House of Commons portcullis
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

 

 

Pensions Bill
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

 

 

Pensions Bill
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—equation: over[char[C],char[V]]

           

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);

 

 

Pensions Bill
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.

 

 

Pensions Bill
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;

 

 

Pensions Bill
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

 

 

Pensions Bill
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—

 

 

 
previous section contents continue
 
House of Commons home page Houses of Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 2004
Revised 30 April 2004