House of Commons - Explanatory Note
Pensions Bill - continued          House of Commons

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Clause 223 - Claims for certain benefits following termination of reciprocal agreement with Australia

651.     This clause is needed following the termination of the Social Security Agreement between the United Kingdom and Australia with effect from 1st March 2001. The Agreement is set out in Schedule 1 to the Social Security (Australia) Order 1992. The Agreement provided that, where people living permanently in the United Kingdom had previously lived in Australia, their Australian residence counted as periods for which Class 3 National Insurance contributions had been paid for the purpose of determining their entitlement to certain UK benefits. For example, such periods of residence in Australia could help a person to qualify for a basic retirement pension or enhance the rate of basic retirement pension to which they were entitled. The Agreement made reciprocal provision for people living permanently in Australia who had previously lived in the United Kingdom.

652.     The position of people who were already receiving benefits in reliance on the Agreement, or had made a claim in reliance on the Agreement, before 1 March 2001 is protected by the Agreement itself (subsection (8)). However, the Agreement did not protect the position of people who had lived in Australia but who had not made a claim for benefits by that date. The Department for Work and Pensions, with Treasury approval and having notified Parliament, is currently protecting the position of these people by paying certain benefits to them.

653.     This clause provides that, for the purposes of claims for basic retirement pension, widow's benefits and bereavement benefits made after the termination of the Agreement, certain provisions of the Agreement are treated as continuing in force with modifications. Any week of residence in Australia before 6th April 2001 (and forming part of a period of residence beginning before 1st March 2001) continues to be treated as a week of residence in the United Kingdom during which a voluntary Class 3 National Insurance contribution has been paid. This regularises the statutory basis for the payments which have been made under the extra-statutory scheme (subsection (7)).

654.     Where reciprocal agreements are modified to take account of changes in UK legislation, there is a power to modify UK legislation as it applies to cases affected by the reciprocal agreements (under the Social Security Administration Act 1992 and the Northern Ireland equivalent). Subsection (4) enables this power to be exercised in relation to the provisions of the Agreement with Australia which are continued in force by this section.


Dissolution of existing bodies

Clause 224 - Dissolution of Opra

655.     This clause dissolves the Occupational Pensions Regulatory Authority. Subsection (2) enables the transfer by order of Opra's property, rights and liabilities to the Regulator or the Secretary of State and allows the order to provide for any functions of Opra which have not been exercised before Opra has been dissolved to be exercised by either the Regulator, the Secretary of State or the Department for Social Development in Northern Ireland.

Clause 225 - Transfer of employees from Opra to the Regulator

656.     Subsection (1) of this clause provides that the terms and conditions of employment of staff who transfer from Opra to the Regulator will be protected by the transfer expressly being made subject to the provisions of the Transfer of Undertakings (Protection of Employment) Regulations 1981 (SI 1981/1794). However, as those Regulations do not protect occupational pension rights, subsection (2) expressly allows for such rights relating to such staff to be protected.

Clause 226 - Dissolution of the Pensions Compensation Board

657.     This clause dissolves the Pensions Compensation Board (PCB). It enables provision to be made by order for the property, rights and liabilities of the PCB to be transferred to the Board of the Pension Protection Fund and for any function remaining to be exercised by the PCB to be exercised by the Board. Subsections (3) and (4) ensure that information transferred from the PCB to the Board is protected from disclosure to the same extent as it has been prior to its transfer.

Service of notifications etc and electronic working

Clauses 227, 228, 229 - Service of notifications and other documents; Notification and documents in electronic form; Timing and location of things done electronically

658.     Clause 227 makes general provision for the giving of any notification or the sending of documents authorised or required by this Bill and in particular in relation to the manner in which such notifications or documents may be sent. Clause 228 makes provision for the service of notifications and other documents in electronic form. Before any document or notification is transmitted electronically, the potential recipient must have indicated that he is willing to accept transmissions in the format in question. Clause 229 enables the Secretary of State by order to make provision about the time and location at which an electronic transmission is deemed to have taken place.


Clause 230 - Overriding requirements

659.     This clause sets out which provisions in or under the Bill are to override the rules of occupational or personal pension schemes, in the event of a conflict, so that such rules are to be regarded as having been modified accordingly.

Clause 231 - Modification of this Act in relation to hybrid or multi-employer schemes

660.     This clause allows for the modification, by regulations, of those provisions of the Bill which are specified in subsection (2) in relation to hybrid or multi-employer schemes as defined in subsection (3).

661.     A hybrid scheme is a scheme that is not a money-purchase scheme but where some of the benefits that may be provided are money-purchase benefits. A multi-employer scheme is a scheme in relation to which there is more than one employer.

Clause 232 - Offences by bodies corporate and partnerships

662.     This clause states that where an offence under the Bill has been committed by a body corporate or Scottish partnership, any officer of the body or partnership who consented to or connived in the commission of the offence, or to whose neglect it was attributable, is also guilty of the offence and liable to be proceeded against and punished accordingly.

Clause 233 -Admissibility of statements

663.     Subsection (1) provides that any statement made by a person in response to a requirement (listed in subsection (4)) to provide information is admissible in evidence in any proceedings, provided that it otherwise complies with any requirements governing its admissibility.

664.     But subsections (2) and (3) provide that where a person who has made a statement is subject to criminal proceedings in which they are charged with a "relevant offence" (defined in subsection (4)), or where as a result the person may be required to pay a civil penalty no evidence relating to the statement may be asked by or on behalf of the prosecution, or as the case may be the Regulator, unless the matter of the statement is first raised by or on behalf or the person who made the statement.

Clause 234 - Protected items

665.     This clause protects from production, disclosure or inspection under the Bill items comprising or connected with privileged communications or, in Scotland, confidential communications, between lawyer and client.

Clause 235 - Liens

666.     Where a document is obtained by the Regulator from a person who is holding the document pending a claim against another person and they claim a lien on that document, its production will not affect the lien.

Clause 236 - Crown Application

667.     This clause sets out how relevant provisions of the Bill specified in subsection (1) apply to a pension scheme managed by or on behalf of the Crown. Nothing in these provisions applies to Her Majesty in Her private capacity.

Regulations and orders

Clause 237 - Breach of regulations

668.     This clause enables regulations made under this Bill to provide that breach of the Regulations is to give rise to liability to a civil penalty, or to be an offence, by virtue of section 10(3) to (9) (power to impose civil penalties for contravention of regulations) or section 116 (power to provide for contravention of regulations to be a criminal offence) of the Pensions Act 1995, respectively.

Clause 238 - Subordinate legislation (general provisions)

669.     This clause makes provision in relation to subordinate legislation made under the Bill. (Any order made by the Regulator is not to be made by statutory instrument, but is subordinate legislation for the purposes of the Bill). This clause makes further provision for the manner in which, and purposes for which, powers conferred by the Bill may be exercised, including provision for sub-delegation, and incidental, consequential and transitional provision.

Clause 239 - Parliamentary control of orders and regulations

670.     The following provisions conferring powers which, when exercised, will attract the affirmative procedure of Parliamentary control:

    a)     regulations under clause 91(1) or (3) (administration levy in respect of expenditure relating to the Board of the Pension Protection Fund);

    b)     regulations under clause 129 (modification of Chapter 3 where liabilities discharged during the assessment period);

    c)     regulations under clause 136 (the initial levy);

    d)     regulations under clause 137 (pension protection levies);

    e)     an order under clause 140(1)(the levy ceiling);

    f)     an order under clause 170 (the PPF Ombudsman);

    g)     regulations under clause 173 (reference of reviewable matter to the PPF Ombudsman);

    h)     regulations under clause 174 (investigation by PPF Ombudsman of complaints of maladministration);

    i)     regulations under clause 194 (combined pension forecasts);

    j)     regulations under clause 195 (information and advice to employees);

    k)     regulations which make provision by virtue of clause 237(b) (power to provide for contravention of regulations to be criminal offence);

    l)     an order under paragraph 23(7) of Schedule 7 (power to vary percentage of periodic compensation that can be commuted);

    m)     an order under paragraph 25(7) of that Schedule (orders specifying the maximum permitted rate of periodic compensation from the Pension Protection Fund);

    n)     an order under paragraph 30(1) of that Schedule (power to vary percentage of underlying rate paid as periodic compensation from the Pension Protection Fund); or

    o)     an order under clause 242(2)(a) (power to make consequential amendments to Acts).

671.     The exercise of the remaining powers under the Bill will attract the negative procedure, except for those powers (listed in subsection (3)) to appoint commencement dates, which are not subject to Parliamentary control.

Clause 240 - Consultations about regulations

672.     This clause sets out the requirement for the Secretary of State to consult such persons as he considers appropriate before making any regulations under this Bill, as well as the circumstances (specified in subsection (2)) in which the requirement does not apply.


Clause 241 - General interpretation

673.     This clause defines terms used throughout the Bill and confers power to extend the meaning of 'employer' in certain circumstances, and to make provision for the persons who are to be regarded as members or prospective members of pension schemes.

Miscellaneous and supplementary

Clause 242 - Minor and consequential amendments

674.     This clause introduces Schedule 11 which makes minor and consequential amendments in connection with the Bill. It also confers power to make consequential amendments in primary and subordinate legislation by order.

Clause 243 - Repeals and revocations

675.     This clause introduces Schedule 12 which specifies provisions of legislation which will be revoked or repealed as a result of the Bill.

Clause 244 - Pre-consolidation amendments

676.     This clause allows for modification by order of pensions legislation specified in subsection (1), for the purpose of consolidation of that legislation.

Clause 245 - Commencement

677.     This clause provides for the coming into force of the provisions of the Bill. Provisions specified in subsection (2) come into force on Royal Assent; provisions specified in subsection (3) come fully into force on 6th April 2005, as do repeals specified in subsection (4). The remaining provisions of the Bill come into force in accordance with orders made by the Secretary of State which may include the transitional provision and savings.

Clause 246 - Extent

678.     The whole Bill extends to England, Wales and Scotland. Subsection (2) specifies the provisions which extend also to Northern Ireland. Amendments and repeals have the same extent as the provisions amended or repealed.

Clause 247 - Northern Ireland

679.     This clause provides that an Order in Council made for Northern Ireland under paragraph 1(1) of the Schedule of the Northern Ireland Act 2000, which states that it is made only for purposes corresponding to those contained in the Bill, is not to be subject to the affirmative procedure of Parliamentary scrutiny, but is instead to be subject to the negative procedure.

Clause 248 - Short title

680.     The short title will be the Pensions Act 2004.


681.     Section 19 of the Human Rights Act 1998 requires the Minister in charge of a Bill in either House of Parliament to make a statement about the compatibility of the provisions of the Bill with the Convention rights (as defined by section 1 of that Act). The statement has to be made before second reading. The Secretary of State for Work and Pensions has made the following statement:

In my view the provisions of the Pensions Bill are compatible with the Convention rights.


The Pensions Regulator

682.     The Pensions Regulator will be established as a Non-Departmental Public Body, building on the regulatory activity undertaken by the existing regulator, the Occupational Pensions Regulatory Authority (Opra). Its running costs will initially be met from the Consolidated Fund and paid through grant-in-aid by the Secretary of State. This expenditure may be recovered by means of an annual levy on occupational and personal pension schemes. The cost of the levy will be based on the size of the scheme and will be collected by the Regulator on behalf of the Secretary of State for surrender to the Consolidated Fund.

683.     It is estimated that there will be one-off start-up costs for setting up the Regulator in the region of £6 million. There will also be expenditure of £20 million for development of IT support, some of which is necessitated by the difference between the functions and powers of Opra and those of the new Regulator. It is estimated that the Regulator will have ongoing annual running costs of approximately £23 million once it is fully established and has achieved steady state, approximately £6 million more than the current annual running costs for Opra. The difference is due to the extension of the Regulator's responsibilities, including interaction with the Pension Protection Fund.

684.     A new tribunal - The Pensions Regulator Tribunal - will be established to handle references from determinations made by the Regulator. All costs associated with the Tribunal will be met from the Consolidated Fund, including the Legal Assistance Scheme. The first year costs of the Tribunal, including the Legal Assistance Scheme, are estimated at £300,000 with ongoing running costs of £280,000. These costs may be recovered from occupational and personal pension schemes by way of the levy. Money collected by the Regulator through fines imposed on schemes will be paid into the Consolidated Fund.

Pension Protection Fund

685.     The Pension Protection Fund will be established as a Non-Departmental Public Body. Its introduction will create no extra cost for the public sector in the long term because it will be funded via levies payable by defined-benefit schemes. The initial set-up cost will be met by a Government loan of approximately £20 million, due to be recouped via the levy. The estimated costs of establishing and running the PPF Ombudsman to consider appeals against determinations of the PPF Board are currently under development; they are not expected to be considerable.

On-line Retirement Planning Service

686.     Indicative costs for establishing and running the On-Line Retirement Planning service are likely to be respectively less than £10 million (one-off) and less than £5 million (annually). These will be met from the Consolidated Fund.

Deferral of State Pension

687.     The public expenditure implications of the new arrangements for pensioners who defer taking their State Pension have been included in the fiscal projections for Pre-Budget Report 2003. Costs for 2007/08, the third year of the new scheme, are estimated to be around £60 million. Costs peak in 2010/11 at around £110 million and are then estimated to lead to a long-term reduction in National Insurance Fund expenditure. The new arrangements include an enhanced value of increments and the introduction of a lump sum comprising pension foregone plus a rate of return. Increments are in actuarial terms more costly than lump sum payments and the estimates of a reduction in expenditure over the long term assume that some deferrers will switch from increments to lump sum payments. Administration costs for the early years of the new scheme are not expected to exceed £1 million a year. It is not possible to anticipate the number of people who will defer because of the new arrangements and these cost estimates are for planning purposes only. Updated estimates will be published in Budget and Pre-Budget reports to account for actual changes in claim patterns.


The Pensions Regulator

688.     It is not anticipated that the creation of The Pensions Regulator will have any significant effect on public service manpower as the Regulator will have a similar staffing complement to that of Opra, i.e. around 200.

689.     Pension Protection Fund

690.     PPF staff will be public service employees. Estimated staffing figures are currently under development; it is expected to be significantly smaller than the Regulator.

On-line Retirement Planning Service

691.     The creation of an On-line Retirement Planning service is not expected to have a significant effect on public service manpower. There will need to be a small core-team to maintain and update the content of the Retirement Planner. It is expected that using the planning service will engender a small increase in the number of State Pension forecast enquiries and a minimal increase in operational staff will result.

Deferral of State Pension

692.     Modest start-up costs will be incurred to cover changes in IT to calculate the new rate of increment and the lump sum. Changes in business processes will also be necessary to provide information about deferral options and to capture the decisions made by customers when they claim their State Pension after a period of deferment. Some changes in staffing may be necessary to manage the additional number of people who defer because of these new arrangements. For planning purposes we estimate that at the most some 50 additional staff may be required to administer the new arrangements.


693.     The new legislation strikes a difficult balance between improving the quality and security of occupational pension provision for members and easing administrative and other burdens on employers who provide occupational pensions. The published Action on occupational pensions in June 2003 stated that the estimated overall financial impact on business ranged from cost-neutral to an overall saving of £155m a year. It was acknowledged that an overall 'cost-neutral package' for business would not mean that it was cost-neutral for every employer. Some firms would pay more for the new protection measures than others, for example, and some would not be able to take advantage of all potential savings on offer.

694.     There have been changes to some of the estimates since June and some policy changes. In addition, on balance it was decided to present the costs and savings in the Regulatory Impact Assessment (RIA) as single orders of magnitude rather than a range because it is extremely difficult to identify the upper and lower parts of a range for many of these measures (since they depend on many external factors and the behavioural changes of many different employers). Taking these various factors in to account, it is now estimated that the Bill measures will result in aggregate savings of approximately £130m. The costs and savings position for firms should be seen in the context of the overall package of occupational pension reforms, some of which will not be carried through in this particular set of legislation (such as the new tax simplification measures). The overall savings for those proposals being taken forward in the Pensions Bill and from tax simplification are around £210m. The full RIA can be found at:


695.     Clause 245 gives detail of the proposed dates for commencement of the proposals within the Bill. Those listed in subsection (2) come into force at Royal Assent. Subsections (3) and (4) list those clauses that are to come fully into force on the 6th April 2005. The remaining provisions of the Bill come into force in accordance with orders made by the Secretary of State which may include the transitional provisions and savings.


Accrual rate

The rate at which, under the admissible rules, rights to the benefits accrue over time by reference to periods of pensionable service.

Accrued benefits

The benefits for service up to a given point in time, whether vested rights (i.e. rights which give rise to a pension) or not. They may be calculated in relation to current earnings or projected earnings.

Allowance may also be made for revaluation and/or pension increases required by the scheme rules or legislation.

Accrued rights

The benefits to which a member is entitled, as of right, under an occupational pension scheme. Theses include accrued benefits. Depending on the context, accrued rights for an active member can be based on benefits as if the member had left service or could include a right to have benefits linked to future salary changes.

The term is given various specific definitions in the Pension Schemes Act 1993 for the purpose of preservation, contracting out and the Disclosure Regulations. It is also given a specific meaning in the Pensions Act 1995 e.g. in relation to scheme amendments.

Active member

A member of a pension scheme who is building up rights on the basis of current contributions.

Additional (retirement) pension

The additional earnings-related element of retirement pension earned through the State Earnings-Related Pension Scheme (SERPS) and/or the State Second Pension (S2P). The right to an additional pension does not depend on the right to a basic pension. It is an unfunded pay-as-you-go benefit, paid from the National Insurance Fund.

Administration levy

The levy on pension schemes to fund the cost of administering the Pension Protection Fund.


This term is used to include all organisations and their staff, whether in-house or outsourced, providing services to trustees that relate to any administrative service. This includes those providing record-keeping services, including record keeping relating to financial transactions, those processing data, dealing with correspondence with members and others on behalf of the trustees, those providing trustee secretariat services and those providing other similar services.

Admissible rules

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 been in the absence of those changes and increases. (To prevent abuse of the Pension Protection Fund).

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Prepared: 12 February 2004