescribed guidance; and complies with any prescribed requirements. Prescribed guidance means guidance from a prescribed body, such as the Faculty and Institute of Actuaries, which may, if regulations so provide, be approved by the Secretary of State. Subsection (3) enables regulations to require the certificate to contain other statements, and comply with other requirements as may be prescribed. These requirements reflect the provisions within the IORP Directive.

431.     If the actuary cannot certify that the calculation of the technical provisions meets those requirements, he must notify the Regulator as soon as is reasonably practicable. The Regulator is able to impose a penalty on an actuary who fails to make this report.

Clause 183 - Recovery plan

432.     This clause requires the trustees or managers to put a recovery plan in place if an actuarial valuation shows that the statutory funding objective is not met. Subsection (2) provides that the recovery plan must set out the steps to be taken to meet the statutory funding objective, and the timeframe over which this is to be achieved. Additionally, subsection (3) provides that the recovery plan must be appropriate to the nature and circumstances of the scheme, and subsection (4) enables regulations to require the trustees or managers to take account of such matters as may be prescribed.

433.     Subsection (5) enables regulations to prescribe the circumstances in which a recovery plan must be reviewed and revised, or in which it should be replaced by a recovery plan prepared following a subsequent actuarial valuation.

434.     Under subsection (6) the trustees or managers must send a copy of the recovery plan to the Regulator as soon as is reasonably practicable.

435.     Subsection (7) provides for penalties to apply to trustees or managers who have failed to take reasonable steps to comply with these provisions.

Clause 184 - Schedule of contributions

436.     This clause provides that the trustees or managers must prepare, periodically review and, where necessary, revise a schedule of contributions. Subsection (2) provides that a schedule of contributions is a statement setting out the contribution rates payable to the scheme by or on behalf or the employer and the active members of the scheme, and the dates on or before which the contributions are to be paid.

437.     Subsection (3) enables regulations to specify the period within which the schedule must be prepared and reviewed, and the period for which the schedule is to be in force. It is proposed that, as currently, the schedule of contributions would be prepared and agreed with the employer within eight weeks of the actuary signing the valuation report. The actuary would then have four weeks in which to certify the schedule. It is intended that the period to be covered by the schedule will be five years where the valuation shows that the statutory funding objective was met. Where a recovery plan applies the schedule will have to cover a period no shorter than that covered by the recovery plan.

438.     Subsection (4) contains a regulation making power to prescribe further requirements in relation to the schedule. The intention is to use this power, for example: to prescribe the period to be covered by the schedule; to require the employer to sign the schedule; and to require that contributions relating to the recovery plan to make good a deficit are shown separately on the schedule.

439.     Subsections (5) and (6) require the actuary to certify the schedule of contributions where he is satisfied that it is consistent with the statement of funding principles; and where he is satisfied that:

•      where the valuation shows that the funding objective was not met, the rates of contributions are adequate to ensure that the statutory funding objective will be met by the end of the period of the recovery plan determined by the trustees or managers; or

•      where the valuation shows that the funding objective was met, the rates of contributions are adequate to ensure that the objective will continue to be met for the period covered by the schedule.

440.     Subsection (7) requires the trustees or managers to send a copy of the schedule of contributions to the Regulator if the valuation shows that the statutory funding objective was not met, as soon as is reasonably practicable.

441.     Subsection (8) empowers the Regulator to impose a penalty on trustees or managers who do not take reasonable steps to comply with these requirements.

442.     Subsection (9) requires an actuary who is unable to certify the schedule of contributions to notify the Regulator as soon as is reasonably practicable.

443.     Where the Regulator has imposed a schedule of contributions under the power conferred by clause 188, subsection (10) of this clause dis-applies the provisions of this clause.

Clause 185 - Failure to make payments

444.     This clause applies where an amount payable in accordance with the schedule of contributions by or on behalf of the employer or an active scheme member is not paid on time. Subsections (2) and (3) impose a requirement on the scheme's trustees or managers, and the actuary or auditor, to report to the Regulator the failure to make the payment, but only if they have reasonable cause to believe that the failure is likely to be of material significance to the Regulator in the exercise of its functions. These subsections also include a power to prescribe circumstances in which the requirement to notify the Regulator will not apply.

445.     Subsection (4) ensures that the amount of the unpaid contributions shall be treated as a debt on the employer to the trustees or managers, where this would not otherwise be the case.

446.     Subsection (5) provides for civil penalties to apply to a trustee or manager, an actuary or auditor, who fails to report to the Regulator a material failure to make a payment to the scheme; and an employer who fails to make a payment.

447.     Subsection (6) makes it clear that these provisions also apply to payments due under a schedule of contributions which has been imposed by the Regulator (under clause 188).

Clause 186 - Matters requiring agreement of the employer

448.     Subsection (1) of this clause imposes a requirement on the trustees or managers of a scheme to obtain the agreement of the employer: to any decision about the methods and assumptions which are to be used by the actuary in calculating the scheme's technical provisions; to any matter which is to be included in the scheme's statement of funding principles; to any recovery plan; and to any matter to be included in the schedule of contributions.

449.     Subsection (2) applies where the trustees or managers of a scheme conclude that they will not be able to obtain the employer's agreement (within prescribed time limits) to any of these matters. In these circumstances this clause confers a power on the trustees or managers to modify the future accruals of benefits under the scheme in order to obtain the employer's agreement. Subsection (3) requires the trustees or managers to record any such modification in writing, and to notify scheme members within one month of the decision.

450.     Subsection (4) imposes a requirement on the trustees or managers to report a failure to reach agreement with the employer on any of the matters set out in subsection (1) to the Regulator, in writing, as soon as is reasonably practicable. Subsection (5) provides for civil penalties to apply to a trustee or manager who fails to take all reasonable steps to comply.

Clause 187 - Matters on which advice of actuary must be obtained

451.     This clause imposes a requirement on the trustees or managers of a scheme to obtain advice from the scheme actuary before making any decision about: the methods and assumptions which are used by the actuary in calculating the scheme's technical provisions; preparing or revising the scheme's statement of funding principles; preparing a recovery plan; or preparing or revising the schedule of contributions.

452.     Subsection (2) provides a power for regulations to impose obligations on scheme actuaries to comply with any prescribed requirements when providing advice to the scheme's trustees or managers on these matters, and it is intended that such regulations would specify factors and considerations which the actuary would be required to take into account when providing this advice.

453.     Subsection (3) provides an additional power for regulations to require the actuary to take account of prescribed guidance. Such guidance would be prepared and reviewed by a prescribed body, such as the Faculty and Institute of Actuaries, and may be approved by the Secretary of State.

Clause 188 - Powers of the Regulator

454.     This clause confers powers on the Regulator to take action aimed at resolving difficulties arising in the operation of the scheme funding provisions. Subsection (1) specifies the circumstances in which these powers may be used, and the powers themselves are set out in subsection (2).

455.     The powers conferred by this clause will be exercisable where it appears to the Regulator (whether as a result of a report made to the Regulator or otherwise) that:

•      the trustees or managers have failed to prepare a statement of funding principles, or to review and revise such a statement, as required by regulations;

•      the trustees or managers have failed to obtain an actuarial valuation as required by clause 181;

•      the actuary is unable to certify the calculation of the scheme's technical provisions or its schedule of contributions;

•      the trustees or managers have failed to prepare a recovery plan as required, or have prepared one that does not comply with requirements;

•      the trustees or managers have failed to prepare a schedule of contributions when required to do so, or to review and revise such a schedule in line with prescribed requirements;

•      the actuary is unable to certify a schedule of contributions;

•      the employer has failed to make payments in accordance with the schedule of contributions (or payments treated as a debt under clause 185), and that failure is of material significance to the Regulator in the exercise of its functions. (The circumstances in which reports about failure to make payments are required are outlined in clause 185);

•      the trustees or managers have been unable to reach agreement with the employer within the prescribed timescale about one or more of the matters on which agreement is required under clause 186.

456.     Subsection (2) confers the following powers, any (or all) of which the Regulator will be able to use by means of an order:

•      to modify future benefit accruals under the scheme;

•      to give directions about the manner in which the scheme's technical provisions should be calculated, including the methods and assumptions which should be used in the calculation;

•      to give directions about how, and over what period, any failure to meet the statutory funding objective should be rectified;

•      to impose a schedule of contributions on the scheme.

457.     Subsection (3) provides a power to make regulations specifying requirements with which the Regulator must comply when exercising these powers. Subsection (4) makes it clear that these powers for the Regulator are additional to any others proposed by this Bill, or conferred by the Pensions Act 1995 (c.26).

Supplementary provisions

Clause 189 - Power to modify provisions of this Part

458.     This clause provides a power for regulations to modify the provisions of this Part as they apply in prescribed circumstances. It mirrors the current section 61 of the Pensions Act 1995, which provides a similar power for regulations to modify the operation of the Minimum Funding Requirement. The operation of the Minimum Funding Requirement legislation is modified under section 61 in respect of specified types of scheme including, for example, schemes without active members, schemes which are partially guaranteed by Ministers of the Crown, and schemes which are exempt from the requirement to appoint an actuary. It is proposed that regulations under this clause will operate in a similar way.

Clause 190 - Construction as one with the Pensions Act 1995

459.     This clause makes it clear that words used in this Part of the Bill should be interpreted as having the same meaning as they do in Part 1 of the Pensions Act 1995.

PART 4 - PLANNING FOR RETIREMENT

Summary

460.     Clauses under this Part of the Bill provide the Secretary of State with the power to promote and facilitate planning for retirement and allow him to receive the information to do so. They also provide powers to require schemes to provide combined pension forecasts and employers to provide their employees with access to information and advice about pensions and saving for retirement.

ECHR considerations

461.     Some of the clauses raise issues under Articles 8 and/or 10 ECHR in allowing or requiring the provision of information about individuals. However, they are all considered to be proportionate and to meet a legitimate aim. They are considered to be in the interests of the economic well-being of the country and for the protection of the rights of individuals.

Retirement planning

Clause 191 - Promoting and facilitating financial planning for retirement

462.     This clause enables the Secretary of State and the Department for Social Development in Northern Ireland to take action for the purpose of promoting or facilitating retirement planning. The action can include providing facilities to enable people to:

•      estimate the financial resources they are likely to need after retirement;

•      estimate the financial resources that are likely to be available to them after retirement (from both pensions and other sources);

•      ascertain what action might be taken to increase financial resources available to them after retirement.

Clause 192 - Supply of information for purposes of section 191

463.     This clause allows anyone holding information about pensions and savings to supply it to the Secretary of State or the Department for Social Development in Northern Ireland. The information can be used by the Secretary of State or the Department for Social Development in Northern Ireland to carry out the functions conferred by clause 191. The clause limits the extent to which information supplied to the Secretary of State or the Department for Social Development in Northern Ireland can be further disclosed by them.

Clause 193 - Use and supply of information: private pensions policy and retirement planning

464.     This clause introduces Schedule 9 into effect. This makes provision about the use and supply of information for purposes relating to private pensions policy and retirement planning.

Schedule 9 - Use and supply of information: private pensions policy and retirement planning

465.     Paragraph 1 of this schedule amends section 3 of the Social Security Act 1998 to extend the uses to which information held by the Secretary of State or the Department for Social Development in Northern Ireland can be put. The effect is that information held by the Secretary of State or Department for Social Development in Northern Ireland for purposes relating to social security, child support or war pensions, employment or training can be used for purposes related to private pensions policy and promoting financial planning for retirement. Conversely, information held by the Secretary of State or the Department for Social Development in Northern Ireland for purposes related to private pensions policy and promoting financial planning for retirement can be used for purposes relating to social security, child support or war pensions, employment or training.

466.     Private pensions policy is defined (in this context and in the rest of the Schedule) as policy relating to occupational pension schemes and personal pension schemes.

467.     Paragraph 3 of this Schedule amends section 122D of the Social Security Administration Act 1992 to allow the Secretary of State to use information relating to housing benefit or council tax benefit for purposes relating to private pensions policy or promoting financial planning for retirement.