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The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham): In our document Action on Occupational Pensions, published on 11 June, the Government stated their intention to make it easier for employers to provide pensions by simplifying key areas of legislation while at the same time offering appropriate protection to scheme members. In particular, we proposed to explore options for a workable and affordable solution to the problems created by the complexity of the guaranteed minimum pension (GMP) element of contracted-out schemes. We are now able to announce the results of this work.
We intend to introduce measures that will permit contracted-out defined benefit schemes to convert GMPs into scheme benefits. Where a scheme converts its liabilities in this way, it will no longer be required to offer a scale of benefits incorporating the complex GMP rules for the period 1978 to 1997 and will be free to design a benefit structure that best reflects the needs of its members. If schemes take up this option they will have to convert on the basis of actuarial equivalence: the trustees will be required to offer scheme benefits of equal accrued value in exchange for the benefits given up, including the GMP.
As a result of this and other measures announced previously, pension schemes will be able to achieve significant simplification in their administration. On top of the other proposals for simplifying contracting out in Action on Occupational Pensions, we estimate that these measures should result in administrative savings for pension schemes of up to £16 million a year.
For example, the new pensions regulator will be able to issue a code of practice aimed at protecting the interests of members of schemes wishing to take advantage of the GMP conversion measure. Also, the Pensions Advisory Service and the Pensions Ombudsman will be able to consider any complaints that members have as a result of any change.
Nothing in these proposals forces schemes to change and we appreciate that many of them may not wish to do so. We are simply offering schemes the option to design their benefits more flexibly across the piece in this way, while protecting the value of members' accrued rights. This means we are striking the right balance between making it easier (and more cost-effective) for employers to run schemes and safeguarding members' rights.
The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord McIntosh of Haringey): I refer the noble Lord to Chapter 6 paragraph 41 of Command 5677 Simplicity, security and choice: Working and Saving for retirement, December 2002, which said that the lump sum would be taxable. The taxation arrangements will be announced as part of the Budget process.
Lord McIntosh of Haringey: The Chancellor said in the House of Commons on 9 June and 10 July that, subject to confirmation at the time of the Pre-Budget Report, he intended to change the inflation target to one set on the harmonised index of consumer prices (HICP) definition.
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