Pensions Bill

Written evidence from SPC (PB 35)

INTRODUCTION TO SPC

1. SPC is the representative body for a wide range of providers of advice and services to work-based pension schemes and to their sponsors. SPC’s Members’ profile is a key strength and includes accounting firms, solicitors, insurance companies, investment houses, investment performance measurers, consultants and actuaries, independent trustees and external pension administrators. SPC is the only body to focus on the whole range of pension related services across the private pensions sector, and through such a wide spread of providers of advice and services. We do not represent any particular type of provision or any one interest - body or group.

2. Many thousands of individuals and pension funds use the services of one or more of SPC’s Members, includ ing the overwhelming majority of the 500 largest UK pension funds. SPC’s growing membership collectively employs some 15,000 people providing pension-related advice and services.

3. This submission is a collaboration between members of the SPC Actuarial Committee.

THE POINT WHICH WE WISH TO HAVE CONSIDERED

4. We have examined the transitional rate of state pension provisions set out in Schedule 1 of the 2013/14 Pensions Bill. We are not clear on the detail of how the transitional rate calculations are intended to operate, or whether the Bill will achieve that effect.

5. The key points where clarification is needed are as follows: 

6. We are concerned at how the crucial "amount to reflect contracting-out under the old system" will work.

7. Paragraph 5 appears to calculate the difference between

· A) the accrued additional state benefit under the current system; and

· B) the additional state benefit an individual would have accrued under the current system if

o the SERPS system had continued from 2002 onwards in the place of S2P; and

o any contracting-out adjustments were ignored.

8. In other words, actual S2P (if any) compared with notional SERPS for everyone's earnings (calculated as if they were contracted-in, even if they weren't) from 2002/03 onwards. We find the SERPS/S2P switch particularly confusing as:

· We would expect an individual who was contracted-in to receive a deduction of "amount to reflect contracting-out under the old system" of zero.  However, based on the pensions bill, it appears that a hypothetical member whose earnings were between the LEL and the UET would receive a non-zero amount in respect of contracted-in service from 2002 onwards.  This is because their S2P accrual was higher in that period than the replaced SERPS. Similarly, some periods of contracted-in service could sometimes offset an adjustment for other periods of contracted-out service.

· Where members whose earnings were between the LEL and UET were contracted-out from 2002 onwards, they will receive a deduction equal to notional SERPS accrual less the sum of (S2P less SERPS).   We do not understand the reason for this as the result does not correspond to the SERPS-based rebate their pension scheme received.

9. It is not clear what the intended result of the Bill is, however, we understood it was meant to capture the value of the additional state pension otherwise foregone by contracted-out employees in exchange for their National Insurance rebates. We do not think this part of the Bill, as currently drafted, achieves that outcome.

10. A solution would be to simply remove 5(b)(i) and 5(b)(ii) from Schedule 1, leaving the deduction as the difference between an individual’s contracted out benefits and the contracted in equivalent.

July 2013