House of Commons - Explanatory Note
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Clause 194 - Combined pension forecasts

468.     This clause provides that trustees or managers of an occupational or personal pension scheme can be required by regulations to provide scheme members with combined (state and occupational or personal) pension forecasts at the times specified in the regulations. The intention is that this should be a reserve power of the Secretary of State, its use depending on the extent to which combined pension forecasts are issued by schemes on a voluntary basis. Clause 222 in Part 6 of this Bill is also relevant in this context, since it facilitates the provision of state pension information to occupational and personal pension schemes who apply for such information in order to provide a combined pension forecast.

Employee information and advice

Clause 195 - Information and advice to employees

469.     This clause provides that employers may be required to act so as to enable employees to have access to information and advice about pensions and saving for retirement. This requirement would be detailed in regulations which, for example, would define the type of information and advice employers must provide access to. The clause also requires employers to provide information to the Regulator about what they have done to comply with the regulations. The clause enables the Regulator to apply sanctions where an employer fails (without reasonable excuse) to comply with the requirement to provide information to the Regulator. The intention is that the use of these powers, including content of the secondary legislation, will be informed by pilots conducted with employers on a voluntary basis.

PART 5 - PERSONAL AND OCCUPATIONAL SCHEMES: MISCELLANEOUS PROVISIONS

Summary

470.     This Part of the Pensions Bill outlines a number of measures which will apply to occupational and personal pension schemes. These largely fall into three groups of provisions. The first group of measures provides simplification or easements for the administration of pension schemes. Requirements for member-nominated trustees, payments by employers, amendments to the Pensions Compensation Board (before its functions are subsumed into the Pension Protection Fund), internal dispute resolution, and contracting out fall into this category. Additionally, changes to the mandatory annual increase in the rate of certain pensions will provide scope for financial easements to companies running such schemes.

471.     Other provisions in this Part will extend the obligations of employers and schemes. For example, clauses 200 - 202 impose an obligation on trustees to have a certain level of knowledge and understanding in order to carry out their functions as trustees. Trustees will also be required to draw up a Statement of Investment Principles and review this at least every three years. Clauses 203 and 204 provide pension protection for employees who are subject to a transfer of employment.

472.     Finally, this Part contains some clarifications and corrections where existing law has been found to be unclear.

Requirements for member-nominated trustees and directors

Clause 196 - Requirement for member-nominated trustees

473.     Clauses 196 to 198 replace the existing provisions in sections 16 to 21 of the Pensions Act 1995. Sections 43 to 46 of the Child Support, Pensions and Social Security Act 2000, which were not commenced, are also repealed.

474.     Subsection (1)(a) of clause 196 requires trustees of an occupational pension scheme to make arrangements for at least one-third of the total number of trustees to be member-nominated trustees. The arrangements must be put in place within a reasonable time of the clause applying to the scheme. The Regulator must issue a code of practice on the meaning of "reasonable time" under clause 64. Subsection (1)(b) requires trustees to ensure the arrangements are implemented.

475.     Subsection (2) defines "member-nominated trustees" as trustees of an occupational trust scheme who are nominated by a process that involves at least all the active members of the scheme, and selected by some or all of the members. If the number of nominations is equal to or less than the number of vacancies, the nominees can be deemed to be selected under subsection (5)(d). Subsection (4) provides that, where an employer approves, the arrangements may provide for more than the minimum number necessary to meet the one-third requirement under subsection (1).

476.     Subsection (5) provides more details of the required arrangements. The purpose of subsection (5)(a) is to ensure that the arrangements will not leave vacancies unfilled for an unreasonable length of time, and subsection (5)(b) ensures that unfilled vacancies must be readvertised at reasonable intervals. Under subsection (5)(c) the arrangements can provide for someone who is not a member of the scheme to qualify for selection as a member-nominated trustee if the employer approves.

477.     Subsection (6) ensures that a member-nominated trustee cannot be removed without the agreement of all the other trustees. Subsection (7) prevents the arrangements excluding member-nominated trustees from exercising functions which other trustees can exercise simply on account of their being member-nominated trustees.

478.     Subsection (8) provides for exceptions. The section does not apply in the case of an occupational trust scheme if:

  • every member of the scheme is a trustee of the scheme and no other person is such a trustee;

  • every trustee of the scheme is a company (in which case clause 197 applies), or;

  • the scheme is of a prescribed description. It is intended that regulations will disapply the requirements for broadly the same categories of schemes that are exempt from section 16 of the Pensions Act 1995.

479.     Subsection (9) provides for civil penalties to apply to any trustee who has failed to take reasonable steps to secure compliance if the arrangements securing at least one-third member-nominated trustees are not in place or are not being implemented.

Clause 197 - Requirement for member-nominated directors of corporate trustees

480.     This clause sets out broadly the same requirements as clause 196, except that it applies where one or all of the trustees is a company. In this case, the requirement is for at least one third of the directors of the company to be member-nominated directors. The effect of subsections (8) and (9) is to allow a trust company that is trustee in relation to more than one scheme to treat the schemes as if they were a single scheme for the purposes of meeting the member-nominated directors requirement. The company can however elect not to aggregate the schemes. Subsection (10) provides that this section does not apply to an occupational trust scheme if the scheme is of a prescribed description. It is intended that regulations will disapply the requirements for broadly the same categories of schemes that are exempt from section 18 of the Pensions Act 1995 (cf. section 16 of that Act with respect to member-nominated trustees and note on clause 196(8), above). Subsection (11) provides for civil penalties to apply to a company if the arrangements securing at least one-third member-nominated directors are not in place as required under subsection (1)(a) or are not being implemented.

Clause 198 - Member-nominated trustees and directors: supplementary

481.     This clause defines the meaning "company"; and "occupational trust scheme" for the purposes of clauses 196 and 197.

Obligations of trustees of occupational schemes

Clause 199 - Investment Principles

482.     This clause specifies that trustees of a trust scheme must prepare, maintain, review and revise a written statement as to the principles that will govern decisions about scheme investments.

483.     Regulations made under this clause will specify that:

  •      the statement must be reviewed at least every three years (in compliance with Article 12 of the IORP Directive; and

  •      when stating their investment principles, the trustees must cover:

     - the kind of investments to be held;

     - the balance between the different types of investments to be held;

     - risk;

     - the expected returns on investments;

     - the extent (if at all) to which social, environmental or ethical considerations

    are taken into account in the selection, retention and realisation of investments; and

     - their policy (if any) in relation to the exercise of the rights (including voting

      rights) attaching to investments.

  •      before a statement is prepared or revised, trustees must:

     - obtain and consider written advice from somebody they reasonably believe

    to be qualified by ability in and practical experience of financial matters and who has the appropriate knowledge and experience of the management of investments of such a scheme.

     - consult the employer.

Clause 200 - Requirement for knowledge and understanding: individual trustees

484.     This clause establishes a general principle that an individual trustee of an occupational pension scheme must be conversant with or have knowledge and understanding of specified documents and matters relating to the performance of his functions.

485.     It requires a trustee to be conversant with:

  •      the trust deed and scheme rules;

  •      any statement of investment principles;

  •      where appropriate, the most recent statement of funding principles;

  •      any other document recording policy on the administration of the scheme generally.

486.     The clause also requires a trustee, where appropriate for the performance of his functions, to have knowledge and understanding of:

  •      the law in relation to pensions and trusts;

  •      the investment of assets;

  •      scheme funding;

  •      such other matters as are prescribed.

487.     Under clause 64 the Regulator must issue a Code of Practice giving more details of the kinds of knowledge, training, experience or qualifications regarded as necessary to fulfil the requirement of this clause.

Clause 201 - Requirement for knowledge and understanding: corporate trustees

488.     This clause essentially reproduces the provisions of clause 200 in respect of corporate trustees. It requires any individual who exercises any functions that the company exercises as a corporate trustee to be conversant with the matters or to have the knowledge and understanding outlined at clause 200, in so far it is relevant to the functions performed by the individual.

Clause 202 - Requirement for knowledge and understanding: supplementary

489.     This clause sets out supplementary provisions in respect of the foregoing two clauses, defining the functions of a trustee, and specifying that these provisions do not affect any other rule of law affecting trustees' knowledge or expertise. Regulations under this clause will provide that the requirements will not apply, or may apply with modifications, to:

  •      newly appointed trustees until a reasonable "period of grace" has passed;

  •      a trustee who is the sole member of the scheme;

  •      a trustee of a trust scheme where all the members are trustees.

Pension protection on transfer of employment

Clause 203 - Conditions for pension protection

490.     This clause sets out the conditions in which employees, who are involved in TUPE transfers, are eligible for pension protection provided by clause 204. It applies where:

  •      the employee is or is eligible to be or would have been or would have been eligible to be, an active member of an occupational pension scheme in relation to which the transferor is the employer; and

  •      where the scheme provides money purchase benefits, the transferor is required to make contributions to it or is not so required but has made one or more contributions (other than the contracting-out rebate) to the scheme in respect of the employee.

491.     Subsection (5) ensures that employees are still protected even if the transferor has withdrawn their occupational pension scheme by reason of the transfer.

492.     References to transferor include any associate of the transferor, and for the purposes of determining who is to be an associate of the transferor for the purposes of this clause, the criteria in section 435 of the Insolvency Act 1986 are to apply.

Clause 204 - Form of protection

493.     This clause specifies the pension provision that transferee employers must make for employees in TUPE transfers where the conditions in clause 203 apply;

494.     Subsection (1) makes it a condition of the employee's employment contract with the transferee that the transferee complies with either the requirement in subsection (2) or the requirement in subsection (3).

495.     The requirement in subsection (2) is:

  •      that the transferee secures that the employee is, or is eligible to be, a member of an occupational pension scheme in relation to which the transferee is the employer; and

  •      where the scheme is a money-purchase occupational pension scheme, the transferee is, or would be, required to make relevant contributions to the scheme in respect of the employee; and

  •      where the scheme is not a money-purchase scheme, it must satisfy either the statutory standard in section 12A of the Pension Schemes Act 1993 (the Reference Scheme Test) or an alternative standard to be prescribed in regulations.

496.     The requirement in subsection (3) is that the transferee makes relevant contributions to a stakeholder pension scheme of which the employee is a member.

497.     Subsections (4) and (5) allow the requirement in subsection (3) to be treated as complied with so long as the transferee employer has offered membership of a stakeholder pension scheme to the employee with the promise that the transferee will make relevant contributions from the time the employee becomes a member of that scheme.

498.     Subsection (6) allows for variation by agreement between the transferee employer and the employee of the contractual term which imposes the requirement.

499.     "Relevant contributions" will be defined in regulations and will specify that the transferee must match the employee's contributions up to a maximum of 6%.

500.     These clauses which provide additional protection for employees on a transfer of an undertaking are considered to be compatible with Article 1 Protocol 1 and Article 14 ECHR.

501.     Safeguarding pension rights

Clause 205 - Paternity leave and adoption leave

502.     This clause adds two new paragraphs into Schedule 5 of the Social Security Act 1989. The new paragraphs apply provisions in respect of paid paternity leave and paid adoption leave that mirror those found at paragraph 5 of that Schedule (which are headed "unfair maternity provisions" and provide that employer pension contributions during periods of paid maternity leave should be made as if the woman was working normally).

Clause 206 - Inalienability of occupational pension

503.     Section 91(1) of the Pensions Act 1995 sets out the general rule that entitlement or a right to an occupational pension cannot be assigned, surrendered or charged, or a lien or set-off be exercised in respect of it. Section 91(5) sets out a number of exceptions to that rule. This clause amends section 91(5), at subsection (5)(f), to provide for a further exception to section 91(1), where a payment of a pension is made in error, giving rise to a monetary obligation in favour of the scheme. This was always the intention, and the amendment is one of clarification.

Payments by employers

Clause 207- Payments made by employers to personal pension schemes

504.     This clause amends section 111A of the Pension Schemes Act 1993 (monitoring of employers' payments to personal pension schemes). The clause imposes an obligation on the trustees or managers of a scheme to monitor the payment of contributions by the employer under the direct payment arrangements (which are defined by section 111A(2) of that Act). In order to carry out this obligation, the trustees and managers can request the employer to provide them with information on payments. The employer must then comply with this request within a reasonable period. If an employer does not comply with the request for payment information and this has an effect on the trustees or managers' ability to monitor the payment of contributions, the trustees or managers must then give notice of this to the Regulator within a reasonable period.

505.     By virtue of the proposed section 111A(7A), where a contribution under the direct payment arrangements has not been paid by its due date, and the trustees or managers have reasonable cause to believe that the failure is likely to be of material significance to the Regulator in the exercise of any of its functions, then they must, within a reasonable period after the due date, give notice of the late or non-payment to the Regulator and the employee. Under clause 64 the Regulator must issue codes of practice on the meaning of 'material significance' in relation to the exercise of its functions, and on the meaning of 'reasonable period'.

Clause 208 - Payments made by employers and members to occupational pension schemes

506.     This clause amends two sections of the Pensions Act 1995. Section 49(9) of the that Act (duty of trustee etc to report a failure by employer to pay contributions deducted from earnings on time) is amended to provide that, in cases where an amount which has been deducted from earnings (corresponding to a contribution payable on behalf of an active member of an occupational pension scheme) has not been paid to the managers or trustees of the scheme within the prescribed period, and the trustees or managers have reasonable cause to believe that the failure is likely to be of material significance to the Regulator in the exercise of any of its functions, then they must (except in prescribed circumstances) give notice of the failure to the Regulator and the scheme member within a reasonable period after the date when the payment was due.

507.     This clause also amends section 88 of the Pensions Act 1995 (schedules of payments to money purchase schemes) to provide that where there is a failure to pay any amounts under the payment schedule by the due date (as required under section 87 of that Act), and the trustees or managers have reasonable cause to believe that the failure is likely to be of material significance to the Regulator in the exercise of any of its functions, then they must (except in prescribed circumstances) give notice of the failure to the Regulator and the scheme members within a reasonable period after the due date for payment. Under clause 64 the Regulator must issue codes of practice on the meaning of 'material significance' in relation to the exercise of its functions, and on the meaning of 'reasonable period', in respect of both these amended sections.

Deficiency in assets of certain occupational schemes

Clause 209 - Debt due from the employer when assets insufficient

508.     This clause specifies the date by reference to which the debt under section 75 of the Pension Act should be calculated. The date will differ depending on whether the debt has been triggered by the winding up of the scheme or the insolvency of the sponsoring employer.

509.     Section 75(2) as amended will confirm that in circumstances where the company is solvent but the scheme is in wind-up, the trustees choose the date at which the assets and liabilities are to be valued. Where the liabilities are less than the assets the debt is due, equal to that difference, to the trustees from the employer.

510.     Section 75(3) as amended will make clear that section 75(2) as amended only applies where there is no insolvency activity.

511.     Sections 75(4) and 75(4A) as amended will provide that where the scheme is not in wind-up, but an insolvency event occurs, and the assets are less than the liabilities, then debt arises immediately before the insolvency event.

512.     Section 75(4B) as amended will provide that the debt is contingent on there being an insolvency event followed by a notice that a scheme rescue is not possible, or that wind-up has commenced before any of the events listed in section 75(6A) as amended.

513.     Subsection (4) of clause 209 amends section 75 of the Pensions Act 1995 to take account of events that are related to insolvency in the context of the Pension Protection Fund.

Pension disputes

Clause 210 - Resolution of disputes

514.     This clause replaces section 50 of the Pensions Act 1995 and sets out revised requirements relating to the dispute resolution arrangements for occupational pension schemes.

New section 50 of Pensions Act 1995 - Requirement for dispute resolution arrangements

515.     This section requires trustees or managers of an occupational pension scheme to secure that dispute resolution arrangements are made and implemented.

516.     Subsection (3) defines a pension dispute as being a dispute about matters relating to the scheme between the trustees or managers of a scheme on the one hand and one or more persons "with an interest in the scheme" except where the dispute is exempted under subsection (9).

517.     Subsection (4) requires the arrangements to provide a procedure for any person with an interest in the scheme to be able to apply to the trustees or managers of the scheme to make a decision on the matters of the dispute.

518.     Subsection (5) provides that where a dispute is referred to the trustees for a decision, they must make a decision within a reasonable period of receiving the application and notify the applicant of the decision within a reasonable period. Under clause 64 the Regulator must issue a code of practice on what constitutes a "reasonable period".

519.     Subsection (6) requires that the dispute resolution arrangements must comply with the requirements set out in new section 50B.

520.     Subsection (7) provides that the arrangements have effect in relation to applications made on or after the commencement date.

521.     Subsection (8) exempts from the application of this section schemes where every member of the scheme is a trustee and schemes with no more than one member, and provides a power for further exemptions to be set out in regulations. Subsection (9) sets out the types of dispute to which the dispute resolution arrangements do not apply and provides a power for further exemptions to be set out in regulations.

522.     Subsection (10) provides for the civil penalties to apply to trustees or managers who do not take reasonable steps to make or implement dispute resolution arrangements under section 50.

New section 50A - Meaning of a person with an interest in a scheme

523.     Subsection (1) sets out the meaning of "a person with an interest" in the scheme for the purposes of section 50. It reflects the definitions currently set out in the Occupational Pension Schemes (Internal Dispute Resolution Procedures) Regulations 1996.

524.     Subsection (2) sets out the meaning of "non-dependent beneficiary" for the purposes of subsection (1)(c).

525.     Subsection (3) sets out the meaning of "prospective member" for the purposes of subsection (1)(d).

New section 50B - The dispute resolution procedure

526.     This new section sets out the matters which must be included in the dispute resolution procedure.

527.     Under subsection (2) the procedure must provide for the representation of a person who is a party to the dispute where (i) that person dies, (ii) that person is a minor or a person otherwise incapable of acting, or (iii) in any other case, that person nominates a representative.

528.     Subsection (3) provides that the dispute resolution procedure may include provision about the time limits for making an application for the resolution of a dispute but further provides that the procedure must require a six-month time limit for making the application where a person ceases to be a person with an interest in the scheme under Section 50A(1).

529.     Subsection (4) requires the dispute resolution arrangements to set out details about how the application is to be made; what information should be included in the application; and the way in which decisions are to be reached and given.

530.     Subsection (5) provides for the dispute resolution procedure to cease if, after the application is made, the dispute becomes one in respect of which proceedings have been commenced in any court or tribunal or the Pensions Ombudsman has commenced an investigation as a result of a complaint made or a dispute referred to him.

 
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Prepared: 12 February 2004