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Clause 22: Quality requirement: UK hybrid schemes

64.     Hybrid schemes have a mix of defined benefit and money purchase elements. In order to qualify they will be required to satisfy the quality requirement for either money purchase schemes or defined benefit schemes (clause 22).

65.     Employers will be directed to the quality requirement they should use for a hybrid scheme in rules made by the Secretary of State.

Clause 23: Quality requirement: non-UK occupational pension schemes

66.     Clause 23 enables the Secretary of State to regulate for the quality criteria of non-UK based occupational pension schemes.

Clause 24: Quality requirement: personal pension schemes

67.     Clause 24 provides the conditions which a personal pension scheme must meet in order to satisfy the quality requirement. In order to qualify, personal pension schemes must only provide money purchase benefits (subsection (2)). The employer must be required to contribute at least 3% of qualifying earnings (subsection (3)); and the jobholder must be required to make up any shortfall in contributions up to a contributions total of 8% of qualifying earnings in the pay reference period (subsections (4) and (5)). There will need to be agreements between the scheme and the employer and the jobholder confirming the contributions required. The employer must be required to pass over contributions to the scheme on the basis of direct payment arrangements as defined by the PSA 1993 (subsection (6)).

68.     The PA 2007 legislates for the repeal of contracting out arrangements for personal pension schemes currently provided for under the PSA 1993. However, in the event that this has not occurred when the duties commence, subsection (7) enables regulations to modify the contributions required for personal pension schemes that are contracted-out.

Clause 25: Power of trustees to modify by resolution

69.     Trustees may modify their scheme rules in order to comply with the conditions in clause 15 (allowing their schemes to facilitate automatic enrolment). However, no changes can be made without consent of the employer.

70.     Subsection (3) makes separate provision for those schemes where there is more than one employer.

71.     Regulations may prevent certain schemes from using this provision to modify their rules to facilitate automatic enrolment.

Clause 26: Deduction of contributions

72.     An employer who automatically enrols, re-enrols or arranges opt in for a jobholder into a scheme is permitted to deduct the jobholder's contributions from the jobholder's pay and give this to the scheme. This is so that a deduction from earnings made by an employer in order to comply with the employer duty is not an unlawful deduction from earnings under the ERA 1996, section 13.

Chapter 2: Compliance

Clause 27: Effect of failure to comply

73.     Clause 27 provides that no private right of action for breach of statutory duty arises against an employer who has failed to comply with requirements set out in the employer duty provisions (clauses 2 to 9 or regulations under those clauses). Subsection (2) provides that nothing in Chapter 2, nor in the employer duty provisions, is intended to affect any right of action which might arise otherwise than under these provisions.

Clause 28: Compliance notices

74.     Clause 28 gives the Pensions Regulator the power to issue a compliance notice to an employer where it is of the opinion that the employer has contravened one or more of the employer duty provisions.

75.     Subsections (2) and (3) explain what a compliance notice is and what information may be set out in it in order that the employer can be directed to take, or refrain from taking, certain steps to remedy the contravention.

76.     The Regulator may require the employer to take specific steps to place the jobholder in the same position, as nearly as possible, as if the employer not failed to comply with the duties.

77.     Subsection (5) provides that if a notice is issued to an employer who has failed to comply with one or more of the enrolment duties or steps related to membership of a defined benefit scheme, it may require the employer to ensure that a jobholder is entitled to the same benefits under the scheme as if there had been no contravention.

78.     Subsection (6) allows the Secretary of State by regulations to set out how clauses 2 to 8 will apply in relation to an employer to whom a compliance notice is issued in respect of a failure to comply with one or more of the enrolment duties.

Clause 29: Third party compliance notices

79.     The Regulator may issue a third party compliance notice to a person (the "third party") if it is of the opinion that an employer has failed to comply with one or more of the employer duties as a result, wholly or partly, of that person's actions.

80.     Subsections (2) and (3) set out what a third party compliance notice is and what information may be contained in it.

81.     Subsection (4) provides that the notice may give the third party a choice between different ways of remedying the situation or preventing future recurrence of the failure.

Clause 30: Unpaid contributions notices

82.     Clause 30 provides the Pensions Regulator with the power to issue an unpaid contributions notice to an employer if it is of the opinion that an employer has failed to pay contributions by the due date.

83.     Subsections (2) and (3) explain what an unpaid contributions notice is and to which contributions it is applicable.

84.     Subsection (5) sets out the information that may be included in an unpaid contributions notice.

Clause 31: Calculation and payment of contributions

85.     Clause 31 provides that a notice issued to an employer who has failed to comply with one or more enrolment duties or who has failed to pay contributions by a due date may require the employer to calculate the amount of contributions that have not been paid into the scheme.

86.     The Secretary of State may set out in regulations that where contributions are made within a prescribed period after the due date, the employer will be required to pay his own contributions, with the jobholder having the option to pay his own but not being obliged to do so. However, where contributions are not made during that prescribed period of time, the employer will be required to pay all the outstanding contributions.

87.     Subsections (3) and (4) allow the Secretary of State by regulations to make provision for the Regulator to estimate the amount of unpaid contributions using information other than that provided by the employer.

Clause 32: Fixed penalty notices

88.     Clause 32 provides the Regulator with a power to issue a fixed penalty notice to a person if it believes that the person has failed to comply with a compliance notice, a third party compliance notice, an unpaid contributions notice, a notice requiring certain information (section 72 of the PA 2004) or any of the provisions listed in subsection (2). A fixed penalty notice must specify the date by which the penalty is payable.

89.     Where the person has failed to comply with a notice, the Secretary of State has the power to set the manner in which the amount of the fixed penalty is to be determined, up to a maximum level of £50,000.

Clause 33: Escalating penalty notices

90.     Clause 33 provides the Regulator with the power to issue an escalating penalty notice to a person if it is of the opinion that the person has failed to comply with a compliance notice, a third party compliance notice, an unpaid contributions notice or a notice requiring certain information (section 72 of the PA 2004).

91.     The Regulator may not issue an escalating penalty notice if the Regulator is in the process of undertaking a review of a compliance notice, a third party compliance notice or an unpaid contributions notice, following an application by the person to whom such a notice was issued. The Regulator may not issue an escalating penalty notice if the person has exercised his right to appeal against a fixed penalty notice and the appeal has not been determined.

92.     Subsections (3), (4) and (5) explain that an escalating penalty notice requires the person to pay an escalating penalty for failure to comply with any of the notices, as set out in subsection (1), and that the rate of penalty is calculated by reference to a prescribed daily rate which will not exceed £10,000.

Clause 34: Penalty notices: recovery

93.     Clause 34 provides that fixed or escalating penalties can be recovered from a person by the Pensions Regulator as if they were payable under an order of the county court (England and Wales) or a warrant issued by the sheriff court (Scotland). Any penalties recovered by the Regulator must be paid into the Consolidated Fund.

Clause 35: Review of notices

94.     Clause 35 provides that the Regulator may review a notice issued under Chapter 2 if it is asked to do so by the person to whom the notice was issued, or if the Regulator considers it to be appropriate.

95.     Regulations may prescribe the time period in which the person to whom the notice was issued can apply for review of a notice and the period in which the Regulator may otherwise review the notice.

96.     Subsections (4) and (5) provide that the Regulator may suspend the effect of a notice until a review is completed, and must take into consideration any representations made by the person to whom the notice was issued.

97.     Subsection (6) sets out the Regulator's powers in reviewing a compliance notice. The Regulator may confirm, vary or revoke the notice, or it can choose to replace the notice with a different one.

Clause 36: References to the Pensions Regulator Tribunal

98.     Clause 36 subsection (1) provides that a person who has received a fixed or escalating penalty notice may submit an appeal to the Pensions Regulator Tribunal against the issue of the notice and the amount of the penalty.

99.     Subsection (2) permits the Secretary of State to make regulations covering:

  • the manner in which and the period within which a reference may be made;

  • the procedure for making such a reference;

  • the powers of the Pensions Regulator Tribunal in relation to such references.

Clause 37: Offences of failing to comply

100.     Clause 37 provides that it is an offence for an employer to wilfully fail to comply with the requirement to automatically enrol (clause 3(2)), re-enrol eligible jobholders into an automatic enrolment scheme (clause 5(2)) or enrol jobholders into an automatic enrolment scheme when requested to do so (clause 6(3)).

101.     A person who commits such an offence is liable on conviction on indictment to imprisonment for up to two years, to a fine, or to both, and on summary conviction to a fine not exceeding level 5 on the standard scale.

Clause 38: Offences of providing false or misleading information

102.     Clause 38 amends section 80(1)(a) of the PA 2004 to include the offence of providing the Regulator with false or misleading information about the actions taken by the employer for the purpose of complying with the employer duties (under regulations under clause 9 of the Pensions Act 2008).

Clause 39: Monitoring of employers' payments to personal pension schemes

103.     Clause 39 amends section 111A of the PSA 1993. That section makes provision about monitoring arrangements under which an employer pays contributions to personal pension schemes in respect of an employee. It also provides that fraudulent evasion of such arrangements is an offence. Clause 39 makes provision for that section to apply to arrangements in respect of jobholders who would not otherwise fall within the definition of "employee".

Clause 40: Requirement to keep records

104.     Clause 40 permits the Secretary of State, by regulations, to make provision requiring any person to keep records in a prescribed form for a period prescribed by regulations, not exceeding 6 years. Regulations may require the provision of such records, on request, to the Regulator.

105.     Subsection (2) states that regulations made under subsection (1) may make provision for the Regulator to apply penalties under section 10 of the PA 1995 where a person fails to comply with requirements under this section.

Clause 41: Powers to require information and to enter premises

106.     This clause amends section 72 of the PA 2004 so as to permit the Pensions Regulator to require any person who holds or is likely to hold information relevant to the exercise of the Regulator's functions to provide an explanation of a document requested under section 72(1) and to require a person to attend at a specified time and place to furnish such an explanation.

107.     The amended powers only apply to information required by the Regulator in relation to its functions under Chapter 2 of this Part.

108.     The Regulator will not be able to require anyone to answer any question or provide any information that might incriminate themselves or their partner or spouse.

109.     Subsection (3) amends section 74 of the PA 2004 so as to permit an inspector, appointed by the Pensions Regulator to investigate whether an employer is complying with requirements under Chapter 1, to enter premises liable to inspection.

110.     Subsections (4) and (5) extend the existing powers in sections 75(1) and 76(9) of the PA 2004 (inspection of premises) so as to permit an inspector appointed by the Regulator to act for the purpose of investigating whether an employer is complying with obligations under Chapter 1 of this Part.

Clause 42: Disclosure of information by Revenue and Customs

111.     Clause 42 inserts a new section 88A into PA 2004 allowing HMRC to share information with the Pensions Regulator to enable or assist the Pensions Regulator to discharge its functions. It extends the types of information which HMRC can share with the Pensions Regulator. The clause allows HMRC to share any information it holds in relation to

  • income tax

  • national insurance contributions

  • the national minimum wage

  • pension schemes.

112.     Section 88A limits information sharing to cases where the information enables or helps the Pensions Regulator to carry out its compliance functions under the Bill (specifically, compliance with employer duties in relation to pension scheme membership for jobholders).

113.     Section 88A adopts the same meaning of "Revenue and Customs officials" as in the Commissioners for Revenue and Customs Act 2005.

Clause 43: Information for private pensions policy and retirement planning

114.     Clause 43 amends Schedule 10 of the Pensions Act 2004. This provision allows the Secretary of State (or the Northern Ireland Department) to make use of information collected in the course of carrying out a wide variety of functions (social security, child support, war pensions, employment or training, private pensions policy, retirement planning). This clause adds private pensions policy and retirement planning to that list of functions.

115.     This clause also allows the Pensions Regulator to supply the Secretary of State with information in the first place, so that the latter (and the Northern Ireland Department) can use this information to help perform functions relating to private pensions policy or retirement. The clause also utilises a definition of "private pensions policy" so as to incorporate the definition of pension schemes introduced in Part 1 of the Bill.

Clause 44: Penalty for disclosure

116.     Clause 44 increases the maximum sentence on summary conviction for officials, contractors or any other people who directly or indirectly receive restricted information from the Pensions Regulator and who disclose such information without authorisation. Such unauthorised disclosure is already a criminal offence under section 82(5) of the PA 2004. This clause makes anyone who is convicted of this offence in a magistrate's court liable to a prison term of up to a year (rather than a fine not exceeding the statutory maximum, which was the previous extent of a magistrate's powers for this offence). This may be imposed together with, or instead of, a fine up to the statutory maximum.

117.     "Restricted information" is defined in section 82(4) of the PA 2004 as meaning "any information obtained by the Regulator in the exercise of its functions which relates to the business or other affairs of any person, except for information-

  • (a) which at the time of the disclosure is or has already been made available to the public from other sources, or

  • (b) which is in the form of a summary or collection of information so framed as not to enable information relating to any particular person to be ascertained from it."

118.     In England and Wales the clause limits the sentence to six months until section 282 of the Criminal Justice Act 2003 comes into effect, after which the maximum sentence will be 12 months. In Scotland, the equivalent of the magistrates' court will be able to impose maximum sentences of imprisonment for one year from 10 December 2007 on the coming into force of section 45 of the Criminal Proceedings, etc (Reform) (Scotland) Act 2007.

Clause 45: Objectives of the Regulator

119.     Clause 45 provides a new statutory objective for the Pensions Regulator. In addition to those listed (at section 5(1)) in the PA 2004, the Regulator's objectives will now include maximising compliance with the new duties being placed on employers under Part 1 of this Act.

Chapter 3: Protection of employment rights

Clause 46: The right not to suffer detriment

120.     Clause 46 (subsections (1) and (3)) provides a statutory right for workers not to suffer detriment on grounds related to the right, as a result of the new employer duties under this legislation, to membership of a qualifying pension scheme.

121.     Subsection (2) confirms that detriment can be suffered regardless of whether the worker concerned actually meets the eligibility criteria for the employer duty. What does matter is that claims to the right and claims that the right is being denied must be made in good faith.

122.     Subsection (4) states where the detriment suffered amounts to dismissal this clause does not apply (see clause 48).

123.     Subsection (5) clarifies that the right not to suffer detriment can apply in any situation where action is taken to try and ensure that a worker receives the benefits to which they are entitled as a result of the employer duties.

Clause 47: Enforcement of the right

124.     Clause 47 subsection (1) provides workers with an individual right to bring claims that they have suffered detriment under clause 46 to an employment tribunal.

125.     Subsection (2) provides that claims to the employment tribunal on these grounds will be subject to the same procedural rules as claims of suffering detriment against other rights brought before the employment tribunal.

126.     Subsection (2) also enables the employment tribunal, where it upholds a claim, to make an award of compensation to be paid by the employer to the worker. In awarding such compensation the tribunal will consider an amount that is just and equitable given all the circumstances of the case.

127.     Subsections (3) and (4) provide that where the detriment relates to a worker, as opposed to an employee, and the detriment suffered is termination of the worker's contract, the worker can receive compensation to the same extent that they would have if they had been an employee who had been unfairly dismissed and received an award under the ERA 1996.

128.     Subsection (5) ensures that agency workers are also able to enforce this right in the same manner as other workers before the employment tribunal.

129.     Subsection (6) enables claims before the employment tribunal to be considered in a conciliation process.

Clause 48: Right of employee not to be unfairly dismissed

130.     Clause 48 inserts into the ERA 1996 (new section 104D) a new employment right which protects an employee from being dismissed on grounds related to requirements imposed on employers by the employer duty.

131.     The new section 104D of the ERA 1996 also:

  • will regard an employee who is dismissed on these grounds as having been unfairly dismissed, regardless of whether the employee concerned actually meets the eligibility criteria for the employer duty. What does matter is that claims to the right and claims that the right was denied must be made in good faith.

  • will regard the employee as having been unfairly dismissed if he can show that he was selected for redundancy solely or principally because he insisted on his right to membership of a qualifying pension scheme.

  • will apply the right from the day the employee starts work.

  • will amend the TULRA 1992 to enable workers to claim unfair dismissal for reasons connected with their right under this legislation to membership of a qualifying pension scheme during periods of unofficial industrial action, when they would otherwise be prevented from doing so.

Clause 49: Restrictions on agreements to limit operation of this Part

132.     Clause 49 renders void any agreement between a worker and his employer to prevent the operation of this legislation.

133.     The effect of this restriction will be that if, for instance, a worker agrees to opt out of saving in a pension scheme in exchange for a financial or other reward, he may subsequently decide to enforce his right to be enrolled in the scheme and have the statutory minimum employer contributions paid into it by his employer, without suffering any detriment for doing so. Under the terms of this restriction, the agreement between himself and his employer will be void and unenforceable by the employer, who will be further restricted from recovering the financial or other benefit given in exchange for it.

134.     Subsections (2) to (8) provide that this restriction will not apply where an employer and a worker have entered into conciliation arrangements under section 18 of the ETA 1996. When a worker has commenced an action against his employer before an Employment Tribunal, a conciliation officer may attempt to secure a compromise settlement between the worker and the employer which both regard as fair and equitable, without the need to proceed to a Tribunal hearing. This provision ensures that the restrictions on contracting out do not undermine any conciliation process by inadvertently voiding any agreement made as part of the conciliation process that neither party will institute or proceed with further legal proceedings pending the outcome of the conciliation process.

135.     Subsections (4) to (8) set out the conditions regulating to compromise agreements for the purposes of any such conciliation under this Act.

Chapter 4: Personal accounts

Clause 50: Power to provide for a pension scheme

136.     Clause 50 allows a scheme to be created by giving the Secretary of State the power to establish a pension scheme. This scheme will be a trust, which is generally how occupational pension schemes are established. All trusts are run by trustees. The corporate trustee established under clause 57 will be a trustee of the scheme, but there may be others. All the individual members of the corporate trustee must act together as one trustee. The trustee corporation will be required as a matter of trust law to act in the best interests of its beneficiaries.

137.     This scheme must be tax registered under Chapter 2 of Part 4 of the FA 2004, which will allow tax relief on pension contributions and investment returns. In addition, members may be able to take a tax free lump sum from their pension savings at retirement. In general terms, members will be able to access their savings in the same way as members of any other tax registered, money purchase pension scheme. The scheme must be an automatic enrolment scheme (see clause 15) in relation to any jobholder who is employed by a participating employer and may be enrolled under clause 3 (automatic enrolment), clause 5 (automatic re-enrolment) or clause 6 (jobholder's right to opt in).

138.     The scheme must be established by order made by statutory instrument which is subject to affirmative resolution procedure (that is, a draft must be laid before, and approved by, both Houses of Parliament). This Order sets out the legal framework in which the scheme can operate and is the equivalent of a trust deed. In addition, the scheme may have a separate set of Rules, also part of the trust deed, for its operation. These Rules will not be subject to a formal parliamentary procedure but must be compatible with the Order and cannot be made about certain provisions of the scheme, listed at subsection (12).

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Prepared: 6 December 2007