Clause 71: Crown employment

Clause 72: House of Lords staff

Clause 73: House of Commons staff

211.     These clauses set out specific groups included in the jobholder provisions. As such, the employer duty will apply to these specific groups in the same way as it applies in relation to other employment and other workers.

Clause 74: Exception for reserve and volunteer forces          

Clause 75: Exception for share fishermen

212.     These clauses set out specific exclusions from the jobholder provisions.

Clause 76: Extension of definition of worker

213.     This clause provides that the definition of "worker" may be extended to include individuals who are not currently captured if a new definition arose within policy parameters which did not fall within the existing employer duty obligation. Such individuals would be deemed to be subject to a worker's contract of a prescribed kind, working for a person of a prescribed description, who would be deemed to be the employer for the purposes of automatic enrolment.

Clause 77: Interpretation of Part

214.     This clause sets out the meaning of particular words and phrases used throughout this Part.

Part 2: Simplification etc.

Clause 78: Abolition of safeguarded rights

215.     Where, on divorce or dissolution of a civil partnership, rights to a person are shared under the mechanism in Chapter 1 of Part 4 of WRPA 1999, and those rights include contracted-out rights, the law as it stands treats the contracted-out rights in a different way from the other shared rights. They are known as "safeguarded rights" and are subject to various restrictions. Clause 78 and the related repeals in Schedule 8 abolish these restrictions; once these provisions are brought into force, shared rights that derive from contracted-out rights will be treated in the same way as other shared rights.

Clause 79: Revaluation of accrued benefits etc

216.     This clause amends the method of revaluing the accrued pension benefits of deferred members in certain occupational pension schemes, and also amends related arrangements applying to pension compensation payable by the Pension Protection Fund. The details of the amended provisions are set out in Schedule 2.

217.     The amended revaluation arrangements do not apply to revaluation periods ending before the clause becomes operational.

Schedule 2: Revaluation of accrued benefits etc.

Part 1

218.     Paragraphs 2 and 3 of Schedule 2 amend the provisions in the PSA 1993 for revaluing deferred members' benefits in final salary occupational pension schemes.

219.     The overall effect of the amendments is to provide that accrued benefit attributable to pensionable service on or after the commencement day is to be revalued by the rate of inflation over the relevant revaluation period, capped at 2.5% per annum. Accrued benefit attributable to service before the commencement day is to be unaffected by the amendments and a cap of 5% per annum is to continue to be applied to accrued benefits for service between 1985 and the commencement day. Where the time period between the end of pensionable service and the beginning of pension payments is longer than a year, the caps are applied to the rate of inflation as averaged over that time, and are calculated on a compound basis.

220.     "Accrued benefit" is defined as the amount of benefit accrued at the date pensionable service was terminated, excluding any guaranteed minimum pension rights (to which separate provisions apply) - see the inserted paragraph 1(1E) of Schedule 3 to PSA 1993, which reproduces the existing text. "Pensionable service" continues to include any notional pensionable service which is credited to the member by the scheme.

Part 2

221.      Part 2 ensures Pension Protection Fund compensation is paid based on revised revaluation rates as set out in clause 79 and Part 1 of this Schedule.

222.     Paragraph 7 makes a consequential amendment to the provision allowing the Board of the Pension Protection Fund to alter the maximum revaluation rate.

Part 3

223.     Paragraph 8 makes consequential amendments to section 51ZA of the PA 1995, which defines "the appropriate percentage" for the purposes of section 51 of the same Act (limited price indexation of pensions in payment). The amendments insert a reference to the new revaluation rate cap of 2.5% for accrued benefits attributable to post commencement day service as introduced by Part 1 of this Schedule.

Clause 80: Additional State Pension consolidation: Category A and graduated retirement benefit

224.     These clauses change the method of calculating earnings related components of state pensions for people who reach state pension age after 5 April 2020. In addition to their basic State Pension, pensioners can have accrued rights under three earnings related state schemes:

• the Graduated Retirement Benefit scheme (GRB) - from 1961 to 1975;

• State Earnings Related Pension Scheme (SERPS) - from 1978 to 2002;

• State Second Pension (S2P) - accrued from 2002.

225.     S2P was reformed by the PA 2007. From the Flat Rate Introduction Year (for planning purposes this is assumed to be 2012), S2P will start to accrue on a flat-rate basis - the earnings-related element will be gradually phased out and will cease to accrue from around 2030.

226.     Clause 80 amends SSCBA 1992, section 45. It provides the mechanism by which additional pension in respect of years before the Flat Rate Introduction Year will be calculated for people who reach state pension age after 5 April 2020. Their weekly rate of Additional Pension will be the consolidated value of their GRB, SERPS and S2P accruals.

227.     Subsection (6) introduces Schedule 3. This inserts new Schedule 4C into the SSCBA 1992 which sets out how the consolidated value is to be calculated.

228.     Subsection (7) provides for the GRB element of the consolidated pension to be omitted when carrying out the calculation to offset additional pension from incapacity age addition entitlement. This arises where a person was getting an age addition of incapacity benefit before they reach pension age.

229.     Subsection (8) restricts the calculation of GRB under existing rules to those who reach state pension age before 6 April 2020.

Schedule 3: Additional Pension consolidation

230.     Paragraph 1 of the inserted Schedule 4C specifies that the consolidation date will be a fixed date regardless of the date when the person reaches state pension age.

231.     Paragraph 2 defines that the consolidated amount is the sum of the person's GRB and Additional Pension accruals.

232.     Paragraphs 3 to 5 specify that GRB and Additional Pension will be calculated using legislation in force at the time consolidation takes place.

233.     Paragraph 6 provides that the consolidated amount, including GRB, will be revalued annually by earnings.

Clause 81: State pension credit: extension of assessed income period for those aged 75 or over

234.     Clause 81 amends section 9 of the SPCA 2002.

235.     Subsection (2) of the clause substitutes a new subsection (1) in section 9 so that claimants who are aged 75 or over will generally be given an indefinite assessed income period ("AIP"). An AIP is a specified period during which time the state pension credit customer does not need to report changes to his or her retirement provision. Currently the maximum length of an AIP is five years (except that under transitional provisions made by virtue of section 13(2) (b) of the 2002 Act a period of up to seven years could be specified). Exceptions to the general rule in section 9(1) are set out in the following subsections of section 9 so that, for example, an indefinite AIP may be brought to an end early on the occurrence of certain circumstances.

236.     Subsection (3) makes a consequential amendment to subsection (2) of section 9.

237.     Subsection (4) inserts a new subsection into section 9 of the SPCA 2002. The new subsection (6) applies where an AIP is brought to an end by the expiry of a period of five years or more and the claimant is aged 80 or over at that time. The new subsection has the effect of extending the AIP indefinitely. Again, however, this indefinite AIP may be brought to an end early in certain circumstances.

238.     Subsection (5) contains an explicit provision about the commencement of subsections (2) and (3).

239.     Subsection (6) is a "sunset" provision, reflecting the fact that the new subsection (6) inserted by subsection (4) of this clause is a transitional provision. Once the amendments made by the clause have been in force for five years, every AIP that has been set for a claimant over 80 will either be an indefinite AIP or will be under five years; and so the new subsection will be spent. Provision is therefore made for it to cease to have effect after five years.

Part 3: Pension compensation on divorce etc

Clause 82: Scope of mechanism

240.     This clause sets out the scope of the pension compensation sharing mechanism that will enable compensation paid by the Pension Protection Fund to be shared on divorce or dissolution of a civil partnership.

241.     Subsection (2) sets out that pension compensation rights will be shareable subject to certain exceptions that will be set out in regulations.

Clause 83: Interpretation

242.     This clause sets out the intended meaning of particular words and phrases used throughout Chapter 1 of Part 3.

Clause 84: Activation of pension compensation sharing

243.     This clause sets out the possible orders a court could make under the Matrimonial Causes Act 1973, the MFPA 1984 or the CPA 2004 which, upon taking effect, that would trigger the new pension compensation sharing regime.

Clause 85: Creation of pension compensation debits and credits

244.     Pension compensation sharing will be initiated by an order of the court specifying a percentage of the compensation rights which are to be "shared" (i.e. transferred). The effect of this clause is that the rights to compensation are valued for the purpose of the transfer on "valuation day" - a day during the "implementation period" (see clause 89 chosen by the Board).

245.     Subsection (4) provides a regulation-making power to enable any description of benefit to be disregarded for the purposes of the compensation sharing calculation. For example, benefits due to a survivor as a consequence of a previous marriage or civil partnership.

Clause 86: Cash equivalents

246.     This clause allows the Secretary of State to establish, in regulations, the method for the calculation of the cash equivalent in pension compensation sharing cases. It is intended that this will broadly reflect the principles set out for calculating cash equivalents for early leavers.

Clause 87: Reduction of compensation

247.     This clause provides for the reduction of the transferor's pension compensation payments by the percentage specified in the pension compensation sharing order.

Clause 88: Time for discharge of liability

Clause 89: "Implementation Period"

248.     Clause 88 provides that the Board must confer rights to compensation on the beneficiary of a pension compensation sharing order during the implementation period - defined in clause 89 as 4 months beginning on the date on which the sharing order takes effect or, if later, the date on which the Board of the Pension Protection Fund receives the relevant documents.

249.     Regulation-making powers are provided to allow the Secretary of State to define the parameters of this requirement. Regulations may provide for:-

• the circumstances where the implementation period can be extended;

• the information required (for example addresses, ages, National Insurances numbers)

• the procedure for notifying the transferor and transferee of the day on which the implementation period begins; and

• the effect on the implementation period where the pension compensation sharing order is the subject of an application for leave to appeal out of time.

Clause 90: Discharge of liability

250.     Clause 90 sets out what the beneficiary of a pension compensation order will receive from the Board. They will in the first place receive a notice stating that they are entitled to periodic compensation and setting out the initial annual amount of that compensation (subsection (2) and (7)). The initial annual amount will have been calculated by the Board (subsection (4)) and will reflect the value of the rights transferred by the court (subsection (5)). The timing of payments and, calculation of their amounts in the future, is set out in Schedule 4. Subsection (8) provides a power to make provision for what is to happen if the person dies before the Board makes its calculation and sends out the notice.

Schedule 4: Pension compensation payable on discharge of pension compensation credit

251.     Schedule 4 makes detailed provision concerning the calculation of compensation payable to the transferee (former spouse or civil partner). The way the compensation is calculated depends upon the status of the transferee at the date the transfer takes place.

252.     The Schedule is accordingly divided into four parts:-

• Part 1 is introductory, covering interpretation and the determination of a pension compensation age;

• Part 2 makes provision where transferees attain pension compensation age before or on transfer day;

• Part 3 makes provision where transferees attain pension compensation age after transfer day; and

• Part 4 provisions apply irrespective of the age of the transferee on transfer day.

253.     The Schedule is intended to operate in a similar way to the corresponding provisions of Schedule 7 of the PA 2004 (Pension Compensation Provisions) as they apply to the calculation of pension compensation generally.

254.     Paragraph 3 makes provision about the age at which the transferee is to start receiving periodic compensation under the Schedule (the transferee's "pension compensation age"). In the usual case this will be when they reach the age at which the transferor starts to receive pension compensation payments.

Part 2: Transferee attains pension compensation age before or on transfer day

255.     Where the transferee is, at the point the pension compensation order takes effect, over the pension compensation age they will receive periodic compensation for life (paragraph 4). This compensation starts from the transfer day, and comprises the initial annual rate of the compensation plus any annual increases due to inflation under paragraph 12. It is subject to any regulations applying the compensation cap made under paragraph 13.

256.     Paragraph 5 provides that 50% of the pension compensation in payment, or payable, will be paid to the transferee's widow or widower after the death of the transferee. Regulations may set out when the widow or widower will not be entitled to compensation. This will allow provision to be made for cases where the scheme rules under which the transferor's compensation is calculated did not provide for pensions to a widow or widower.

Part 3: Transferee attains pension compensation after transfer day

257.     Where the transferee has not reached the pension compensation age at the point of transfer they will become entitled to receive compensation payments for life starting from when they do reach the pension compensation age (paragraph 6). That compensation will comprise the initial annual rate, adjusted by any increases for inflation, up until the point when they reach pension compensation age under paragraph 8, plus any annual increases due to inflation under paragraph 12. The compensation will be subject to the provisions for commutation (paragraph 9), early payment (paragraph 10), deferred payment (paragraph 11) and the compensation cap (paragraph 13).

258.     Paragraph 7 provides that 50% of the pension compensation in payment or payable, plus increases for inflation under paragraph 12, will be paid to the transferee's widow or widower after the death of the transferee. Regulations may set out exceptions. This will allow provision to be made for cases where the scheme rules, under which the transferor's compensation is calculated, did not provide for pensions to a widow or widower.

259.     Paragraph 8 provides for the initial rate of compensation to be increased to take account of the increases in prices, subject to a cap equal to inflation running at 2.5% every year, between the transfer day and the day before the day the transferee becomes entitled to payment. This is subject to the power in Paragraph 15 for the Board of the Pension Protection Fund to alter the maximum rate of revaluation from 2.5% (as established in clause 79 Schedule 2).

260.     Paragraph 9 provides that the transferee can commute part of their pension compensation as a lump sum in prescribed circumstances, up to a maximum of 25%. The amount paid as a lump sum will be 25% of the pension compensation payable after reductions are made to take account of the compensation cap. The lump sum payable will be the actuarial equivalent of the commuted portion of the pension compensation calculated from tables designated for this purpose by the Board of the Pension Protection Fund. Regulations may set out the manner in which the option to commute may be exercised. The intention is that regulations will prescribe that the transferee can exercise the right to commute where the transferor had such a right and has not already exercised it before the transfer day. This paragraph also allows Secretary of State to change the maximum sum commuted by order.

261.     Paragraph 10 provides that regulations may prescribe when the transferee may receive pension compensation and lump sum compensation before their normal pension age. This applies to transferees under pension compensation age. The Board of the Pension Protection Fund will determine the actuarial reduction to be applied to compensation paid early. The intention is to prescribe that the transferee may take compensation early any time after they reach the age of 50. This provides for the transferee to take compensation early in the same way as the transferor would under Schedule 7 to PA 2004.

262.     Paragraph 11 will enable transferees in prescribed circumstances to delay receipt of the pension compensation until a date after they would reach the pension compensation age. The Board will determine the amount by which the compensation will increase to take account of the delayed payment. This provides for the transferee to defer compensation in the same way as the transferor will be entitled to do once the amendment of Schedule 7 to PA 2004 made by paragraph 7 of Schedule 6 to the Bill comes into force.

Part 4: Provisions applicable irrespective of age of transfer day

263.     Paragraph 12 provides for the amount of compensation derived from the transferor's service after 1997 to be increased every year in line with the increase in prices, subject to a maximum increase of 2.5% a year. This provides for the transferee to receive increases due to take account of inflation in the same way as the transferor. This is subject to the power in paragraph 15 for the Board to alter the maximum rate of increase from 2.5% (as established in clause 79).

264.     Paragraph 13 allows the Secretary of State to set out in regulations how the compensation cap under paragraph 26(7) of Schedule 7 to the PA 2004 will apply to the compensation payable to the transferee. The intention is that the cap will apply in a way that ensures that both the transferee and transferor receive the appropriate levels of compensation without creating additional liabilities for the Board of the Pension Protection Fund or opportunities for evasion of the cap.

265.     Paragraph 14 provides that regulations may provide for compensation to be payable to partners and dependants of prescribed descriptions. This allows for the extension of compensation payment to surviving civil partners.

266.     Paragraph 15 provides that the Board of the Pension Protection Fund may determine the maximum indexation rates for the purposes of paragraphs 8 and 12. For the purposes of paragraph 12 this can only apply to future increases and can apply to all cases or those cases where entitlement arose after the determination. The Board of the Pension Protection Fund must consult anyone it considers appropriate and publish details of the proposed determination as it considers appropriate. The Board must consider any representations made. This is an equivalent power to that which applies in respect of the rates of revaluation and indexation in paragraph 29 of Schedule 7 of the PA 2004.

Clause 91: Charges in respect of compensation sharing costs

267.     The purpose of this clause is to enable provision to be made to allow the Board of the Pension Protection Fund to recover, from the transferor and transferee, administrative costs incurred as a result of implementing the pension compensation share (for example the costs of valuing the rights to be shared and of calculating and making payments to an additional person).

268.     The intention is to use the regulation-making power to require that charges must relate to the costs incurred in implementing the pension compensation sharing order; and that the parties are offered a chance to pay charges at the outset so that they need not be deducted from compensation payments.

269.     Regulations may include the following provisions:-

• paragraph (a): postponement of the start of the implementation period. This could allow the Board of the Pension Protection Fund to postpone the start of the implementation until the administration charges have been met (see also clause 89 (Implementation Period)) above;

• paragraph (b): reimbursement. This could allow charges to be recovered from one party where that party has defaulted on meeting the administrative charges, and the charges have been met by the other party.

270.     Subsection (3) controls how the regulations will deal with the question of apportionment of charges between the parties. If apportionment of charges is included in the pension compensation sharing order then charges will be apportioned by that provision. If there is no such provision, charges are attributable to the member of the couple whose compensation is being shared (the transferor).

Clause 92: Supply of information about compensation in relation to divorce etc.

Clause 93: Supply of information about compensation sharing

271.     These clauses allow the Secretary of State to make regulations relating to the Board of the Pension Protection Fund releasing information on pension compensation sharing cases.

272.     Clause 92 provides for the Secretary of State to make regulations requiring information to be supplied by the Board, or about the calculation and verification of compensation rights, in connection with proceedings for divorce or dissolution of a civil partnership in England and Wales or Northern Ireland. It also enables regulation to be made imposing charges for the provision of such information.

273.     Clause 93 allows for the Secretary of State to make regulations requiring the Board of the Pension Protection Fund to provide prescribed persons with information regarding the implementation of pension compensation sharing.