House of Lords - Explanatory Note
Child Support, Pensions And Social Security Bill - continued          House of Lords

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Preservation of rights in respect of additional pensions

Clause 38: Preservation of rights in respect of additional pensions

422. Currently, widows and, in certain circumstances, widowers, may receive the full amount of their deceased spouse's SERPS. However, changes originally enacted in the Social Security Act 1986 (but now consolidated in the Contributions and Benefits Act 1992) halved the amount of SERPS the surviving spouse could receive. The change was due to take effect in respect of married persons who died after 5th April 2000. This change was not fully publicised, and some people were incorrectly told that they, or their widow(er), could expect to "inherit" the full amount of SERPS.

423. The Government has now decided to postpone the reduction to 6th October 2002 and to set up an Inherited SERPS Scheme.

424. Section 52 of the Welfare Reform and Pensions (WRAP) Act 1999 enables the Secretary of State to make affirmative regulations to do one or more of the following:

  • to provide for specified categories of widows and widowers to receive more than 50% of their spouse's SERPS;

  • to postpone the 50% reduction due to come into effect from 6th April 2000 to a later year;

  • to set up a scheme to determine who has been misled by incorrect or incomplete information about the 50% reduction and who, or whose spouses may, as a result, suffer financial loss in the future, so as to ensure that the reduction is not applied in their case.

425. Until provision for one of these options is in force, the section also ensures that widow(er)s continue to "inherit" the full amount of their spouse's SERPS.

426. Clause 38 amends section 52 of the WRAP Act to provide for the 50% reduction in inherited SERPS to come into effect in respect of deaths occurring on or after 6th October 2002, but also to provide that regulations may postpone the change to a later date. It clarifies the eligibility criteria for the Inherited SERPS Scheme to ensure that people who were denied the opportunity of considering taking relevant steps to protect their spouse's position because they received incorrect or incomplete information, can seek redress. It also allows for the regulations to make further specific provisions relating to the manner in which decisions under the scheme may be taken.

427. Subsections (1) and (2) change the implementation date for the 50% reduction in SERPS from 6th April 2000 to 6th October 2002 where entitlement to additional pension in SERPS arises in Widowed Mother's Allowance, Widowed Parent's Allowance and Category B retirement pension, including where this is increased because of deferred retirement.

428. Subsection (3) provides that regulations may defer the implementation date of 6thOctober 2002 to a later date.

429. Subsection (4) allows for the regulations to provide that a person can be eligible for the scheme if, as a consequence of receiving incorrect or incomplete information, he did not consider either taking a step to safeguard the future financial position of his spouse that he might have taken, or refraining from taking such a step which he took but might not have taken had he received the right information.

430. Subsection (5) allows for the regulations to prescribe matters that may be relied on, or presumptions that may be made, in the making of decisions under the preserved rights scheme.

Other provisions

Clause 39: Home responsibilities protection

431. Clause 39 inserts sub-paragraph (7A) into paragraph 5 of Schedule 3 to the Contributions and Benefits Act. It provides for regulations to be made for those precluded from regular employment by responsibilities at home to supply the necessary information for this to be taken into account when assessing their pension entitlement. This happens automatically for a person who receives Child Benefit for a child under 16 in any year in which they do not meet the Qualifying Earnings Factor. Those meeting the prescribed conditions for caring for a sick or disabled person have to supply the necessary information. Currently such notifications can be made at any time up to state pension age, and awards can be backdated to 1978.

432. The Government intends to bring in regulations which will require notifications to be made by the end of the third year following the year in which the qualifying caring activity took place. This requirement will only apply to qualifying periods following the introduction of State Second Pension. It is to ensure that entitlement to State Second Pension on the grounds of caring activity is established and recorded timeously. It will also determine any years to be excluded from the requisite number of years in the calculation of the basic Retirement Pension.

Clause 40: Sharing of state scheme rights

433. Although the value of a pension can currently be taken into account by the courts in reaching a financial settlement on divorce or nullity of marriage, the pension itself can only be offset against other assets or "earmarked", ie the court can order part of a pension to be paid direct to a former spouse by a pension scheme when it comes into payment. "Earmarking" has been little used because it does not facilitate a clean break and the former spouse loses her or his intended retirement income if the ex-spouse whose pension has been "earmarked" dies first.

434. By contrast, pension sharing provides a former spouse with a pension in her own right, security of income throughout retirement, and a clean break. It will also enable more couples to reach a fair settlement where the pension to be shared is the most significant asset in the marriage.

435. However, pension sharing will not be compulsory: it will be an additional option for couples to consider alongside offsetting and earmarking and the Government expects that most couples will, as now, continue to offset their pension rights against other assets.

436. The Government consulted on a draft Pension Sharing Bill in June 1998. The House of Commons Social Security Select Committee conducted a detailed inquiry into the draft Bill. Many of the recommendations in the Committee's Report, published in October 1998, were subsequently adopted by the Government when legislation on pension sharing was included in the Welfare Reform and Pensions Act 1999.

437. The pension sharing provisions in the Act broadly provide for all second-tier pensions to be shared ie private and occupational pensions and SERPS (and, in due course, the State Second Pension).

438. Clause 38 contains sub-delegation powers to enable the Secretary of State to set out in regulations how the cash equivalent of SERPS rights is to be calculated. The regulations will give the Secretary of State the power to require that the cash equivalent shall be calculated and verified in such a manner as may be approved by the Government Actuary or by an actuary authorised by the Government Actuary to act on his behalf for that purpose. The Secretary of State will also have the power to require cash equivalents to be calculated and verified by adopting methods and making assumptions which are consistent with guidance published by the Institute of Actuaries and Faculty of Actuaries.

439. Subsection (1) substitutes section 49(4) of the Welfare Reform and Pensions Act 1999 to include the sub-delegation power. For consistency, subsections (2) to (4) of this clause make equivalent changes to related provisions in sections 45B, 55A and 55B of the Social Security Contributions and Benefits Act 1992. Section 45B of that Act is concerned with the reduction in the additional pension of the member whose pension has been shared; section 55A deals with the calculation of the additional pension acquired by the former spouse who was the beneficiary of the pension share (who receives a "shared additional pension"); and section 55B makes provision for the reduction of a shared additional pension which has itself been the subject of a pension sharing order or agreement.

440. Similar provisions are already in place for other pension sharing provisions in the Welfare Reform and Pensions Act 1999 where a valuation of non-state pension rights is needed.

Clause 41: Disclosure of state pension information

441. The Government indicated in the Pensions Green Paper (A new contract for welfare: PARTNERSHIP IN PENSIONS (Cm 4179) December 1998) that it wished to work with employers and pension providers to develop integrated personal pension statements, combining state and private pension rights. The Government's aim is to include details of current and projected state pension rights in annual pension or financial statements provided by employers and pension providers. The intention is to provide individuals with better information on the sort of future income they might expect to help them plan for their retirement.

442. In order to comply with existing legal requirements, the Department of Social Security can only pass state pension details to employers and pension providers with the express consent of employees and scheme members.

443. Employers and pension scheme providers have expressed concern that continued adherence to an express consent process would lead to a low take-up by individuals and would impose a significant administrative burden which would discourage them from providing combined forecasts.

444. The measures in the Bill are intended to address these concerns and the Government's wish to ensure that individual state pension details can be made available to other third parties such as organisations which provide financial planning services if an individual wishes this to be done.

445. Clause 41 provides that state pension information can be passed to employers and pension scheme providers unless individuals have indicated that they do not want such information disclosed by "opting-out". The intention is to improve significantly the take-up of combined pension statements by employees and reduce substantially the administrative burdens on employers and pension providers.

446. It also provides that state pension details can be passed to third parties such as organisations which provide financial information services to help individuals identify the most appropriate pension or other saving arrangements provided their express consent has been obtained. In due course, this will enable individuals to access their state pension details electronically through the comparative financial databases which are currently being developed.

447. Subsection (1) provides that the clause is to apply to state pension information held by the Secretary of State or by those providing services to the Secretary of State which are concerned with his social security functions. State pension information is defined in subsection (7).

448. Subsection (2) provides that regulations may allow the Secretary of State to disclose or permit the disclosure of state pension information to those specified in subsection (3) who have made an application for disclosure in the manner prescribed in regulations and in accordance with prescribed conditions.

449. Subsection (3) sets out the persons who can receive state pension information. These are the trustees and managers of occupational or personal pension schemes, employers, and appropriate third parties engaged in the provision of financial information services.

450. Subsection (4) sets out some of the conditions which must be included in regulations permitting the disclosure of state pension information. These conditions are that appropriate third parties engaged in the provision of financial information services obtain the consent to the disclosure of his state pension information by the individual concerned and in the case of the other persons referred to in subsection (3) (the trustees and managers of occupational or personal pension schemes and employers) that either the condition as to consent or the alternative condition referred in subsection (5) applies.

451. Subsection (5) sets out the alternative condition referred to in subsection (4) in relation to the trustees and managers of occupational or personal pension schemes and employers. It provides that steps are to be taken to ensure that individuals are made aware of their right to opt out of the procedures for the provision of state pension details. It also provides prescribed minimum times to ensure that individuals have adequate time to consider what is intended, and opt out if they wish to do so.

452. Subsection (6) provides that for the purpose of making an application for state pension information, the applicant may disclose to the Secretary of State such information relating to an individual as is prescribed in regulations.

453. Subsection (7) sets out what constitutes state pension information relating to an individual for the purposes of the clause - namely, date of birth and age at which state pension age is reached; amounts of basic and additional state pension entitlement already accrued; and projected basic and additional state pension entitlement.

454. Subsection (8) provides that regulations made under this clause shall be subject to the negative Parliamentary Procedure.

455. Subsection (9) provides that section 189(4) to (6) of the Social Security Administration Act 1992 apply to regulations made under this clause. The application of section 189(4) to (6) is in accordance with the general rules governing subordinate legislation made under powers in that Act and will thereby enable the regulations made under the clause to, for example, make different provision for different groups covered by the regulations and to make provision for incidental, supplemental and consequential matters relating to the disclosure of state pension information.

456. Subsection (10) provides that information can be supplied to the Secretary of State by the Inland Revenue in relation to functions which are conferred on him by regulations under this clause.

457. Subsection (11) provides definitions of terms used in this clause.


Selection of trustees and of directors of corporate trustees

458. Clauses 42 to 45 amend sections 16, 18 and 21 of the Pensions Act 1995* (member-nominated trustees and directors); they further provide that sections 17, 19 and 20 shall cease to have effect and introduce a new section 18A. Under the current legislation, trustees are required to implement arrangements for at least one third of the scheme trustees to be member-nominated trustees, or where the trustee is a company, for one-third of the directors to be member-nominated directors. However, the employer has the right to implement alternative arrangements that do not include any member trustees, or directors, provided the members agree. Under the new provisions, all schemes will be required to have at least one third member-nominated trustees or directors, but there will be two ways to determine the nomination and selection arrangements: a flexible nomination and selection procedure laid out in regulations, or, alternatively, by the employer proposing nomination and selection arrangements which are subsequently approved by scheme members.

459. Section 16, as amended, will require trustees to ensure that arrangements are put in place for at least one-third of the trustees to be nominated and selected by scheme members. There will be two routes under which member-nominated trustees can be nominated and selected: a statutory route, the nature of which will be determined by reference to section 16 and regulations under section 16, where the trustees are responsible for the precise details of the arrangements and for their implementation; and an alternative route under section 18A (see clause 44) where arrangements for the nomination and selection of the scheme trustees are proposed by the employer and implemented by the trustees. Section 16 and regulations made under section 16(9) will apply to both routes (but section 18A(3) allows provision different from that made by regulations under section 16(9) for the scheme specific route). Equivalent provisions apply in relation to trustee companies.

Clause 42: Member-nominated trustees

460. This clause amends section 16 to provide a revised statutory framework for appointing member-nominated trustees.

461. The revised provisions make no distinction between "arrangements" and "appropriate rules" so subsections (2) to (4) remove references to "appropriate rules" from section 16 of the Pensions Act.

462. Subsection (5) incorporates the substance of section 20(3) of the Pensions Act into section 16. Member-nominated trustees must serve a term of office of between three and six years and be eligible for reselection. The existing section 16(6), which provides for the determination of the minimum number of member-nominated trustees, and for this number to be exceeded only if the employer agrees, remains unchanged.

463. Subsection (6) incorporates the substance of section 20(5) of the Pensions Act by inserting a new subsection (6A) into section 16. An employer may require that a non-member can only stand for nomination as a member-nominated trustee if the employer approves.

464. Section 16(7), which provides for all member-nominated trustees to have the same powers remains unchanged.

465. Subsection (7) amends section 16(8) to enable arrangements under section 16 to provide for a trustee who changes category of membership (for example, from active to deferred) to cease to be a trustee. The requirement for a member-nominated trustee to stand down if they cease to be a member remains unchanged.

466. Subsection (8) introduces two new subsections to section 16. The new section 16(9) is a regulation-making power that will be used to prescribe what is meant by "nominated and selected by members", and to further stipulate details of the arrangements the trustees are required to make for nominating and selecting member-nominated trustees. The intention is to give trustees flexibility to adopt arrangements that best suit the circumstances of the scheme, for example by dividing the membership into separate constituencies. Regulations will provide that all active and pensioner members must be given the opportunity to make nominations. The new section 16(10) incorporates the provisions of section 17(4) of the Pensions Act into section 16. As now, the regulations will provide for exemptions for certain types of scheme. Schemes that are currently exempt will continue to be so.

467. Subsection (9) repeals section 17 of the Pensions Act (employer's right to propose alternative arrangements).

Clause 43: Corporate trustees

468. This clause makes changes to section 18 of the Pensions Act for member-nominated directors in schemes where the trustee is a company similar to the changes in section 16 for individual trustees.

469. In addition, subsection (2)(a) extends the scope of section 18 to include all schemes where there is a trustee company and there is no trustee of the scheme who is not a company.

470. Subsection (8) modifies section 18(8) to ensure that the membership of different schemes will be aggregated where the trustee company is trustee for more than one scheme, unless the trustee company decides otherwise.

471. Subsection (10) repeals section 19 and 20 of the Pensions Act (employer's right to propose alternative arrangements and meaning of appropriate rules).

Clause 44: Employer's proposals for selection of trustees or directors

472. This clause introduces a new section 18A. The new section makes provison for the employer to propose arrangements for nominating and selecting trustees of the scheme or directors of a corporate trustee of the scheme.

New section 18A: Employer's proposals for selection of trustees or directors

473. New section 18A(1)(a) gives employers the right to propose arrangements for nominating and selecting trustees. Subsection (1)(b) ensures the arrangements provide for at least one third of the trustees to be member-nominated trustees, and that the other requirements of section 16(3) to (7) apply. Subsection (1)(d) requires that the proposal is approved by scheme members. Subsection (1)(d) also incorporates the regulation-making power similar to that contained in section 21(7) which will enable a statutory consultation procedure for seeking member approval for the proposal to be prescribed. This will be largely the same as the current procedure that is provided in Schedule 1 to the Occupational Pension Schemes (Member-nominated Trustees and Directors) Regulations 1996, although the procedure may be tightened to reduce any opportunity for abuse. Regulations made under subsection (1)(e) will impose additional conditions on employers, for example to give notice to the trustees of the intention to propose arrangements. Section 18A(2) makes the equivalent provision for trustee companies. Once approved, the trustees are charged with implementing the arrangements.

474. New section 18A(3) allows regulations governing arrangements under an employer's proposal to provide for different nomination and selection arrangements from those made under the statutory route. For example, the employer will be able to propose that nominations for trustees are made by organisations representing members (such as Trades Unions and pensioner organisations) as well as members themselves.

475. New section 18A(4)(a) provides the power to make regulations governing the manner and time in which trustees must implement approved arrangements. This is similar to the current power under section 21(4)(a). Trustees will be given six months following approval to ensure that the arrangements are made, and trustees appointed. Regulations under subsection 18A(4)(b) will determine when approval of section 18A arrangements cease to have effect. As now, approval will last for six years. They will also determine what happens when approval of arrangements ceases to have effect without the existing arrangements having been re-approved or fresh arrangements approved.

476. New section 18A(5) enables regulations to be made about approval of arrangements for the purpose of section 18A. Regulations under subsection 18A(5)(a) will give Opra the discretion to treat proposals as approved in certain circumstances where there is a breach of the requirements of the approval process. Regulations under subsection 18A(5)(b) will provide for proposals to be treated as approved by persons who do not object. The existing section 21(8)(b) allows the approval process to operate in this way. Regulations will, as now, provide for proposals to be approved if not more than 10% of those consulted object.

477. New section 18A(6) permits nominations for a member-nominated trustee or director to be made by an organisation of a prescribed description that represents the interests of members of the scheme. It also permits nominations by such organisations to be the only nominations. It is intended that regulations will prescribe that recognised Trades Unions and pensioner organisations, for example, can make such nominations.

478. New section 18A(7) disapplies the section as far as it applies to member-nominated trustees in cases where all the trustees comprise all the members, or where there is only a corporate trustee (or trustees).

479. New section 18A(8) is a regulation-making power to disapply the section for schemes of a prescribed description. This provision is required in addition to the exemptions from sections 16 and 18 because those sections impose a mandatory requirement on all trustees, whereas this section only applies if the employer chooses to propose scheme-specific arrangements. In practice, section 18A will be disapplied for the same classes of scheme that are exempt from sections 16 and 18.

480. Subsections (2) and (3) of clause 44 are consequential amendments to, respectively, sections 68(2) and 117(2)(c) of the Pensions Act.

Clause 45: Non-compliance in relation to arrangements or proposals

481. This clause contains various consequential amendments to section 21 of the Pensions Act 1995.

482. All references to appropriate rules are removed, as are references to sections 17 and 19 (which are repealed).

483. A new subsection (2A) has been added to section 21 to enable the Occupational Pensions Regulatory Authority (Opra) to impose sanctions on an employer who fails to carry out the statutory consultation procedure properly. The equivalent provision is currently in sections 17(5) and 19(5). Opra already has the power under section 21 to impose sanctions on trustees who fail (without reasonable cause, in the case of individual trustees) to comply with the requirements. Opra can prohibit a trustee, or impose a financial penalty.

Winding-up of schemes

484. These measures aim to speed the process of winding-up by introducing accountability into the winding-up process and by giving Opra a more active role in the process than at present. A consultation paper setting out proposals for speeding up the winding-up process was issued on 27th May 1999. The comments received were taken into account.

485. Scheme rules or the trust deed setting up the scheme set out the events which may trigger the cessation and winding-up of an occupational pension scheme. These generally are the employer's insolvency, notice from the employer that he no longer wishes to sponsor the scheme, or failure by the employer to pay contributions within a specified period. It is the trustees or managers who are required to carry out the winding-up.

486. Winding-up can be a time-consuming task, sometimes taking many years, particularly where the scheme records have not been well kept. During this time members may feel particularly vulnerable.

487. The measures aim to ensure that a trustee is in place following the insolvency of the employer so that decisions can be made about the future of the scheme. Where winding-up has started, trustees or managers will be required to make reports to Opra if winding-up is not completed within a specified period of time and Opra will be able to direct action to speed the process along. Opra will also be able to modify scheme rules where they need to be changed to allow winding-up to proceed.

Clause 46: Information to be given to the Authority

488. This clause inserts three new sections into the Pensions Act 1995. It also amends section 118 of that Act to allow these new sections to be modified by regulations to impose the duties on other people (see subsection (4)). Sections 26A, 26B and 26C set out circumstances in which trustees or managers of schemes or scheme administrators are required to notify Opra during the insolvency of the employer.

489. Subsection (1) amends references in section 22 of the Pensions Act 1995 to include the new inserted section 26A. Subsection (2) inserts sections 26A, 26B and 26C.

New section 26A: Information to be given to the Authority in a s. 22 case

490. New section 26A sets out the circumstances in which the trustees or persons involved in the administration of a scheme must make a report to Opra, where the scheme has to have an independent trustee during the insolvency of the employer (sections 22 and 23 of the Pensions Act 1995).

491. New section 26A(1) requires the trustees of a scheme, where the scheme has to have an independent person in place as trustee during the insolvency of the employer, to notify Opra that there appears to be no independent trustee unless they have been told by the insolvency practitioner or official receiver that he is satisfied that one of them satisfies the independence test, or they have reasonable grounds to believe that the practitioner or official receiver is satisfied that one of them does so. The notification must be made as soon as reasonably practicable.

492. New section 26A(2) places on those involved with the administration of the scheme a requirement similar to that in subsection (1) where there are no trustees.

493. New section 26A(3) sets out the circumstances where no notification to Opra is required. These are where it appears that the insolvency practitioner or official receiver intends to appoint an independent trustee and that he will do so within a specified period.

494. New section 26A(4) removes the requirement for a report to be made under subsection (2) by those involved with the administration of the scheme where it appears that Opra are already aware that the scheme has no trustees.

495. New section 26A(5) ensures that the requirement in subsection (1) covers later situations where the practitioner or receiver is no longer satisfied that the independence test is met, even though he may previously have told the trustees that it was met.

496. New section 26A(6) defines whether the practitioner or receiver is satisfied as to a person's independent status by reference to the independence test in section 23.

497. New section 26A(7) provides that section 10 of the Pensions Act 1995 applies to trustees who fail to take reasonable steps to ensure compliance with the requirements to notify Opra regarding the independent trustee. Section 10 allows Opra to impose financial penalties.

498. New section 26A(8) provides that section 10 of the Pensions Act 1995 applies to anyone who fails to comply with the subsection (2) requirement to notify Opra that there are no trustees.

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Prepared: 6 April 2000