Pensions Bill

House of Commons

Session 2003 - 04
Internet Publications
Other Bills before Parliament

Pensions Bill

Pensions Bill
Schedule 7 — Pension compensation provisions
243

(c)
the survivor first satisfies those conditions on or after that date.
      (2)
The survivor is entitled to periodic compensation in respect of that pension
(“the pension”)—
(a)
commencing if, and when, the pension would have become payable
under the admissible rules, and
5
(b)
continuing until such time as entitlement to the pension would have
ceased under the admissible rules.
      (3)
The annual rate of the periodic compensation is 100% of the aggregate of—
(a)
the initial rate of the pension which would have been payable in
accordance with the admissible rules had the conditions mentioned
10
in sub-paragraph (1)(c) been satisfied, immediately before the
assessment date, and
(b)
any increases under paragraph 27 (annual increases in periodic
compensation).
      (4)
This paragraph is subject to paragraph 29 (power of Secretary of State to
15
change percentage rates by order).
Compensation in form of dependants’ benefits
22    (1)
Regulations may provide for compensation to be payable, in such
circumstances as may be prescribed, to or in respect of prescribed
dependants of prescribed descriptions of—
20
(a)
members of the scheme, or
(b)
persons with rights to benefits payable under the scheme in respect
of members of the scheme.
      (2)
Regulations may in particular—
(a)
provide for compensation in the form of periodic or lump sum
25
payments,
(b)
for periodic compensation to be payable for a prescribed period,
(c)
apply paragraphs 27 and 28(2) (annual increases in respect of
periodic compensation) in respect of compensation in the form of
periodic payments (with or without modifications).
30
Commutation of periodic compensation
23    (1)
In prescribed circumstances, a person entitled to periodic compensation
under paragraph 5, 8, 11 or 15 may opt to commute for a lump sum a portion
of the periodic compensation with effect from the time it becomes payable.
      (2)
Except in such circumstances as may be prescribed, the portion commuted
35
under sub-paragraph (1) must not exceed 25%.
      (3)
Any reduction required to be made under paragraph 25 (compensation cap)
must be made before determining the amount of a person’s periodic
compensation which may be commuted under this paragraph.
      (4)
Where a person opts to commute any part of his periodic compensation
40
under this paragraph, the lump sum payable under sub-paragraph (1) is the
actuarial equivalent of the commuted portion of the periodic compensation
calculated from tables designated for this purpose by the Board.
      (5)
The Board must publish in such manner as it considers appropriate the
tables designated by it for the purposes of sub-paragraph (4).
45

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Schedule 7 — Pension compensation provisions
244

      (6)
Regulations may prescribe the manner in which an option to commute
periodic compensation under this paragraph may be exercised.
      (7)
This paragraph does not apply where—
(a)
before the assessment date, the person concerned has received
benefits under the scheme which were in the form of a lump sum
5
(otherwise than as a result of the commutation of any part of a
pension) and were attributable to his own service under the scheme,
or
(b)
immediately before the assessment date, the person concerned has
rights to a lump sum under the admissible rules (otherwise than by
10
commutation of any part of a pension) and those rights are
attributable to such service.
      (8)
The Secretary of State may, by order, amend sub-paragraph (2) to substitute
a different percentage for the percentage for the time being specified in that
sub-paragraph.
15
Early payment of compensation
24    (1)
Regulations may prescribe circumstances in which, and conditions subject
to which, a person may become entitled to—
(a)
periodic compensation under paragraph 11 or 15, or
(b)
lump sum compensation under paragraph 14 or 19,
20

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

the amount of the compensation must be restricted in accordance with sub-
paragraph (3).
      (2)
For the purposes of sub-paragraph (1)—
(a)
this paragraph applies if—
45
(i)
the annual value of benefit A exceeds the compensation cap,
and

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Schedule 7 — Pension compensation provisions
245

(ii)
paragraph (b)(i) does not apply, and
(b)
this paragraph applies if—
(i)
at the same time as the person becomes entitled to relevant
compensation in respect of benefit A he also becomes entitled
to relevant compensation in respect of one or more other
5
benefits under the scheme or a connected occupational
pension scheme (“benefit or benefits B”), and
(ii)
the aggregate of the annual values of benefit A and benefit or
benefits B exceeds the compensation cap.
      (3)
Where the relevant compensation in respect of benefit A is required to be
10
restricted in accordance with this sub-paragraph—
(a)
if that compensation is within sub-paragraph (4)(a), the protected
pension rate for the purposes of paragraph 3(3)(a) is the cap fraction
of the rate determined in accordance with paragraph 3(5),
(b)
if that compensation is within sub-paragraph (4)(b), the protected
15
notional pension for the purposes of paragraph 11(3)(a) is the cap
fraction of the rate determined in accordance with paragraph 11(4);
(c)
if that compensation is within sub-paragraph (4)(c), the protected
amount for the purposes of paragraph 14(3) is the cap fraction of the
amount determined in accordance with paragraph 14(4);
20
(d)
if that compensation is within sub-paragraph (4)(d), the protected
pension rate for the purposes of paragraph 15(3)(a) is the cap fraction
of the rate determined in accordance with paragraph 15(4);
(e)
if that compensation is within sub-paragraph (4)(e), the protected
amount for the purposes of paragraph 19(3) is the cap fraction of the
25
amount determined in accordance with paragraph 19(4).
      (4)
For the purposes of this paragraph “relevant compensation” means—
(a)
periodic compensation under paragraph 3 (in a case to which sub-
paragraph (7) of that paragraph applies),
(b)
periodic compensation under paragraph 11,
30
(c)
compensation under paragraph 14,
(d)
periodic compensation under paragraph 15, or
(e)
compensation under paragraph 19.
      (5)
For the purposes of this paragraph, “the cap fraction” means—

Where—
35

C is the compensation cap, and

V is the annual value of benefit A or, in a case to which sub-paragraph (2)(b)
applies, the aggregate of the annual values of benefit A and benefit or
benefits B.
      (6)
For the purposes of this paragraph the “annual value” of a benefit in respect
40
of which a person has become entitled to relevant compensation means—
(a)
if the relevant compensation is within sub-paragraph (4)(a) and
neither paragraph (b) nor (c) below applies, the amount of the
protected pension rate for the purposes of paragraph 3(3)(a);

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Schedule 7 — Pension compensation provisions
246

(b)
if the relevant compensation is within sub-paragraph (4)(a) and is in
respect of a pension of which a portion has been commuted for a
lump sum, the amount which would have been the protected
pension rate for those purposes had that portion not been
commuted;
5
(c)
if the relevant compensation is within sub-paragraph (4)(a) and the
person became entitled to a relevant lump sum under the scheme at
the same time as he became entitled to the pension to which that
compensation relates, an amount equal to the aggregate of—
(i)
the protected pension rate for the purposes of paragraph
10
3(3)(a), and
(ii)
the annualised value of the relevant lump sum;
(d)
if the relevant compensation is within sub-paragraph (4)(b), the
amount of the protected notional pension for the purposes of
paragraph 11(3)(a);
15
(e)
if the relevant compensation is within sub-paragraph (4)(c), the
annualised value of the protected amount for the purposes of
paragraph 14(3);
(f)
if the relevant compensation is within sub-paragraph (4)(d), the
amount of the protected pension rate for the purposes of paragraph
20
15(3)(a);
(g)
if the relevant compensation is within sub-paragraph (4)(e), the
annualised value of the protected amount for the purposes of
paragraph 19(3);

and for the purposes of determining the annual value of a benefit any
25
reduction required to be made by this paragraph is to be disregarded.
      (7)
In this paragraph—

“annualised value” of a lump sum or amount means the annualised
actuarially equivalent amount of that sum or amount determined in
accordance with actuarial factors published by the Board;
30
“the compensation cap”, in relation to the person who becomes
entitled to relevant compensation in respect of benefit A, means—
(a)
the amount specified by the Secretary of State by order, or
(b)
where the person—
(i)
has not attained the age of 65, or
35
(ii)
has attained the age of 66,

at the time he first becomes entitled to that compensation,
that amount as adjusted by the Board in accordance with
actuarial adjustment factors published by it;

and for the purposes of this paragraph, except in prescribed circumstances,
40
the scheme is connected with another occupational pension scheme if the
same person is or was an employer in relation to both schemes.
      (8)
For the purposes of sub-paragraph (6)(c) a lump sum under the scheme is a
relevant lump sum if the person’s entitlement to the lump sum—
(a)
is attributable to his pensionable service under the scheme or another
45
scheme, and
(b)
did not arise by virtue of any provision of the admissible rules of the
scheme making special provision as to early payment of pension on
grounds of ill health.

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Schedule 7 — Pension compensation provisions
247

      (9)
Regulations may provide for this paragraph to apply with prescribed
modifications where a person becomes entitled to relevant compensation in
respect of a benefit and he has previously—
(a)
become entitled to relevant compensation in respect of a benefit or
benefits under the scheme or a connected occupational pension
5
scheme, or
(b)
become entitled to one or more lump sums under the scheme or a
connected occupational pension scheme.
     (10)
Regulations may prescribe sums which are to disregarded for the purposes
of this paragraph.
10
Increasing the compensation cap in line with earnings
26    (1)
This paragraph applies where, on a review under subsection (2) of section
148 of the Social Security Administration Act 1992 (c. 5) (review of general
level of earnings obtaining in Great Britain) in a tax year, the Secretary of
State concludes that the general level of earnings obtaining in Great Britain
15
(“the new level”) exceeds the general level at the end of the period
mentioned in paragraph (a) or, as the case may be, the date determined
under paragraph (b) of that subsection (“the old level”).
      (2)
The Secretary of State must make an order under sub-paragraph (7) of
paragraph 25 which has the effect of increasing the amount specified for the
20
purposes of that sub-paragraph by the percentage by which the new level is
greater than the old level.
      (3)
The order must provide for the increase to have effect on and after the 1st
April next following the end of the tax year to which the review relates.
Annual increase in periodic compensation
25
27    (1)
This paragraph provides for the increases mentioned in sub-paragraph
(3)(b) of paragraphs 3, 5, 8, 11, 15 and 21.
      (2)
Where a person is entitled to periodic compensation under any of those
paragraphs, he is entitled, on the indexation date, to an increase under this
paragraph of—
30
(a)
the appropriate percentage of the amount of the underlying rate
immediately before that date, or
(b)
where the person first became entitled to the periodic compensation
during the period of 12 months ending immediately before that date,
1/12th of that amount for each full month for which he was so
35
entitled.
      (3)
In sub-paragraph (2)—
“appropriate percentage” means the lesser of—
(a)
the percentage increase in the retail prices index for the
period of 12 months ending with the 31st May last falling
40
before the indexation date, and
(b)
2.5%;
”indexation date” means—
(a)
the 1st January next falling after a person first becomes
entitled to the periodic compensation, and
45
(b)
each subsequent 1st January during his lifetime;

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Schedule 7 — Pension compensation provisions
248

“underlying rate” means, in the case of periodic compensation under
any of the paragraphs mentioned in sub-paragraph (1), the
aggregate of—
(a)
so much of the amount mentioned in sub-paragraph (3)(a)
of the paragraph in question as is attributable to post-1997
5
service, and
(b)
the amount within sub-paragraph (3)(b) of that paragraph
immediately before the indexation date.
      (4)
Where paragraph 25(3) (compensation cap) applies to restrict the amount of
periodic compensation under one of the paragraphs mentioned in sub-
10
paragraph (1), the amount mentioned in sub-paragraph (3)(a) of the
paragraph in question is attributable to post-1997 service and pre-1997
service in the same proportions as the amount so mentioned would have
been so attributable had paragraph 25(3) not applied.
      (5)
Where a portion of periodic compensation under one of the paragraphs
15
mentioned in sub-paragraph (1) has been commuted under paragraph 23—
(a)
for the purposes of sub-paragraph (2), the definition of “underlying
rate” in sub-paragraph (3) applies as if the reference in paragraph (a)
of the definition to the amount mentioned in sub-paragraph (3)(a) of
the paragraph in question was a reference to that amount reduced by
20
the commutation percentage, and
(b)
that amount (as so reduced) is attributable to post-1997 service and
pre-1997 service in the same proportions as that amount would have
been so attributable had no part of the periodic compensation been
commuted.
25
      (6)
In this paragraph—
“post-1997 service” means—
(a)
pensionable service under the scheme on or after 6th April
1997; or
(b)
rights which are derived (directly or indirectly) from rights
30
attributable to pensionable service on or after that date;
“pre-1997 service” means—
(a)
pensionable service under the scheme before that date, or
(b)
rights which are derived (directly or indirectly) from rights
attributable to pensionable service before that date;
35
“the commutation percentage”, in relation to periodic compensation,
means the percentage of that compensation commuted under
paragraph 23.
      (7)
This paragraph is subject to paragraph 28 (Board’s power to alter rates of
revaluation and indexation).
40
Board’s powers to alter rates of revaluation and indexation
28    (1)
The Board may determine the percentage that is to be the maximum
revaluation rate for the purposes of paragraphs 12(4) and 17(4), and where
it does so paragraphs 12(5) and 17(5) do not apply.
      (2)
The Board may also determine the percentage that is to be the appropriate
45
percentage for the purposes of paragraph 27 (and where it does so the
definition of “appropriate percentage” in paragraph 27(3) does not apply).
      (3)
Before making a determination under this paragraph the Board must—
(a)
consult such persons as it considers appropriate, and

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Schedule 7 — Pension compensation provisions
249

(b)
publish details of the proposed determination in such manner as it
considers appropriate and consider any representations made in
respect of it.
      (4)
The rate determined under this paragraph may be nil.
      (5)
A determination under this paragraph may be expressed so as to have effect
5
for a limited period.
      (6)
A determination under sub-paragraph (2)—
(a)
has effect in relation to future increases under paragraph 27 only,
and
(b)
may be expressed to have effect—
10
(i)
in all cases (whether the entitlement to the periodic
compensation first arose before or after the date the
determination is made), or
(ii)
only in cases where entitlement to the periodic compensation
first arose on or after a date determined by the Board.
15
      (7)
Notice of any determination under this paragraph must be published in
such manner as the Board considers appropriate.
Secretary of State’s powers to vary percentage paid as compensation
29    (1)
The Secretary of State may, on the recommendation of the Board, by order
provide that any of the provisions mentioned in sub-paragraph (2) is to have
20
effect as if a different percentage were substituted for the percentage
specified in the provision on the passing of this Act (“the original
percentage”.
      (2)
The provisions are paragraphs 3(4)(a) and (b), 5(3), 7(2), 8(3), 10(2), 11(3),
14(3), 15(3), 19(3) and 21(3) of this Schedule (percentage used to calculate
25
periodic or lump sum compensation entitlement).
      (3)
Subject to sub-paragraph (4), an order under sub-paragraph (1) has effect
only in respect of any period for which the Board has, under paragraph 28—
(a)
reduced the maximum revaluation rate for the purposes of
paragraphs 12(4) and 17(4) to nil, and
30
(b)
reduced the appropriate percentage for the purposes of paragraph 27
to nil in all cases.
      (4)
Sub-paragraph (3) does not prevent an order under sub-paragraph (1)
having effect to the extent that it provides for paragraph 3(4)(a), 11(3), 14(3),
15(3) or 19(3) (provisions where the original percentage is 90%) to have effect
35
as if for the original percentage there were substitute a higher percentage.
      (5)
Before making a recommendation for the purposes of sub-paragraph (1) the
Board must—
(a)
consult such persons as it considers appropriate, and
(b)
publish details of the proposed recommendation in such manner as
40
it considers appropriate and consider any representations made in
respect of it.
      (6)
Subject to sub-paragraph (3), an order under this paragraph may have
effect—
(a)
for a limited period specified in the order;
45
(b)
in relation—