House of Commons - Explanatory Note
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Clause 2: Category B retirement pension: removal of restriction on entitlement

114.     Subsection (2) of this clause amends subsections (2)(a) and (2B)(a) of section 48A of the SSCBA1992 to remove the restriction which currently prevents a person from becoming entitled to a Category B pension derived from their spouse's or civil partner's contributions where their spouse or civil partner has not made a claim for their Category A pension.

115.     The effect of the amendment is to enable, subject to the relevant contribution condition being met, a married person or a person in a civil partnership to become entitled to a Category B pension from the point at which both they and their spouse or civil partner have reached state pension age, regardless of whether the spouse or civil partner has made a claim for their Category A pension.

116.     Subsection (3) omits section 48(5) which restricts payability of a Category B pension to periods after the spouse or civil partner's first payday for his or her Category A pension.

117.     Subsection (4) introduces the consequential amendments in Part 2 of Schedule 1.

118.     Subsection (5) makes provision for clause 2 and Part 2 of Schedule 1 to have effect from 6 April 2010. By subsection (6), the amendments to section 48A apply to a person who attains state pension age before that date as well as to a person who attains state pension age on or after that date.

Schedule 1: Part 2: Category B retirement pension: removal of restriction on entitlement

119.     Part 2 of this Schedule makes amendments to Part 2 of the SSCBA1992 consequential on clause 2.

120.     Paragraph 6 amends section 54 of that Act by omitting subsection (3), which currently prevents a spouse or civil partner from electing to cancel his or her Category A pension where this is already in payment without the consent of the other party to the marriage or civil partnership. The provision becomes redundant by virtue of the amendments made to section 48A by clause 2.

121.     Paragraph 7 amends subsection (3) of section 55 of that Act so that a person's entitlement to their Category B pension is no longer deemed to be deferred where the person's spouse or civil partner has not made a claim for his or her Category A pension.

122.     Paragraph 8 amends paragraph 8 of Schedule 5 to the Act by omitting sub-paragraph (3), which also becomes redundant as a result of the amendments made to section 48A by clause 2.

Clause 3: Contributions credits for relevant parents and carers

123.     Clause 3 amends the SSCBA1992 to replace the existing home responsibilities protection with new crediting arrangements for parents, approved foster parents and carers reaching state pension age on or after 6 April 2010.

124.     In order to achieve this subsection (1) inserts new section 23A into the SSCBA1992.

Provisions of new section 23A

125.     Subsection (1) provides that the new crediting arrangements for parents and carers apply to the following benefits:

  • a Category A pension for a pensioner who reaches state pension age on or after 6 April 2010;

  • a Category B pension for the spouse or civil partner of a person reaching state pension age on or after 6 April 2010 (or who dies on or after that date without reaching that age); and

  • widowed parent's allowance or bereavement allowance payable to the surviving spouse of a person who dies on or after 6 April 2010 who has not yet reached state pension age. Entitlement to both benefits would be based on the deceased's contribution record.

126.     Subsection (2) would allow the contributor concerned in relation to the benefits referred to in paragraph 125 above to be credited with a Class 3 National Insurance credit for each week after 6 April 2010 in which they are a relevant carer as defined in subsection (3).

127.     Subsection (3) defines a person as a relevant carer in respect of a week if, in any part of that week, they are:

  • a parent or guardian awarded child benefit for a child aged under 12;

  • a foster parent; or

  • "engaged in caring". This is intended to be defined in regulations to cover someone who provides care for one or more severely disabled persons for at least 20 hours a week. The regulations are also intended to allow a person caring for a child under 12 to be treated as engaged in caring in circumstances where there is another carer for that child who is entitled to credits by virtue of subsection (3)(a) but who does not need them, because the tax year in question is already a qualifying year for that person.

128.     Subsection (4) provides a regulation-making power to make entitlement to the credits for foster parents and those engaged in caring to be conditional on the application process being complied with, and on the prescribed information being provided. The information that will be required is information that would confirm that a person is undertaking qualifying care.

129.     Subsections (5) and (6) allow individuals reaching state pension age on or after 6 April 2010 to have any complete years of home responsibilities protection, acquired before 6 April 2010, converted to an equivalent number of fully credited years for the purposes of entitlement to basic state pension and bereavement benefits. The number of home responsibilities protection years which may be converted to qualifying years will be subject to existing rules.

130.     Subsection (7) provides that in circumstances where a week straddles two tax years, a credit for that week would be attributed to the tax year in which the week begins.

131.     Subsection (8) enacts both definitions and regulation-making powers for the purpose of new section 23A. In particular, it enables "foster parent" to be defined in regulations. The intention is to mirror the definition in regulation 1(2)(a) of the Social Security Pensions (Home Responsibilities) Regulations 1994 (SI 1994/ 704).

Schedule 1: Part 3: Contributions credits for relevant parents and carers

132.     Paragraph 9 inserts new section 22(5A) in the SSCBA1992 to make reference to the new arrangements at section 23A which provide for the crediting of Class 3 contributions.

133.     Paragraph 10 amends section 176 of the SSCBA1992 to provide that the regulations made using the power at section 23A(3)(c) will be subject to the affirmative procedure on first use.

134.     Paragraph 11 makes a consequential amendment to Part 1 of Schedule 1 to the Welfare Reform Bill so that the definition of "benefit" extends to contributions credits for relevant carers under section 23A of the SSCBA1992.

Clause 4: Category A and C retirement pensions: abolition of adult dependency increases

135.     Subsections (1) and (2) provide that sections 83, 84 and 85 of the SSCBA1992 are to cease to apply from 6 April 2010. The SSCBA1992 allows for the weekly rate of Category A or Category C pension to be increased in respect of a pensioner's wife (section 83), civil partner (section 83A), husband (section 84) or person having care of his or her child/ren (section 85). Section 83(A) was intended, by virtue of paragraph 2 of Schedule 4 to the PA1995, to provide for increases in respect of spouses and civil partners on an equal footing from 6 April 2010.

136.     Subsections (3) and (4) provide for the consequential amendments in Part 4 of Schedule 1 (see below) to have effect from 6 April 2010.

137.      Subsections (5), (6) and (7) provide that the repeal of sections 83, 84 and 85 under subsection (1) and consequential amendments under subsection (3) are not to apply in certain cases before 5 April 2020. This saving will apply in relation to a person who has claimed an increase of pension under those provisions before 6 April 2010 and who immediately before that date is either:

  • entitled to the increase; or

  • has underlying entitlement to it by virtue of section 92 where the dependant's earnings fluctuate;

unless the person otherwise ceases to be entitled to the increase (other than as a result of a fluctuation in the dependant's earnings) or, in the case of an increase paid in respect of a wife, the wife reaches state pension age and becomes eligible for a Category B pension.

Schedule 1: Part 4: Category A and C retirement pensions: abolition of adult dependency increases

138.     Paragraphs 12 and 13 of this Schedule remove references to adult dependency increases in the following sections of the SSCBA1992, which are redundant following the abolition of those increases:

  • Section 30B(3)(b) which deals with the rate of short-term incapacity benefit payable to a person who has attained state pension age; and

  • Section 78(4)(d) which deals with non-contributory Category C and D pensions.

139.     Paragraphs 14, 15 and 16 remove redundant references to adult dependency increases in the following sections of the SSCBA1992:

  • Section 88, which provides that a person cannot be entitled to an adult dependency increase in respect of more than one person for the same period;

  • Section 89, which provides for occupational and personal pensions to be treated as earnings for the purposes of the conditions of entitlement to adult dependency increases; and

  • Section 114, which provides for regulations to prescribe the circumstances in which one person can be taken to be maintaining another for the purposes of establishing entitlement to an adult dependency increase.

140.     Paragraph 17 removes the redundant references to section 83(2) and (3) in section 149(3) of the SSCBA1992 which deals with circumstances in which a person is treated as being entitled to an adult dependency increase for the purposes of establishing entitlement to a Christmas bonus.

141.     Paragraph 18 amends paragraphs 5 and 6 of Part 4 of Schedule 4 to the SSCBA1992 to remove redundant references to the rates at which adult dependency increases of Category A and C pensions are payable.

Clause 5: Up-rating of basic pension etc. and standard minimum guarantee by reference to earnings

142.     Clause 5 inserts a new section 150A into the SSAA1992. Subsection (1) of new section 150A requires the Secretary of State to review the amount of the basic state pension in a Category A, Category B, Category C or Category D pension, the amount of the standard minimum guarantee in State Pension Credit, and widow's pension and widower's pension in Industrial Death Benefit, to determine whether they have kept their value in relation to the general level of earnings.

143.     Under subsection (2), where the Secretary of State considers the level of earnings has increased during the review period, he will be required to lay a draft of an up-rating order before Parliament increasing the amounts referred to in paragraph 142 above by a percentage which is not less than the relevant increase in earnings over the review period.

144.     Subsection (3) will allow the Secretary of State not to increase the amounts of these benefits where it appears to him that the amount of the increase would be inconsiderable.

145.     Subsection (4) will allow for the rounding up or down of any increase. In practice, this would normally mean rounding to the nearest five pence.

146.     Subsection (5) will require a draft order to be accompanied by a copy of a report by the Government Actuary or the Deputy Government Actuary giving their opinion on the likely effect of the order on the National Insurance Fund, so far as the order relates to sums payable out of that Fund.

147.     Subsection (6) will require the up-rating order to be made in the form of the draft once it is approved by Parliament.

148.     Subsection (7) provides for the date when the increases made by the up-rating order are to come into force.

149.     Subsection (8) gives the Secretary of State discretion as to how to estimate the general level of earnings. In practice this means the Secretary of State will be able to decide which measure or index of earnings growth shall be used for the purposes of earnings uprating.

150.     Where a draft up-rating order under new section 150A of the SSAA1992 is combined with a draft up-rating order under section 150 of that Act, subsection (9) allows for a combined report by the Government Actuary or the Deputy Government Actuary.

151.     Subsection (2) of clause 5 introduces the consequential and related amendments in Part 5 of Schedule 1.

152.     Subsection (3) of Clause 5 makes provision for the tax years in relation to which the up-rating of the basic state pension and widow's and widower's pension in Industrial Death Benefit is to have effect. It provides that the first review carried out under section 150A(1) is to be carried out in 'the designated tax year'. Subsection (4) of that clause requires the Secretary of State to designate 'the designated tax year' by way of an order and that order is to be made before 1st April 2011. Subsection (5) provides that in setting 'the designated tax year' the Secretary of State must ensure that the tax year following the designated tax year is a tax year that begins before the 'relevant dissolution date'. Subsection (6) defines 'the relevant dissolution date' by reference to the maximum period for which a Parliament may exist. This is five years.

153.     For the standard minimum guarantee in State Pension Credit, subsection (7) ensures that the new section 150A has effect in relation to the tax year in which this Bill is enacted and subsequent tax years. Accordingly, assuming that the Bill receives Royal Assent in the tax year 2007-08, the first review in respect of the standard minimum guarantee will take place in that year, with the first order up-rating the guarantee by earnings having effect for the tax year 2008-09.

Clause 6: Preservation of link with prices in case of other benefits

154.     This clause amends section 150 of the SSAA1992 and sections 39 and 39C of the SSCBA1992.

155.     Subsections (2), (3) and (4) amend sections 150(1), (3) and (7) respectively of the SSAA1992 to remove the basic state pension, standard minimum guarantee and widow's and widower's pensions in industrial death benefit from that section, which provides for up-rating by reference to prices. Subsections (2) and (3) also amend section 150(1) and (3) so that the rate of widowed mother's allowance, widow's pension, widowed parent's allowance and bereavement allowance can continue to be up-rated in line with prices under that section.

156.     Subsections (5) and (6) amend sections 39 and 39C respectively of the SSCBA1992. The effect of the amendments is to empower the Secretary of State to prescribe by regulations the rate of widowed mother's allowance, widow's pension and widowed parent's allowance. The weekly amount of bereavement allowance will equal the prescribed rate of widowed parent's allowance.

157.     Subsection (9) will ensure that those regulation-making powers are used to provide that the rate of widowed mother's allowance, widow's pension, widowed parent's allowance and bereavement allowance will equal the amount of the basic state pension up to the point at which the basic state pension is uprated in line with earnings.

158.     Under subsection (7) the amendments relating to the basic state pension, widowed mother's allowance, widow's pension, widowed parent's allowance, bereavement allowance and widow's/widower's pensions in industrial death benefit would have effect in relation to the designated tax year specified under subsection (4) of clause 5 and subsequent tax years. Under subsection (8) the amendments relating to the standard minimum guarantee would have effect in relation to the tax year in which this Bill is enacted and subsequent tax years.

Clause 7: Removal of link between lower earnings limit and basic pension

159.     This clause amends section 5 of the SSCBA1992. The effect of the amendments made by subsections (2) and (3) of the clause is to remove the link between the amount of the lower earnings limit and the weekly rate of the basic state pension in a Category A pension, thereby ensuring that the amount of the lower earnings limit will not be required to automatically increase in line with earnings. Instead, any future increase in the lower earnings limit will be at the discretion of the Treasury.

160.     Subsection (4) provides that these amendments have effect in the tax year following the designated tax year (i.e. as from the first year in which the basic pension is uprated by earnings) and subsequent tax years.

Clause 8: Removal of link between lower earnings limit and basic pension: Northern Ireland

161.     This clause makes the same changes to section 5 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 as clause 7 makes to section 5 of the SSCBA1992.

Schedule 1: Part 5: Up-rating of basic pension etc. and standard minimum guarantee by reference to earnings

162.     Part 5 of this Schedule amends the SSCBA1992, the SSAA1992 and the Welfare Reform Bill (currently before Parliament). The amendments are consequential on the introduction of new section 150A of the latter Act and their general effect is to ensure that certain provisions that currently apply in relation to the existing up-rating machinery in section 150 will also apply in relation to the new up-rating machinery in section 150A.

Clause 9: Deemed earnings factors for purposes of additional pension

163.     Subsection (1) amends the SSCBA1992 by introducing new sections 44B and 44C. Subsection (2) introduces Part 6 of Schedule 1 which contains consequential amendments relating to the deemed earnings factors.

Provisions of new Section 44B - Deemed earnings factors from 2010-2011 onwards

164.     Subsection (1) ensures that deemed earnings factors can only be accrued under the new provisions for tax years from 2010-11 onwards. This means that the new provisions only apply to those who have not yet reached state pension age at that time (a person cannot continue to build up entitlement to state second pension once they have reached state pension age).

165.     Subsection (2) provides that an individual who satisfies any of the new conditions A, B or C set out at subsections (3), (4) and (5) would be deemed to be earning at the low earnings threshold.

166.     Subsection (3) introduces Condition A which is satisfied if an individual has earnings at or above the qualifying earnings factor (52 times the lower earnings limit) but less than the low earnings threshold.

167.     Subsection (4) introduces Condition B which is satisfied if an individual has earnings at less than the qualifying earnings factor but has some of the new earnings factor credits (see section 44C - paragraphs 173-179 refer) which may be added to their earnings to bring them up to the qualifying earnings factor.

168.     Subsection (5) introduces Condition C which is satisfied if an individual has 52 earnings factor credits by virtue of section 44C. This would equate to the qualifying earnings factor - see paragraph 174 below.

169.     Subsection (6) ensures that from the first year in which the flat rate of accrual is introduced for the additional pension ("flat rate introduction year"), the effect of the new section 44B will simply be to provide deemed earnings factors above the qualifying earnings factor but below the low earnings threshold, as that will be sufficient to enable them to accrue state second pension at the new weekly flat rate (£1.40, subject to up-rating). Condition A will not operate at that stage, since the persons to whom it applies will already have actual earnings over the qualifying earnings factor.

170.      Subsection (7)(a) defines the "applicable limit", which is the upper earnings limit from 2010-11 until the flat rate introduction year. At that point, the "applicable limit" becomes the upper accrual point (see clause 12(1)(b) and (2)(b)).

171.     Subsection (7)(b) defines the low earnings threshold by reference to the definition in section 44A of the SSCBA1992.

172.     Subsection (7)(c) makes it clear that the earnings factors described in Conditions A and B are derived from primary Class 1 employed earnings below the applicable limit.

Provisions of new section 44C - Earnings Factor Credits

173.     New section 44C applies for the purposes of Conditions B and C specified in section 44B(4) and (5) for tax years from 2010-11 onwards (subsection (1)).

174.     Subsection (2) provides that an individual may enhance their earning factors in any tax year if, for any week in that year, the person is eligible (as specified by subsection (3)). For each week in which the person is eligible, he or she is entitled to an earnings factor credit equal to 1/52 of the qualifying earnings factor for that year (i.e. the lower earnings limit).

175.     Subsection (3) specifies the persons who are eligible for earnings enhancement. They are:

  • -Paragraph (a) - relevant carers (i.e. those entitled to credits for basic state pension purposes under new section 23A described in paragraphs 125-131 above);

  • -Paragraph (b) - broadly, persons in receipt of carer's allowance;

  • -Paragraph (c) - persons to whom severe disablement allowance is payable;

  • -Paragraph (d) - broadly, persons to whom long term incapacity benefit is payable (incapacity benefit will be replaced by the employment and support allowance subject to the Welfare Reform Bill introduced July 2006); and

  • -Paragraph (e) - persons satisfying such conditions as may be set out in regulations. This power will allow persons receiving other benefits to be eligible for earnings enhancement. For example, this could be used to award earnings factor credits to employment support allowance recipients.

176.     Subsection (4) cross-refers to the meaning of occupational pension scheme and personal pension scheme as set out at section 30DD. A person is in effect deemed to be receiving long term incapacity benefit for the purpose of subsection (3)(d) if that benefit is reduced to nil by virtue of receiving payments from such schemes.

177.     Subsection (5) ensures that an individual who has some earnings from paid contributions is only entitled to the number of earnings factor credits required to bring that person up to the qualifying earnings factor.

178.     Subsection (6) provides that earnings factor credits that fall within a week that straddles the change in tax years are attributed to the tax year in which the week begins.

179.     Subsection (7) defines terms used in this section and in section 44B. In particular, it has the effect that one earnings factor credit is equal to 1/52nd of the qualifying earnings factor (see subsection (2)).

Schedule 1: Part 6: Deemed earnings factors for purposes of additional pension

180.     Part 6 of Schedule 1 contains consequential amendments relating to deemed earnings factors. Paragraph 33 ensures that the operation of the current provisions set out at section 22 of the SSCBA1992 is not affected by the new provisions inserted by clause 9.

181.     Paragraph 34 ensures that the current deemed earnings factors provisions at section 44A(1) to (4), which are replaced by the new provision made by clause 9, apply only to tax years prior to 2010-11; and that the labour market attachment test will not apply to those on long term incapacity benefit reaching state pension age on or after 6 April 2010.

Clause 10: Additional pension: removal of accrual bands from 2010 - 11

182.     This clause amends Schedule 4A to the SSCBA1992, which contains the rules for the calculation of additional state pension. As the first step towards introducing a flat rate additional pension, the clause removes the 'Band 3' accrual rate (which is 20%) on earnings factors between the upper earnings threshold and the upper earnings limit currently used in calculating state second pension, starting from the 2010-11 tax year.

183.     Subsection (2)(a) restricts the existing 3-band structure to accruals for tax years up to and including 2009-10. Subsection (2)(b) introduces the new two accrual band formulation for the calculation of an individual's annual surplus earnings factor from 2010-11. A surplus earnings factor for earnings between the lower earnings limit and the low earnings threshold will continue to be based on 40% of relevant earnings. However, surplus earnings factors for any subsequent earnings between the low earnings threshold and the "annual upper earnings limit" will be based on 10% of relevant earnings. Subsection (2)(c) defines the annual upper earnings limit for additional pension purposes.

184.     Subsection (3) replicates the provisions of subsection (2) in respect of the calculation of 'contracted-out' state second pension entitlement.

185.     Subsection (4) replicates the provisions of subsection (2) in respect of the calculation of the amount available by way of top-up for members of an appropriate personal pension scheme (i.e. a contracted-out personal scheme).

186.     Subsection (5) defines "AUEL" for the purpose of the amendments in subsections (3) and (4).

187.     Subsection (6) amends the heading of Schedule 4A.

 
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Prepared: 29 November 2006