Select Committee on Delegated Powers and Regulatory Reform Ninth Report

APPENDIX 2: PENSIONS BILL

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Memorandum by the Department for Work and Pensions

Introduction

1.  This Memorandum is provided by the Department for Work and Pensions (DWP) in respect of the Pensions Bill.

2.  This Memorandum identifies the delegated powers conferred by the Pensions Bill. It explains the purpose of the powers; the reasons for using delegated legislation; whether the powers are subject to Parliamentary scrutiny; which procedures apply; and the justification for these procedures.

3.  The Department has followed the precedent in pensions legislation by setting out the overall legislative framework on the face of the Bill but giving the Secretary of State, in certain circumstances, the power to provide detailed provisions in secondary legislation. This is due partly to the fact that it is considered inappropriate for Parliamentary time to be spent on every detailed provision during the passage of the Bill; but is also a reflection of the fact that the content of such provisions may change from time to time. It is desired to avoid amending the primary legislation on each such occasion. However, both the initial provisions and any subsequent changes will be subject to what are considered to be appropriate Parliamentary safeguards.

Henry VIII powers

4.  There are five areas where a Henry VIII power is being sought. The clauses with the Henry VIII powers are set out below.

5.  Clause 13. The base values of the lower and upper limits of the qualifying earnings band are set in 2006/07 terms in primary legislation (clause 12(1)). A legislative mechanism is needed to provide for uprating. A power will be taken to allow the Secretary of State to revise the band if it is considered that it has not maintained its value.

6.  Clause 75. In connection with any future winding up of the Personal Accounts Delivery Authority, an existing power will be extended to enable the repeal of (by then) redundant provisions of this Bill which provide for the establishment and constitution of the Authority.

7.  Clause 61. In connection with the contribution limit, a power will be taken to allow the Secretary of State to repeal clause 61 by statutory instrument. This will allow for the removal of contribution limits from the personal accounts scheme, should it be required following the 2017 review.

8.  Schedule 4. In connection with amending the 25% commutation limit, a power will be taken so that the Secretary of State can ensure that the limit remains aligned with commutation limits elsewhere in pensions and tax law.

9.  Clause 116. A power will be taken to apply (with or without modifications), repeal or revoke any primary legislation passed before this Act or in the same session, to give effect to an pension scheme order under Chapter 4 of Part 1 for the Secretary of State to provide for a pension scheme.

10.  The Bill itself contains 121 clauses and 9 Schedules and is structured as follows:

Part 1: Pension scheme membership for jobholders

Chapter 1 - Employers' duties

11.  This Chapter sets up the basic requirement on employers to automatically enrol their employees into a qualifying scheme and to make minimum payments into that scheme. It also set out all the associated powers required to make automatic enrolment work effectively and to define qualifying and automatic enrolment schemes.

12.  The detailed framework of these requirements is on the face of the Bill. In addition, there are number of delegated powers contained within this Chapter. The delegated powers provide important flexibility in the operational design and implementation of the policy. It would be inappropriate for such detail to be contained on the face of the Bill, as operational solutions will be developed and refined both in the run up to 2012 and beyond.

13.  The delegated powers contained within this chapter will be presented for approval as a package of measures to enable Parliament and those likely to be affected to see their overall impact. They will therefore be coordinated to ensure that the new regulatory requirements on employers under Part 1 of the Bill operate in joined-up, targeted and proportionate way, taking account of the variety of schemes in the existing pensions market, and so respect the principles of better regulation.

Clause 2 - Continuity of scheme membership

Powers conferred on:    Secretary of State

Powers exercised by:    Regulations (statutory instrument)

Parliamentary procedure:    Negative resolution

14.  This clause prevents an employer facilitating the end of an individual's membership of a scheme (by action or omission, other than at the individual's request) without enrolling the member into another qualifying scheme.

Purpose of power

15.  Subsection (3) gives the Secretary of State the power to prescribe the period by the end of which the employer must have enrolled the jobholder into another qualifying scheme, if the employer is responsible for ending membership of the first scheme.

Reason for delegation

16.  The obligation to ensure continuity of scheme membership is on the face of the Bill. The question of how long a period should be allowed to elapse before individuals are enrolled in a different scheme following the end of the membership of their former scheme is a matter which Ministers are still carefully considering in consultation with key stakeholders. The most appropriate period will give employers a realistic time to enrol workers into another qualifying scheme, without undermining the policy to have individuals participating in pension savings.

17.  The core duty to ensure continuity of membership will receive full Parliamentary scrutiny. Since the limited provision to be made in regulations will be supplementary to this duty, and will enable the practical needs of employers to be better met, it is felt the negative procedure will be adequate.

Clause 3 - Automatic enrolment

Powers conferred on:    Secretary of State

Powers exercised by:    Regulations (statutory instrument)

Parliamentary procedure:    Negative resolution

18.  This clause places a duty on employers to automatically enrol jobholders aged at least 22 and under pensionable age into an automatic enrolment scheme, where they are not already an active member of a qualifying scheme.

Purpose of power

19.  Subsection (2) requires the Secretary of State to prescribe the steps to be taken by the employer to effect automatic enrolment of a jobholder, and binds the employer to adhere to these steps.

20.  The Secretary of State may also provide in regulations for:

• defining a period before the automatic enrolment date during which, if the jobholder ceases to be a member of a qualifying scheme (because of their own act or omission) there is no obligation on the employer to automatically enrol the jobholder (see subsection (4)). Such a person would, however, be subject to an automatic re-enrolment date when that occurred, under clause 5;
• creating an exemption (subsection (5)) from the employer obligation to automatically enrol jobholders, where an employer enrols a jobholder into a qualifying personal pension scheme of a prescribed description and where prescribed conditions are met.

Reason for delegation

21.  The duty to automatically enrol a worker is set out on the face of the Bill. However, some details of the way in which the duty is to be implemented require further consideration and discussion with interested parties in order to achieve the most effective results. It is also felt to be important to retain a significant degree of flexibility in establishing the details of the process, so that a quick and effective response can be made to any concerns raised. Hence it is felt more appropriate to include such matters in secondary legislation.

22.  The automatic enrolment duty will exist to optimise participation in pension saving. The Secretary of State may then also make regulations to establish the process by which a jobholder becomes a member of a qualifying personal pension scheme, thereby releasing those employers that use these arrangements from the obligation to automatically enrol their workers. We are currently seeking clarification from the European Commission that from 2012 automatic enrolment into Workplace Personal Pensions (WPPs) is compatible with European consumer protection legislation (the Distance Marketing Directive and the Unfair Commercial Practices Directive). Our initial discussions with the Commission have been positive, but they are ongoing. We plan to report back to Parliament in due course.

23.  As indicated above, the general duty is clearly set out on the face of the Bill and will receive full Parliamentary scrutiny. Since the provisions to be made in regulations will be supplementary and could only narrow the scope of the general duty rather than broaden it, it is felt the negative procedure will be adequate.

Clause 4 - Postponement of automatic enrolment

Powers conferred on:    Secretary of State

Powers exercised by:    Regulations (statutory instrument)

Parliamentary procedure:    Negative resolution

24.  This clause allows the Secretary of State to defer the automatic enrolment date established by clause 3 for a period he sets out in regulations.

Purpose of power

25.  This clause allows the Secretary of State to defer the automatic enrolment date established by clause 3 under circumstances and for a period to be prescribed in regulations. This clause previously provided for regulations to establish alternative arrangements to the automatic enrolment arrangements determined under clause 3 where automatic enrolment was postponed. The clause now makes clear that where regulations provide for automatic enrolment to be postponed; automatic enrolment will take place according to the regulations under clause 3.

26.  It is intended that these regulations will be made in conjunction with the general provisions in clause 115 to prescribe that automatic enrolment will be postponed where a scheme of a certain description is used.

27.  It is intended that to defer the automatic enrolment duty an employer must offer membership of a scheme that provides defined benefits or higher contributions than the default minimum.

28.  Subsections (4) and (5) enable regulations to specify that the membership of the scheme into which the jobholder is automatically enrolled must not be interrupted for a prescribed minimum period. This is to ensure that members are given the opportunity to catch up savings that would have been made had a default minimum scheme been used immediately.

Reason for delegation

29.  Setting out the length of a deferral period in secondary legislation gives the Secretary of State flexibility to adjust the period in the light of operational experience, should it become apparent that a longer or shorter period is warranted. This also enables the Secretary of State to make adjustments should a deferral facility threaten to frustrate the policy intention of increasing pension saving or the burdens on business prove too high. The period for the "catch-up" needs to be determined by the type of scheme and the value of the contributions. We need to be able to adapt the duties to reflect variety in the pensions market or different employment circumstances.

30.  Using regulations to specify the minimum period of membership of a higher quality scheme that the employer must offer enables changes to its length to be made in the light of operational experience.

Clause 5 - Automatic re-enrolment

Powers conferred on:    Secretary of State

Powers exercised by:    Regulations (statutory instrument)

Parliamentary procedure:    Negative resolution

31.  This clause imposes a duty on employers to periodically automatically re-enrol jobholders aged at least 22 and under pensionable age, who are not in a qualifying scheme, into a qualifying scheme, and sets out the circumstances in which the duty applies.

Purpose of power

32.  The power in subsection (5) enables the Secretary of State to create in regulations an exemption from the employer obligation to automatically re-enrol jobholders, where the qualifying scheme which the employer uses to discharge his obligation is a personal pension scheme and prescribed conditions are met. This mirrors the power in clause 3(5).

33.  The Secretary of State may also provide regulations for:

• the arrangements to be made by the employer to fulfil the duty;
• defining a period before the automatic re-enrolment date when a jobholder is no longer a member of a qualifying scheme (because of his own act or omission), which will operate to prevent them from being automatically re-enrolled under subsection (2) (subsection (4));
• setting automatic re-enrolment dates (subsection (6), although subject to the important limit that there must be no more than one automatic re-enrolment date in any period of three years in relation to either the employer or the jobholder (subsection (7)).

34.  The employer is obliged to automatically re-enrol jobholders into an automatic enrolment scheme with effect from the re-enrolment date. This applies to a jobholder aged at least 22 but who has not reached pensionable age who has qualifying earnings in the relevant pay period. The clause allows the Secretary of State to make regulations to exclude personal pension arrangements from the automatic re-enrolment obligation. This is a matter which Ministers are still carefully considering in consultation with key stakeholders.

Reason for delegation

35.  The duty to automatically re-enrol a worker is set out on the face of the Bill. However, some details relating to the way in which the duty is to be implemented require further consideration and discussion with interested parties in order to achieve the most targeted and effective results. It is also important to retain a significant degree of flexibility in establishing the details of the process, so that a quick and effective response can be made to any concerns raised. Hence it is felt more appropriate to include such matters in secondary legislation.

36.  As indicated above, the core duty is clearly set out on the face of the Bill and will receive full Parliamentary scrutiny. Since the provision to be made in regulations will be largely supplementary and procedural, and in the most important case will provide for the narrowing of the general duty, it is felt the negative procedure would be appropriate.

Clause 6 - Jobholder's right to opt in

Powers conferred on:    Secretary of State

Powers exercised by:    Regulations (statutory instrument)

Parliamentary procedure:    Negative resolution

37.  This clause applies to those jobholders who are aged between 16 and 75, who have qualifying earnings, who are not active members of a qualifying pension scheme, and who do not fall to be automatically enrolled. Such persons may by notice at any time require their employer to arrange for them to become an active member of an automatic enrolment scheme but the clause does not oblige the employer to act on more than one request every twelve months.

38.  This does not prohibit employers allowing employees to opt in at other times should they so choose or, having opted in, from changing their mind within 12 months. However, should the employer choose to accept an additional notice he must still enrol the worker in accordance with the prescribed opt-in enrolment process.

Purpose of power

39.  The Secretary of State is empowered to:

• prescribe requirements as to the form and content of the notice to be given (subsection (4)(a);
• determine the arrangements that such a notice requires an employer to make and to determine the date upon which membership will commence (subsection (4)(b) and (c)).

40.  The Secretary of State may also create in regulations an exemption from the employer obligation to comply with the prescribed enrolment process, where the qualifying scheme which the employer uses to discharge his obligation is a personal pension scheme and prescribed conditions are met (subsection (5)). This matches clauses 3(5) and 5(5).

Reason for delegation

41.  The right of a jobholder to require the employer to enrol them into an automatic enrolment qualifying scheme is set out on the face of the Bill. The powers here only relate to process and form. The Government will be consulting with interested parties in order to decide on the most effective methods.

42.  It is also important to retain a significant degree of flexibility in establishing the details of the process so that a quick, targeted and effective response can be made to any concerns raised. Hence it is felt more appropriate to include such matters in secondary legislation and be able to amend them via negative resolution.

Clause 7 - Jobholder's right to opt out

Powers conferred on:     Secretary of State

Powers exercised by:    Regulations (statutory instrument)

Parliamentary procedure:    Negative resolution

43.  This clause establishes the right of the jobholder who has been automatically enrolled into a qualifying scheme to opt out of that membership by providing a signed notice in a form and content to be prescribed in regulations (see subsection (6)). The clause provides that any contributions paid by the jobholder (subsection (3)) or the employer (subsection (4)) must be refunded in accordance with prescribed requirements.

44.  The clause provides for the Secretary of State to determine the period within which the jobholder may exercise his right to opt out, and the form that any such notice must take (subsections (2) and (6)). This does not prevent any active member from leaving a scheme after the opt-out period has ended.

45.  Contributions must be refunded to the person who made them, and regulations may provide for the time and manner in which this must be done (subsections (3) to (5)).

46.  Regulations made under this clause must provide for the required notice to include information as to the effect in relation to jobholders of giving notice and must provide for the notice to be signed by the jobholder (subsection (7)).

Purpose of power

47.  The purpose of this power is to enable the Secretary of State to prescribe in regulations the period during which a jobholder can opt out of a qualifying scheme and to enable him to set out detailed arrangements to give effect to the duty to refund contributions already collected. For example, regulations would set out when a refund must be made by, how it is to be calculated and the process for making it. This provision makes clear that if a member opts out of a scheme within the specified period their contributions will be refunded and they will be treated as if they had never been a member at all. Employers are also entitled to receive a refund of their contributions in these circumstances.

48.  This will not necessarily be the case if an individual cancels their active membership after the end of the opt-out period. Treatment will then depend on a range of factors, not least, governing pensions legislation, the type of pension scheme and the rules of the relevant scheme.

Reason for delegation

49.  The right of a jobholder to opt out of pension saving will be set out in primary legislation. It is felt that the supporting detailed conditions are more suitable for secondary legislation, which will allow the Personal Accounts Delivery Authority to provide advice on the most effective way to implement the procedures.

50.  The negative procedure is appropriate, as the regulation-making powers are fairly limited in scope - mostly dealing with technical matters. Parliament will have an opportunity to scrutinise and debate this clause during the passage of the Bill.

Clause 8 - Workers without qualifying earnings

Powers conferred on:    Secretary of State

Powers exercised by:    Regulations (statutory instrument)

Parliamentary procedure:    Negative resolution

51.  This clause applies to workers who are aged between 16 and 75; who ordinarily work in Great Britain; who are not active members of a qualifying pension scheme and who do not have qualifying earnings. Such workers may request access to workplace pension saving at any time (though without an employer contribution) but the clause does not oblige the employer to act on more than one request every twelve months. Should the employer choose to accept an additional notice made within that period he must enrol the worker in accordance with the prescribed opt in enrolment process.

Purpose of power

52.   The Secretary of State is empowered to:

• prescribe requirements as to the form and content of the notice to be given (subsection (3)(a));
• make provision about the arrangements that an must employer make (subsection (3)(b)); and
• for determining the date upon which membership will commence (subsection (3)(c)).

Reason for delegation

53.  The right of a worker without qualifying earnings to require the employer to enrol them into an automatic enrolment qualifying scheme is set out on the face of the Bill. The delegated powers only relate to process and form. We will be consulting with interested parties in order to decide on the most effective methods.

54.  It is also important to retain a significant degree of flexibility in establishing the details of the process so that a quick and effective response can be made to any concerns raised. Hence it is felt more appropriate to include such matters in secondary legislation and be able to amend them via negative resolution.

Clause 9 - Information to be given to jobholders

Powers conferred on:    Secretary of State

Powers exercised by:    Regulations (statutory instrument)

Parliamentary procedure:    Negative resolution

55.  This clause requires the Secretary of State to make provision by regulations for a prescribed person to give information to a jobholder about the implications of automatic enrolment, the postponement of automatic enrolment, re-enrolment, opt in and the right to opt out in relation to them.

Purpose of power

56.  The clause requires the Secretary of State to set out in regulations what information is to be provided to a jobholder, who must provide it, the circumstances in which it must be provided; and how and when it must be given.

Reason for delegation

57.  It is usual procedure to prescribe such detailed matters in regulations. This way of proceeding has been adopted, for example, in section 113 of the Pension Schemes Act 1993 and the accompanying Disclosure of Information Regulations made under those powers (SI 1996/1655).

58.  The provision of carefully balanced information to newly-enrolled or prospective scheme members is crucial to the success of the reforms, as it should inform a jobholder's decision on whether to remain in a scheme.

59.  Setting out the detail in regulations will enable the Secretary of State to consult with key stakeholders and interested groups to ensure that jobholders are given suitable and timely information, in the most appropriate format. In addition, the Secretary of State will be able to determine the right body or person to provide this information in the most user-friendly way, without placing unreasonable burdens on business, whilst being flexible to react to negative practices that might be used by employers to attempt to evade having to contribute to pension savings.

Clause 10 - Information to be given to the Pensions Regulator

Powers conferred on:    Secretary of State

Powers exercised by:     Regulations (statutory instrument)

Parliamentary procedure:    Negative resolution

60.  This clause underpins the compliance regime by allowing the Secretary of State to require employers to register details about the pension schemes they will use to comply with the employer duty.

Purpose of power

61.  Regulations would prescribe the information to be provided in relation to each type of scheme as well as other information to support the Regulator in carrying out its functions under Chapter 2 of this Part. Regulations may also specify how the information must be given and the format in which it must be provided.

Reason for delegation

62.  Part of the Pensions Regulator's remit will be to monitor and enforce compliance with the employer duty. To ensure that employers comply with their duty to automatically enrol jobholders into automatic enrolment schemes and maintain a jobholder's membership of a qualifying scheme, the Secretary of State could make regulations to require them to register with the Pensions Regulator how they meet or intend to meet the new duties. Placing the details in secondary legislation provides flexibility to take into account the Regulator's views on required processes to support its compliance function in light of operational experience.

63.  Regulations would prescribe the detailed information that employers must provide in order to meet, or intend to meet, the employers' duties and the relevant scheme tests. The regulations will enable the Regulator to ask for other information necessary for carrying out its compliance function. There is precedent for setting out this type of detailed requirements in legislation. For instance, the regulation making power in section (7) (a) of the Pensions Act 1995 is wide and enables the Regulator to collect information relevant to its power to supervise the winding-up of pension schemes. Covering specific aspects of the information requirement in secondary legislation will enable the Regulator to develop its compliance strategy in a way that is both proportionate and minimises the burdens on business.

64.  Regulations will determine the form and the means for employers to provide the information as they develop the operational business processes. It is possible that they will wish to require employers to provide information electronically

Clause 11 - Introduction of employers' duties

Powers conferred on:    Secretary of State

Powers exercised by:    Regulations (statutory instrument)

Parliamentary procedure:    Negative resolution

65.  This clause allows the introduction of the employer duties to be staged. The Secretary could provide for defined employers to become subject to those duties at a defined point in time after the commencement of the employer duty clauses themselves.

Purpose of power

66.  The power is intended to enable the introduction of the employer duties to be staged over an initial period from 2012 with different groups of employers becoming subject to the duties ahead of others. This is to ensure that systems of the Regulator and the largest pension schemes have sufficient capacity to manage the flow of information and money that will result from the introduction of the duties in order to ensure smooth delivery to customers. Staged implementation has been successfully used by government in the past to deliver large-scale change programmes to employers (e.g. in respect of the introduction of Information and Consultation regulations and the HMRC requirement for businesses to file annual tax returns via an e-channel).

Reason for delegation

67.  It will be for the Regulator to develop implementation plans and systems once it is authorised to do so by virtue of this legislation. The Secretary of State will then decide whether and how the commencement of the requirements should be staged in relation to particular employers. These are operational decisions, the detail of which is suitable for secondary legislation, which Parliament would then consider by the negative resolution procedure. That legislation could of course only narrow the initial effect of the employer duties.

Clause 12 - Qualifying earnings

Powers conferred on:    Secretary of State

Powers exercised by:    Regulations (statutory instrument)

Parliamentary procedure:    Negative resolution

68.  Clause 12 establishes "qualifying earnings" in 2006/07 earnings terms by reference to an amount of a worker's earnings from their employment and certain statutory entitlements.

Purpose of power

69.  Subsection 3(f) enables the Secretary of State to prescribe other sums be paid to workers in connection with their employment that must be considered "earnings" for the purposes of calculating qualifying earnings. This is to ensure that the employer duty is not avoided by paying workers in a manner that would fall outside the statutory definition.

Reason for delegation

70.  This power would enable the Secretary of State to react to developments in employer pay practices that attempt to avoid pension contributions. A prompt response to such practices would be required to ensure that workers' pension savings do not suffer over the long term. Secondary legislation will facilitate this prompt response.

Clause 13 - Review of qualifying earnings band

Powers conferred on:    Secretary of State

Powers exercised by:    Order (statutory instrument)

Parliamentary procedure:    Negative resolution

71.  Clause 13 requires the Secretary of State to review annually the value of the "qualifying earnings" lower and upper limits and enables him to amend them, as he thinks appropriate, to maintain their value. He may use an existing statutory earnings review for this purpose if he so wishes.

Henry Vlll power

72.  Subsection (4) contains a Henry VIII power that enables the Secretary of State to amend the lower and upper limits set out on the face of the Bill so that they maintain their value.

Purpose of power

73.  The base values of the lower and upper limits of the qualifying earnings band are set in 2006/07 earnings terms in primary legislation (clause 12(1)). A power, at subsection (4), will be taken to allow the Secretary of State to revise the band if it is considered that it has not maintained its value.

Reason for delegation

74.  A legislative mechanism is needed to provide for increases to the earnings band. The negative procedure is appropriate here, rather than the affirmative resolution of the annual social security benefits uprating and guaranteed minimum pensions increase Orders. A determination on whether the lower and upper limits of the qualifying earnings band have maintained their value (and re-set the limits if appropriate) is comparable with the annual revaluation of the low earnings threshold for employer and employer contributions to the state second pension. The revaluation of that low earnings threshold is by negative resolution. The revaluation of the qualifying earnings band in Clause 12 of this Bill is also appropriate for negative resolution.

Clause 14 - Pay reference period

Powers conferred on:    Secretary of State

Powers exercised by:    Regulations (statutory instrument)

Parliamentary procedure:    Negative resolution

75.  Clause 14 provides a power to enable the Secretary of State to set pay reference periods in regulations.

Purpose of power

76.  Subsection (2) allows the Secretary of State to prescribe the period by reference to which it will be possible to calculate whether an individual has earnings which are qualifying earnings.. This will determine whether a worker qualifies to be automatically enrolled or automatically re-enrolled, or circumstances where a worker has the right to opt in, and enables calculations of contributions due for money purchase pension schemes. Because of the different types of workers and different pay periods used by employers, there is a need to enable the pay reference period to be tailored to a specific worker and payment type. For example, agency workers might require a much shorter calculation period than salaried employees.

Reason for delegation

77.  This will involve a very detailed and technical process that is most suitably set out in secondary legislation. The Secretary of State also needs to be able to address any payment methods that might be developed by employers as a means of avoiding their pension contribution obligations.

78.  The precedents for this type of delegation include:

• The Social Security (Contributions) Regulations 2001 (SI 2001/1004).
• Regulation 10(1) of the National Minimum Wage Regulations 1999 (SI 1999/584).

Clause 15 - Qualifying schemes

Powers conferred on:    Secretary of State

Powers exercised by:    Regulations (statutory instrument)

Parliamentary procedure:    Negative resolution

79.  Clause 15 defines "qualifying schemes" for the purposes of the employer duties.

Purpose of power

80.  Subsection (2) enables the Secretary of State to "dis-qualify" a scheme that would otherwise qualify, if member charges are excessive, a jobholder's contributions are excessive or a scheme provides average salary benefits and contains prescribed features.

Reason for delegation

81.  There is a need to ensure that the basic definition of qualifying earnings is not overly complex, but simultaneously to be able to prevent schemes being used for the employer duty that contain features which would undermine the policy aim of high participation in pension savings. Providing the Secretary of State with this power will enable these aims to be met.

82.  There is no evidence that the charges or contributions are excessive in existing schemes. However it would seem prudent to secure the ability to respond to unwelcome developments in the future. It is important to note that it is not intended to use the power to restrict the level of contributions in a qualifying scheme in respect of employer contributions, except where excessive deductions from wages were required by a scheme which operated salary sacrifice arrangements. The power in relation to average salary benefit schemes is included to deal with schemes which may fail to revalue accrued savings in order that they maintain their value for retirement.

Clause 17 - Occupational pension schemes

Powers conferred on:    Secretary of State

Powers exercised by:    Regulations (statutory instrument)

Parliamentary procedure:    Negative resolution

83.  Clause 17 sets out the definition of a qualifying occupational pension scheme for the purposes of the employer duties.

Purpose of power

84.  The criteria for UK and other EEA schemes are set out in primary legislation. Paragraph (c) enables the Secretary of State to set the criteria for schemes administered outside of the EEA.

Reason for delegation

85.  European Economic Area (EEA) occupational pension schemes are regulated by the IORP Directive (Directive 2003/41/EC). The definition in section 1(1) of the Pension Schemes Act 1993 provides the gateway to the UK implementation of that regulatory regime. However, it is not possible to set those standards for non-EEA administered schemes and we would not want to permit such schemes to be used unless it was clear that the quality and regulatory standards of such schemes were comparable to EC standards. Regulations will be used if any non-EEA schemes demonstrate that they are suitable to be used for the employer duty.

Clause 19 - Quality requirement: UK money purchase schemes

Powers conferred on:    Secretary of State

Powers exercised by:    Regulations (statutory instrument)

Parliamentary procedure:    Negative resolution

86.  Clause 19 sets out the quality requirements for UK money purchase schemes, by reference to the contributions required by employers and jobholders.

Purpose of power

87.  Subsection (2) enables the contribution-based test in subsection (1) to be modified in regulations for contracted-out money purchase schemes.

88.  Subsection (3) provides for a minimum contribution of a prescribed amount below which trustees can refuse to accept contributions without undermining the scheme's ability to meet the default contribution quality requirements.

Reason for delegation

89.  The Pensions Act 2007 (section 15) provides for the abolition of money purchase contracting-out. Subsection (2) enables the modification of the money purchase quality test so that it can take account of contracted-out schemes in the case that the abolition has not occurred by the time of the commencement of the employer duty provisions. This will be achieved by ensuring that any payment from HMRC relevant to a contracted-out scheme, such as age-related rebates and rebated National Insurance, cannot be used towards satisfying the contribution levels required in the quality test. This will ensure the quality standard of the contracted-out scheme test can be maintained.

90.  Qualifying occupational money purchase schemes must have a rule that, among other things, requires an employer to pay a default contribution of 8 per cent on qualifying earnings, of which 3 per cent must come from the employer. The power in subsection (3) will be used to set a minimum contribution level in regulations, below which the scheme does not have to accept contributions where the cost of administering such small amounts outweighs their value. Taking a power to prescribe the minimum in regulations gives the Secretary of State the flexibility to consult on an appropriate minimum. A similar approach was taken with setting the minimum contribution level for stakeholder pensions in the Welfare Reform and Pensions Act 1999 and the Stakeholder Pension Schemes Regulations 2000 (SI 2000/1403).

Clause 20 - Quality requirement: UK defined benefit schemes

Powers conferred on:    Secretary of State

Powers exercised by:    Order (statutory instrument)

Parliamentary procedure:    Negative resolution

91.  Clause 20 sets out the quality requirements for defined benefits schemes by reference to those that are in contracted-out employment and those that are not.

Purpose of power

92.  Contracted-out employment is employment that is contracted out of the State Second Pension. Where employment is contracted out, the employer and employees pay lower (rebated) national insurance contributions. In order for a defined benefits scheme to be used to contract out employments, it must meet the statutory standard in section 12A of the Pension Schemes Act 1993.

93.  Currently that standard meets our policy requirements for scheme quality for the employer duty, and using it will mean that employers can simply be concerned with meeting requirements under this legislation through existing processes. However, when the State Second Pension becomes flat rate rather than earnings-related, the standard for those purposes may no longer be meaningful for the purposes of safeguarding an adequate level of private pension saving under this legislation.

94.  Should that occur, subsection (3) enables the Secretary of State, by order, to replace the use of the sole fact of contracted-out employment to meet the quality standard with a test scheme standard to be met based on a minimum pension accrual rate.

Reason for delegation

95.  Subsection (3) enables the Secretary of State to provide that those in contracted-out employment will meet the test scheme standard in clause 21, but with an accrual rate that takes into account the contracting out of the State Second Pension. The accrual rate of any test for contracted-out schemes has to be higher than the test scheme standard which only applies to non-contracted-out schemes. This will ensure the quality standard of the contracted-out scheme test can be maintained.

96.  To provide certainty, the maximum accrual rate that can be set has been put on the face of the Bill. This ensures its parameters are known from the outset. However, as the need to exercise this power will be judged on ongoing actuarial monitoring, with no fixed timeframe, it is important that the Secretary of State has the flexibility without that limit to set and implement a revised rate at the most appropriate time.

Clause 21 - Test scheme standard

Powers conferred on:    Secretary of State

Powers exercised by:    Regulations (statutory instrument) and guidance

Parliamentary procedure:    Negative resolution

97.  Clause 21 sets out the standard that must be met when applying the test scheme to determine whether a defined benefit scheme meets the quality requirement. For a scheme to satisfy the standard it has to provide pensions for the relevant members that are broadly equivalent or better than the pensions that would be provided under the test scheme. The test is applied to the relevant members' pensions in the scheme where they are not subject to a contracting out certificate. A modified version of the test would be applied where relevant members are covered by a contracted out certificate, by virtue of the power in clause 20(3).

Purpose of power

98.  Subsection (4) enables the Secretary of State to set out in regulations the technical detail about how pensions provided by a scheme can satisfy the test scheme standard.

99.  Subsection (5) provides that the determination process in those regulations can be required to be conducted in accordance with guidance given by the Secretary of State.

100.  Subsection (6) enables the imposition of a requirement that the test scheme standard can only be met if actuarial certification is given.

101.  Section (7) enables regulations to permit an actuary other than the scheme actuary to be used if actuarial certification is required for the test scheme standard. This power is likely to be used for schemes that do not have to appoint a scheme actuary.

Reason for delegation

102.  The use of regulations and guidance is based on the existing framework in which the Reference Scheme Test operates. That is the statutory standard that must be met under section 12A of the Pension Schemes Act 1993 in order for a scheme to be used for contracted-out employment.

103.  Secondary legislation is appropriate because the application of the test may involve complex actuarial calculations and comparisons, and this will be highly technical. Allowing for technical guidance to support the regulations will enable the Secretary of State to draw on the expertise of the actuarial profession and key scheme professionals, to ensure that the tests are workable at all times across the full range of schemes.

104.  The test scheme standard is intended to be relatively simple to apply. This means employers may be able to satisfy themselves that their scheme meets the test scheme standard where there is a close match. More complex comparisons will require actuarial calculations, and it is prudent, therefore, to provide a power to require actuarial certification in certain circumstances.

Clause 22 - Test scheme

Powers conferred on:    Secretary of State

Powers exercised by:    Regulations (statutory instrument)

Parliamentary procedure:    Negative resolution

105.  Clause 22 sets out the technical detail of the test scheme.

Purpose of power

106.  Subsection (1) enables the prescription of further test criteria.

Reason for delegation

107.  The ability to set out further test criteria in secondary legislation will allow for features of schemes to be considered under the test, should such features (e.g. minimum revaluation of deferred pension and indexation) be relevant to ensuring that there is an adequate level of private pension saving under this legislation. The test is based on the framework of the reference scheme test and, to ensure that it is workable across the full range of schemes, it will involve detailed actuarial guidance to assist the actuary certifying the scheme. To put this level of technical detail on the face of the primary legislation would be inconsistent with the general structure of the legislation and the regulatory framework of the existing reference scheme test.

Clause 23 - Quality requirement: UK hybrid schemes

Powers conferred on:    Secretary of State

Powers exercised by:    Rules

Parliamentary procedure:    None

108.  Clause 23 sets out the quality requirements for qualifying hybrid pension schemes, which are that the scheme meets the standards of the quality tests for money purchase or defined benefits schemes in accordance with rules made by the Secretary of State.

Purpose of power

109.  Subsection (2) enables rules to be made to tell employers which of the quality tests is appropriate to their particular scheme.

Reason for delegation

110.  The relevant quality tests are those in clause 19 (money purchase schemes) and clause 20 (defined benefits schemes). This is because hybrid schemes are those which contain both money purchase and defined benefit parts. Rules are required so that the correct test is applied to the right part of the scheme.

111.  Rules provide a straightforward and flexible way of dealing with complex pension arrangements. This is particularly important because hybrid arrangements may become increasingly prevalent as employers are keen to find ways of sharing the investment and longevity risks with their employees in a proportionate manner. The Rules will particularise, where necessary, how requirements which have already be set for related general purposes by regulations will apply to hybrid schemes.

Clause 24 - Quality requirement: non-UK occupational pension schemes

Powers conferred on:    Secretary of State

Powers exercised by:    Regulations (statutory instrument)

Parliamentary procedure:    Negative resolution

112.  This clause provides a regulation-making power to enable the Secretary of State to prescribe quality requirements for occupational schemes with their main administration outside of the UK.

Purpose of power

113.  The power in clause 24 might be used if schemes, set up outside of the UK, are deemed suitable to be used as qualifying schemes under regulations made under clause 16(c). The power could be used to replicate the quality requirements set in primary legislation for UK schemes but may also set out alternative arrangements if the requirements prove to be unworkable because the nature of the scheme does not resemble that of UK schemes.

Reason for delegation

114.  Given the potential diversity of schemes outside of the UK and difficulties in predicting which type of non-UK scheme employers may wish to use, it is not possible to set out exhaustive arrangements in primary legislation.

Clause 25 - Quality requirement: personal pension schemes

Powers conferred on:    Secretary of State

Powers exercised by:    Regulation (statutory instrument)

Parliamentary procedure:    Negative resolution

115.  This clause sets out the conditions which a personal pension scheme must meet in order to satisfy the quality test. Individuals must receive a minimum 3% employer contribution, and they must make a personal contribution of any shortfall of a total contribution requirement of 8%. Approximately 1% of that will be contributed by the Government, through tax relief. The percentages relate to the amount of qualifying earnings that a jobholder has. Agreements must be in place confirming that these contributions are due to the scheme.

Purpose of power

116.  Subsection (7) enables the contribution-based criteria in subsections (3)(b) and (4)(b) to be amended for an appropriate Personal Pension Scheme used for contracting-out. The power taken here is similar to the one taken in clause 19 and will only be used if money purchase contracting-out is not abolished by the time the employer duty legislation comes into effect.

117.  Subsection (8) provides for a minimum contribution of a prescribed amount, below which trustees can refuse to accept contributions without undermining the scheme's ability to meet the qualifying test.

Reason for delegation

118.  The Pensions Act 2007 (section 15) provides for the abolition of money purchase contracting out. Subsection (2) provides for the modification of the personal pensions quality requirement so that it can take account of appropriate Personal Pension Schemes (used for contracting out of the State Second Pension Scheme) in the case that the abolition has not occurred by the commencement of the employer duty legislation. This will be achieved by ensuring that any payment from HMRC relevant to an appropriate Personal Pension Scheme, such as age-related rebates and rebated National Insurance, cannot be used towards satisfying the contribution levels required by the quality requirements.

119.  Qualifying personal pension schemes must meet certain qualifying conditions, among which is that there must be an agreement requiring an employer to pay a default contribution of 8 per cent, of which 3 per cent must come from the employer. As with the power in clause 19(3), the power in subsection (8) will be used to set a minimum contribution level in regulations below which the scheme does not have accept contributions where the cost of administering such small amounts outweighs their value. Taking a power to prescribe the minimum in regulations gives the Secretary of State the flexibility to consult on an appropriate minimum. A similar approach was taken with setting the minimum contribution level for stakeholder pensions in the Welfare Reform and Pensions Act 1999 and the Stakeholder Pension Schemes Regulations 2000 (SI 2000/1403).

Clause 26 - Transitional periods for money purchase and personal pension schemes

Powers conferred on:    Secretary of State

Powers exercised by:    Regulations (statutory instrument)

Parliamentary procedure:    Negative resolution

120.  This clause allow for employers sponsoring money purchase and personal pension schemes, and jobholder members of such schemes, to be permitted to gradually increase the level of their contributions over 2 transitional periods, linked to the coming into force of the legislation in clause 19 and clause 25. Phasing is achieved by modifying the minimum contribution rate in the quality requirements in clauses 19 and 25.

Purpose of power

121.  The new employer duty legislation will require many employers to provide and contribute to pensions for their workers for the first time. Employers which already contribute to pensions may see the levels of participation rise as a result of automatic enrolment and minimum contributions, leading to increased costs. Therefore it is envisaged that the contributions required in qualifying money purchase schemes and personal pension schemes will be gradually increased over two transitional phasing periods until they reach the full requirement of 8 per cent of qualifying earnings.

122.  Subsection (2) provides for the first transitional period to start when clause 19, which sets out the default contribution quality requirements for occupational money purchase schemes and personal pension schemes, is commenced. The period will be a period set by regulations of at last one year.

123.  The second transitional period will start on the end of the first, and will also be a period set by regulations of at least one year.

Reason for delegation

124.  The substance of the arrangements for phasing contributions is on the face of the primary legislation, in order to give employers the necessary assurance that they will be able to phase in the cost. This includes a stipulation of the minimum length of the phasing periods. The beginning and end of the periods are essentially operational issues, which would be most appropriately be determined by regulations. It is also important to retain the flexibility to determine the actual length of the phasing period, so that the Government is able to respond to new evidence about the ability of employers to adjust to increases in costs.

Clause 27 - Transitional periods for defined benefits and hybrid schemes

Powers conferred on:    Secretary of State

Powers exercised by:    Regulations (statutory instrument)

Parliamentary procedure:    Negative resolution

125.  Clause 27 is similar to clause 26 in that it enables employers sponsoring defined benefits schemes and hybrid schemes to phase in the membership of those schemes over a transitional period.

126.  For employers using defined benefits and hybrid schemes, phasing in by contributions or accruals is prohibitively complex. Therefore, these employers will be able to delay automatic enrolment for up to three years in respect of those workers who have chosen not to join the scheme but remain able to do so. There is a mechanism to protect individuals yet to be automatically enrolled should a defined benefits or hybrid scheme close during the transitional period. The transitional periods will not apply to workers who start their employment after the introduction of the employer duty, so that an employer will not be able to delay automatic enrolment for new staff.

Purpose of power

127.  The power in sub-section (6)(c) enables regulations made under powers in clause 3 (automatic enrolment) to prescribe the timeframe in which a jobholder- member may pay any backdated contributions (to make up for the delay in enrolment) into a money purchase scheme as an alternative to the defined benefits scheme or hybrid scheme should the latter close during the transitional period.

128.  The power in sub-section (8) enables regulations to specify the length of the transitional period. The intention is to make its overall length consistent with the periods for phasing in the contributions for money purchase schemes.

Reason for delegation

129.  The power in sub-section (6) (c) is to be used to prescribe a timeframe, that balances a flexible period for individuals to pay with the need for employers and trustees to be able to accept irregular payments. It is usual for such timeframes to be set out in secondary legislation.

130.  The power in subsection (8) provides for the length of the transitional period to be set out by regulations. The start of the period is linked to the coming into force of clause 3. The period prescribed is likely to be linked with the overall phasing period for money purchase schemes in clause 8. Therefore, it is important to retain flexibility for the same reasons as in clause 8: ie, to be able to respond to future evidence on employers' abilities to bear increased costs.

Clause 28 - Power of trustees to modify by resolution

Powers conferred on:    Secretary of State

Powers exercised by:    Regulations (statutory instrument) and guidance

Parliamentary procedure:    Negative resolution

131.  Clause 28 empowers the trustees of an occupational scheme, with the consent of participating employers, to modify a scheme to enable it to become an automatic enrolment scheme for the purposes of clause 16.

Purpose of power

132.  Trustees, with the employer's agreement, will be able to modify a scheme to enable an employer to use it for the automatic enrolment of eligible jobholders - for example, in a case where currently irrevocable rules specify a different joining mechanism. The regulation making power in section (4) enables such hurdles to be dis-applied for certain occupational pension schemes.

Reason for delegation

133.  This regulation making power is permissive, and similar versions have in the past been used to dis-apply the modification power for schemes where the Government or a public authority has given a guarantee, and for public service schemes. It is appropriate to retain this power in case certain schemes come to light where it is deemed inappropriate to enable the trustees to modify the scheme - perhaps schemes in which a public authority has given a guarantee.

Chapter 2 - Compliance

134.  Part 1, Chapter 2 of the Bill contains the main provisions which will enable the Pensions Regulator to ensure that employers comply with the duties set out in the preceding Chapter.

135.  The primary legislation sets out the legislative framework within which the Regulator will carry out this work. In some areas, the precise nature of the requirements will depend on the detailed operational design of the compliance regime, which the Regulator will develop, drawing on best practice and its own experience in the pensions field. It is also desirable in some cases to allow more flexibility to ensure an effective and proportionate compliance regime: to respond swiftly to changes in employer behaviour after the duties are introduced, consult on specific issues, or line up with other regulations. This is the rationale behind the delegated powers in this Chapter.

Clause 31: Compliance notices

Powers conferred on:    Secretary of State

Powers exercised by:    Regulations (statutory instrument)

Parliamentary procedure:    Negative resolution

136.  Clause 31 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.

Purpose of power

137.  Clause 31(6) permits the Secretary of State to set out in regulations how clauses 2 to 9 apply where an employer has been issued with a compliance notice for breaching one or more of the employer duties under subsections 3(2), 5(2) and 6(3). These subsections set out the duties of employers to enrol jobholders into a qualifying scheme.

138.  If a compliance notice is served on an employer for failure to enrol, this power will allow the Secretary of State to, for example, freeze the right of the jobholder to opt-out until the contravention that led to the compliance notice being issued had been put right. Regulations made under this section will also state how regulations made under sections 2 to 9 will apply to an employer who has been issued with a compliance notice.

Reason for delegation

139.  Since regulations under clauses 2 to 9 will set out the detail of how the employer duties will work and could be changed in the future to address any areas of concern, it is appropriate to retain the power to say in regulations how those regulations will apply to employers to whom a compliance notice has been issued.

Clause 33: Unpaid contributions notices

Powers conferred on:    Secretary of State

Powers exercised by:    Regulations (statutory instrument)

Parliamentary procedure:    Negative resolution

140.  Clause 33 gives the Pensions Regulator the power to issue an unpaid contributions notice to an employer if it is of the opinion that the employer has failed to pay contributions by the due date.

Purpose of power

141.  Subsection (4) provides for the Secretary of State to make regulations prescribing the meaning of 'due date' for the purposes of this clause. The purpose of this is to give the Secretary of State the power to prescribe the latest date which can be the "due date" specified for payment of contributions to a qualifying scheme in respect of any period of earnings. Under current legislative arrangements, the 'due date' will vary between schemes according to the scheme rules and arrangements made between the employer and the scheme. This provision is intended to prevent scheme rules or agreements mentioned in specifying a date for payment of contributions which is considerably later than the period to which the earnings relate, which would significantly undermine the policy of ensuring that employers make timely payment of contributions.

142.  The decision as to the latest date which may be the 'due date' for the purpose of paying contributions to a qualifying scheme would be made following consultation.

Reason for delegation

143.  The Department is not aware of any such evidence of any abuse at present, but this may change when employers are compelled to provide membership of a qualifying scheme to jobholders and it is therefore appropriate that the Secretary of State has the flexibility in secondary legislation to respond to any such changes. The power would be used in order to close a possible loophole. The decision as to the latest date which may be the "due date" for the purpose of paying contributions to a qualifying scheme would be made following consultation. It is appropriate that the Secretary of State has the ability to prescribe a provision at this level of detail in regulations.

Clause 34: Calculation and payment of contributions

Powers conferred on:    Secretary of State

Powers exercised by:    Regulations (statutory instrument)

Parliamentary procedure:    Negative resolution

144.  Clause 34 makes provision for the calculation of unpaid contributions. It provides that a compliance or unpaid contributions notice may require the employer to calculate the amount of contributions that has not been paid into the scheme. The notice may also include that, where contributions are made within the period prescribed in regulations, 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 overdue by a certain period of time, the employer will be required to pay all the outstanding contributions.

Purpose of power

145.  Subsections (2)(b) and (2)(c) enable the Secretary of State to prescribe by regulations a period after the due date during which, if the contributions are paid within the prescribed period, the employer is required to pay the unpaid contributions on their own account under section 33(3)(b). If the contributions are not paid within the prescribed period, the employer is required to pay, in addition, the contributions due on behalf of the jobholder.

146.  Where a requirement to calculate contributions is included in a compliance notice, contributions would be calculated according to the amounts specified by the rules of the scheme into which the employer chooses to enrol the jobholder. In a case where the employer chooses to use a qualifying workplace personal pension, contributions would be calculated according to the terms of the agreements mentioned in clause 25(3) and (4). The calculations could relate both to contributions which should have been paid by the employer in respect of the jobholder and to contributions which the employer should have deducted from the jobholder's own earnings and paid to the qualifying scheme. The intention is to enable the Regulator to require the jobholder to be placed, insofar as possible, in the same position as if the employer had complied with the employer duties at the proper time. Where the period of non-compliance is longer than that specified in the regulations, the employer may be required to pay contributions due in respect of the employee and contributions which would have been payable by the jobholder. The rationale behind this is:

• to ensure that a jobholder is not disadvantaged by an employer's non-compliance. Where contributions are paid consistently late, or where there are gaps in a jobholder's membership of a qualifying scheme, the amount of the eventual pension will be reduced. An employer is likely to find it easier than a jobholder to pay retrospective contributions;
• to ensure consistency with the principles set out in the Macrory Review of regulatory penalties (in particular to restore the harm caused by the non-compliance, to change future behaviour and to eliminate any financial gain from non-compliance).

147.  The legislation relating to National Insurance contributions provides a precedent for this approach (see paragraph 3 of Schedule 1 to the Social Security Contributions and Benefits Act 1992).

148.  Subsection (3) allows the Secretary of State by regulations to make provision about the way in which the Regulator may estimate the amount of contributions that an employer has failed to pay in respect of a jobholder. This may include, in particular, the use of sources of information other than information provided by the employer.

Reason for delegation

149.  The period prescribed under subsection (2)(b), for which contributions should be calculated and paid by employers, will be determined in the light of analysis concerning the respective abilities of jobholders and employers to pay contributions and the extent to which deterrent powers are required. This may not remain constant. Delegating the power to prescribe this period will ensure that an appropriate period can be chosen and allow a swift response to changes in employer behaviour after the duties are introduced.

150.  It will not always be possible to calculate accurately the amount of contributions owing in respect of one or more jobholders, particularly where an employer has failed to adhere to the specified record-keeping requirements. Therefore the Regulator will have the power to estimate the amount of contributions owed, using sources of information other than the employer's records, in order to arrive at its estimate. The manner in which the power under subsection (3) will be exercised will be determined following consultation with the Regulator and other interested parties. Delegating this power will enable the Regulator to complete detailed design work before setting out in legislation how unpaid contributions will be calculated. This approach will also enable additional sources of information to be added to the list should it become evident over time that these are necessary. Possible sources of information include, in particular, information relating to tax or National Insurance records held by HMRC. This approach will also enable the Regulator to require employers and 3^rd parties to supply information in a specific form or within a particular time period (for example, on a routine basis).

Clause 35: Fixed penalty notices

Powers conferred on:    Secretary of State

Powers exercised by:    Regulations (statutory instrument)

Parliamentary procedure:     Negative resolution

151.  Clause 35 provides that the Regulator may 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 Pensions Act 2004) or has contravened any of the provisions listed in subsection (2) of the clause.

Purpose of power

152.  Subsection (4) allows the Secretary of State to specify the manner in which a fixed penalty is to be determined, subject to a ceiling of £50,000.

Reason for delegation

153.  It is standard practice not to set penalty rates in primary legislation. The maximum ceiling is set out in order to give Parliament assurance about the possible burden on non-compliant employers, and ensure that penalties are proportionate. The scale of penalties will be set out in secondary legislation. The compliance strategy needs to be capable of responding to employer behaviour after the introduction of the reforms, and using secondary legislation allows this flexibility.

Clause 36: Escalating penalty notices

Powers conferred on:    Secretary of State

Powers exercised by:    Regulations (statutory instrument)

Parliamentary procedure:    Negative resolution

154.  Clause 36 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 Pensions Act 2004).

Purpose of power

155.  Subsection (5)(a) of clause 36 permits the Secretary of State to make regulations prescribing the rate by which penalties under this section will be calculated, subject to a ceiling of £10,000.

Reason for delegation

156.  The maximum ceiling for the daily rate is set out in order to give Parliament assurance about the possible burden on non-compliant employers, and ensure that penalties are appropriate. The daily rate will be set out in regulations so that the compliance regime can respond to employer behaviour after the introduction of the reforms. Using secondary legislation allows this flexibility.

Clause 38: Review of notices

Power conferred on:     Secretary of State

Powers exercised by:     Regulations (statutory instrument)

Parliamentary procedure:   Negative resolution

157.  Clause 38 provides that the Regulator may review a notice if it has been asked to do so by the person to whom the notice was issued, or if the Regulator considers it to be appropriate.

Purpose of power

158.  Subsection (3) provides a power enabling the Secretary of State to make regulations prescribing the period within which a recipient of a notice may apply to the Regulator for review of, or within which the Pensions Regulator may review, any of the notices specified in subsection (2).

Reasons for delegation

159.  The period for review will be limited to ensure that the rights of the recipient are balanced against the interests of the jobholder so that contributions are made promptly. The period for review will be set out in regulations so that the compliance regime can respond to employer behaviour after the introduction of the reforms. Using secondary legislation allows this flexibility.

Clause 39: References to the Pensions Regulator Tribunal

Powers conferred on:     Secretary of State

Powers exercised by:     Regulations (statutory instrument)

Parliamentary procedure:   Negative resolution

160.  Clause 39 provides that a person issued with either a fixed or escalating penalty notice has the right to refer the matter to the Pensions Regulator Tribunal in respect of either the issue of the notice or the amount of the penalty.

Purpose of power

161.  Subsection (2) allows the Secretary of State by regulations to make provision for:

• the manner in which, and the time within which, a reference may be made;
• the procedure to be followed where a reference is made;
• the powers of the Pensions Regulator Tribunal in relation to such a reference.

162.  This power provides for regulations stating how references to the Pensions Regulator Tribunal in respect of notices issued under clause 35 (regarding fixed penalty notices) and clause 36 (regarding escalating penalty notices) will be dealt with. These powers are intended to sit alongside and not to replace the current rules of procedure for the Pensions Regulator Tribunal.

Reason for delegation

163.  It is important to note that, as mentioned in Commons Committee debate (29 January 2008), while the Bill names the Pensions Regulator Tribunal as the appellate body to hear appeals under this regime, we do not envisage that it will actually perform that function. That is because by the time appeals under the new regime are ready to be heard, we anticipate that the functions of the Pensions Regulator Tribunal will have moved into the new tribunals structure, which is being set up under the Tribunals, Courts and Enforcement Act 2007 ("the 2007 Act");. It is likely that the appropriate delegated legislation made under the 2007 Act will set procedures for the First Tier Tribunal which will amend those already existing for the Pensions Regulator Tribunal.

164.  This regulation-making power will sit alongside and complement the existing rules of procedure for the Pensions Regulator Tribunal. It is simply a power to make regulations providing for how complaints about the issue of a penalty notice will be referred to that Tribunal and is intended to provide flexibility about how the powers of the Tribunal will be adapted to the requirements of the new penalties in clauses 35 and 36.

165.  Such a power is analogous to the power given to the Lord Chancellor in section 102 of the Pensions Act 2004 to make "such provision as appears to [the Lord Chancellor] to be necessary or expedient in respect of the conduct of proceedings before the [Pensions Regulator] Tribunal." That power is also (by virtue of s.316(1)) exercisable by negative resolution. As a further example of legal precedents, section 36A of the Water Resources Act 1991 confers a right of appeal in relation to abstraction licenses, and subsection (5) provides for the procedure, including time limits and contents of notices of appeal, to be provided by regulations.

166.  We are therefore satisfied that it is appropriate to delegate the additional details of the appeals process in this way, subject to the negative resolution procedure.

Clause 43: Requirement to keep records

Powers conferred on:     Secretary of State

Powers exercised by:     Regulations (statutory instrument)

Parliamentary procedure:   Negative resolution

Purpose of power

167.  Subsection (1) gives the Secretary of State the power to specify the records which employers must keep in order to be able to demonstrate their compliance, the periods for which the records are to be retained, the format(s) in which they are to be made available, and the period of time during which such records/documents must be preserved. The guiding principles will be to minimise burdens on employers whilst ensuring that the Regulator has sufficient information to properly carry out functions under this Bill.

168.  Subsection (2) permits the Secretary of State to include in regulations made under subsection (1) that penalties under section 10 of the Pensions Act 1995 apply to employers who fail to comply with requirements under this section.

Reason for delegation

169.  The exact records and other information to be kept by employers can only be determined following the detailed design of how we will ensure that employers comply with the registration and enrolment processes. This will rely on joint working with the Pensions Regulator.

170.  Having these powers in secondary legislation will enable the record keeping requirements to be changed quickly if it becomes apparent that the requirements on employers are too onerous, or if the Regulator does not have the necessary information available from employers to maximize compliance effectively.

Chapter 3 - Employment and pre-employment protection

Clause 51 - Penalty notices

Powers conferred on:     Secretary of State

Powers exercised by:     Regulations (statutory instrument)

Parliamentary procedure:   Negative resolution

171.  Clause 51 provides that the Regulator may issue a penalty notice to an employer if it believes that the employer has contravened clause 49 or has failed to comply with a compliance notice under clause 50.

Purpose of power

172.  Subsection (3)(a) allows the Secretary of State to specify the manner in which a penalty is to be determined, subject to a ceiling, provided for in subsection (3)(b) of £50,000.

Reason for delegation

173.  It is standard practice not to set the penalty rate in primary legislation. The maximum ceiling is set out in order to give Parliament assurance about the possible burden on non-compliant employers and ensure that penalties are proportionate. The scale of penalties will be set out in secondary legislation. The compliance strategy needs to be capable of responding to employer behaviour after the introduction of the reforms and using secondary legislation allows this flexibility.

Clause 56: Restrictions on agreements to limit operation of this Part

Powers conferred on:     Secretary of State

Powers exercised by:     Regulations (statutory instrument)

Parliamentary procedure:   Negative resolution

174.  Clause 56 subsection (1) provides that any agreement is void if it seeks to limit the employer duties and individual rights in this Part of the Bill or to prevent a person from bringing a case to an employment tribunal. Subsection (3) provides a limited exception to this in that subsection (1) does not apply to a compromise agreement made as part of conciliation proceedings.

175.  Subsection (4) sets out the conditions regulating compromise agreements which include at subsection (4)(c) that the worker must have received advice from a 'relevant independent adviser' on the implications of the compromise agreement, in particular on the effect of that agreement on the worker's right to take a case to the employment tribunal.

Purpose of power

176.  Subsection (6)(d) permits the Secretary of State to specify additional or revised categories of person able to meet the definition of a 'relevant independent adviser' for the purposes of subsection (4)(c).

Reason for delegation

177.  There is a need to retain the same flexibility found in similar clauses elsewhere in employment law, in order to enable the Secretary of State to respond to developments in this area by adding, following consultation, to the category of person able to advise workers on the implications of compromise agreements.

Chapter 4 - The Scheme

Clause 58 - Power to provide for a pension scheme

Powers conferred on:     Secretary of State

Powers exercised by:     Order (statutory instrument)

Parliamentary procedure:   Draft affirmative for the scheme order

None for scheme rules

178.  This clause gives the Secretary of State the power to establish by order a pension scheme and make provision for its administration and management.

Purpose of Power

179.  Clause 58(1) and (8) allow the Secretary of State to establish the scheme by Order. The scheme will be trust based - see clause 58(2). The Secretary of State expects to use these powers so that the scheme emulates the structure of existing defined contribution, multi-employer occupational pension schemes.

Reasons for delegation

180.  In the case of the scheme, the scheme Order will be in place of the trust deed (which is used in other defined contribution occupational pension schemes) and will contain provisions central to the scheme's remit and functions. It is considered that the level of detail needed to be contained in the Order is not appropriate for primary legislation.

181.  Setting all the detail in primary legislation would remove the flexibility for making future changes that may be recommended for the proper running of the scheme in members' best interests.

182.  The Personal Accounts Delivery Authority (PADA) was created on Royal Assent of the Pensions Act 2007, to advise the Secretary of State on the setting up and running of the personal accounts scheme. They have, as yet, had insufficient time to consider all the detail that will be necessary to ensure the scheme Order and rules are fit for purpose.

183.  The power in clause 58(1) is limited to the extent that the scheme follows existing UK trust and pensions legislation; with only the minimum of consequential amendments which are essential to allow for the scheme's uniqueness.

184.  The power in clause 58(1) is both extended and qualified by further clauses as detailed below.

Extending powers

185.  Clause 58: Power to provide for a pension scheme

Subsection (9) allows for the scheme, established by Order, to have scheme rules, and that those rules may come into force at the same time as the Order. It is normal practice in occupational pension schemes to have a trust deed setting out the main provisions of the scheme and a set of rules relating to the operation and administration. This power allows the scheme to follow normal practice. These rules must, however, be subject to any provision made by the Order (subsection(11)) and rules cannot be made about certain matters (subsection (12)).

186.  Clause 59: Scheme orders: general

Subsection (2) allows for an Order to provide for any provision of the Trustee Act 2000 to apply, as if the Order and rules were a trust instrument. This ensures that certain existing trust rules can be applied properly to the scheme.

Subsection (3) gives the Secretary of State power to provide, by Order, for the trustee to make rules. It is necessary to be able to give the trustee this power, to ensure that it is possible for the scheme to be run independently of government, as in the case of other trust-based schemes.

Subsection (5) gives the Secretary of State power to make provision, by Order, for the exclusion of, or indemnity against, trustee liability due to maladministration of the scheme. PADA will make recommendations about whether such an Order will be necessary.

187.  Clause 64: Application of enactments

Subsection (1) allows the Secretary of State, by regulations, to apply existing legislation relating to trustees of pensions schemes to also apply to the trustee corporation, with any necessary modifications. This is to ensure that existing UK trust and pensions law can be applied without it being necessary to repeat it.

Qualifying powers

188.  Clause 58. The power to provide for a scheme by order must be exercised in the following ways.

Subsections (3) and (6) require that the scheme is tax registered under the Finance Act 2004, and remains so. This means that the scheme will be subject to the tax advantages available to all other tax registered schemes.

Subsection (4) requires that this pension scheme must be a qualifying automatic enrolment scheme as set out in clauses 15, 16 and 17.

189.  Clause 59: Scheme orders: general

Subsection (1) requires the Secretary of State to provide in the order for the trustee corporation under clause 65 (1) to be a trustee on the coming into force of the scheme.

Subsection (4) allows the Secretary of State, by Order, to prescribe circumstances and conditions which limit any power the trustee is given to make rules under subsection (3). Whilst trustee independence is key to this scheme, there may be circumstances where their ability to change rules needs to be limited or qualified and this clause is to cover that eventuality.

190.  Clause 60: Consultation of members and employers

Subsections (1) and (2) requires the Secretary of State to include in the scheme Order provision requiring the trustees to make and maintain arrangements for consulting the members of the scheme and participating employers about the operation, development and amendment of the scheme, including by establishing members' and employers' panels. Ongoing consultation with both scheme members and participating employers is considered to be vital to the success of this scheme. However, at this time the precise remit and constitution of both the panels and other consultation arrangements is not known. It will be for the Personal Accounts Delivery Authority to advise the Secretary of State.

Subsection (3) requires the Secretary of State by Order, or the trustees under it, to determine the functions and composition of the members' and employers' panels.

Subsection (4) allows the Order under this clause to enable the members' panel to nominate people as members of the trustee corporation.

Subsection (5) allows the Secretary of State, by Order, to provide for the payment of members of the panels out of scheme funds.

191.  Clause 62: Procedure for scheme orders

Subsection (2) provides that subsequent changes to the scheme Order by the Secretary of State may only be made with the consent of the trustee. The initial scheme Order will be made by the Secretary of State alone as there will be no trustee until the scheme is formally established by the order itself. The consent precondition will bite on any subsequent changes. The scheme order is subject to the draft affirmative procedure so Parliament will have the opportunity to consider the Secretary of State's detailed proposals for the scheme order in due course.

192.  Clause 63: Procedure for rules

Subsection (1) requires any person making rules under clause 60 to publish a draft of any proposed rules and invite comments.

Subsections (2) to (4) detail exactly how the consultation and publication processes must progress; detailing the responses received in response to the consultation and publishing any significant changes following consultation.

Subsections (5) and (6) refer to action the Secretary of State must take in relation to any subsequent rules changes (it is anticipated that the initial set of rules will be made by the Secretary of State alongside the scheme order). For those changes, if it is the Secretary of State who proposes to make rules, then that is subject to the consent of the trustees.

Subsection (8) places a requirement on the trustee to consult the members' and employers' panels before making any decisions relating to rule changes, whether proposed by the Secretary of State or otherwise.

Subsections (9) to (11) require whoever makes any rules to publish them in such a way that they may be brought to the attention of interested parties.

Reasons for the choice of Parliamentary scrutiny procedure

193.  The Order will contain the main parameters of the scheme. It is proper that the parameters of a scheme which has been created by primary legislation should be subject to full Parliamentary scrutiny.

194.  The scheme rules, on the other hand, will contain operational and administrative issues; the details of which are not seen as appropriate for Parliamentary debate particularly as responsibility for these issues will lie primarily with the trustee not Government. However, clause 58(11) limits the remit of the rules by making them subject to the order, and clause 63 further require that the Secretary of State or Trustee must publish the draft rules, invite comments and both have regard to those comments and publish a summary of them. So although there will not be formal Parliamentary scrutiny there will be the opportunity for debate amongst those with an interest in this scheme.

Clause 61 - Contribution Limits

Powers conferred on:     Secretary of State

Powers exercised by:     Order (statutory instrument)

Parliamentary procedure:   Affirmative resolution for amendments to primary legislation, negative for all other powers

195.  This clause requires an order under clause 58 to include a limit on the contributions that may be made to the personal accounts scheme by or on behalf of an individual member.

Henry Vlll power

196.  Subsection (5) contains a Henry VIII power which allows an Order made under this clause to repeal clause 61.

Purpose of power

197.  The purpose of the contribution limit is to protect the existing pensions industry by focusing the scheme on the target market. It is due to be reviewed in 2017. This power allows the Secretary of State to repeal clause 61 by affirmative statutory instrument. This will allow for the removal of contribution limits from the scheme.

198.  Subsections (1) to (3) give the Secretary of State the power to set a figure for the annual contribution limit, prescribe what a contribution is and have a separate limit, running alongside the annual contribution limit, for other payments into the scheme such as lump sum payments.

Reason for delegation

199.  The requirement to have a contribution limit for the scheme is set out in clause 61 of the Bill. However, following the review in 2017 the Secretary of State may wish to remove the requirement. In order to enable the Secretary of State to have this flexibility, it is necessary to have an order making power to revoke the duty itself.

200.  The absence of a Henry VIII power would probably necessitate using another Bill to revoke clause 61.

201.  The powers at subsections (1) to (3) are also required to set out the detail of exactly what constitutes a contribution, and allow for any changes required to the contribution limit in line with the average earnings growth index. It is considered that this level of detail is not appropriate for primary legislation.

202.  Including such detail in primary legislation would remove the flexibility for the Secretary of State to make necessary amendments which may be required for the benefit of the scheme and its members.

Clause 65 - Trustee corporation

Powers conferred on:     Secretary of State

Powers exercised by:     Order (statutory instrument)

Parliamentary procedure:   Negative Resolution

203.  Clause 65 creates a new non-departmental public body, which, until named at a later date, will be referred to as the trustee corporation.

Purpose of power

204.  Subsection (2) enables the Secretary of State to name the body (currently known as 'the trustee corporation') at a later date.

Reason for delegation

205.  The Personal Accounts Delivery Authority (PADA) has been tasked with naming the scheme and needs to do further research to determine the best name. It is, therefore, advantageous to defer naming the trustee corporation until PADA makes its recommendation for the scheme name. The trustee corporation can then be given a complementary name. As this is a minor provision a negative resolution is the most appropriate form of delegation.

Chapter 5 - Personal Accounts Delivery Authority

Clause 75 - Winding up of the Authority

Powers conferred on:     Secretary of State

Powers exercised by:     Order (statutory instrument)

Parliamentary procedure:   Draft affirmative resolution

206.  This clause amends section 23 of the Pensions Act 2007 which allows the Secretary of State to wind up and dissolve the Authority by Order. It removes the condition set out in subsection (3) of section 23 of the 2007 Act which only allows the Secretary of State to dissolve the Authority on abandonment or modification of proposals relating to personal accounts.

207.  The clause also extends the provision for transfer of the Authority's property, rights and liabilities if the Authority is wound up. The extension allows such a transfer to be made to any person.

208.  The clause also amends subsection (7) of section 23 of the Pension Act 2007 to provide that in the event of the dissolution of the Authority, an Order under section 23 can remove what will be redundant provisions from the Bill.

Henry Vlll power

209.  Section 23 of the Pensions Act 2007 contains a Henry VIII power. It allows sections of that Act to be repealed by affirmative order. Subsection (5) of this clause amends that existing power. The amendment extends the Henry VIII power so that the affirmative order can also repeal any provisions of clauses 61 to 66.

Purpose of power

210.  Section 23(3) of the Pensions Act 2007 already gives the Secretary of State power to wind up the Authority by affirmative order. The power can or must be exercised only if a certain condition is met. The condition is that, "as a result of the abandonment or modification of any relevant proposals about personal accounts, it appears to the Secretary of State that it is no longer necessary for the Authority to continue to exist."

211.  Clause 75 amends section 23 to give a power to wind up the Authority by affirmative order at the Secretary of State's discretion. There are no conditions that have to be met before this new power can be exercised. This will provide flexibility so that the Secretary of State can dissolve the Authority at the most appropriate time.

212.  Section 23 allows for the Order to provide that PADA's property, rights and liabilities are to be transferred to the Secretary of State. Subsection (4) of clause 67 amends that power to allow the Order to provide for such a transfer to be made to any person. This will allow the Authority's rights, liabilities and property to be transferred to the most appropriate person in the event that the Authority is wound up.

213.  In the event of the dissolution of the Authority, all the relevant provisions about the Authority would be redundant. The purpose of subsection (5) of clause 75 is therefore simply to ensure that the relevant provisions of clauses 69 to 74 are removed, as they will serve not further purpose.

Reason for delegation

214.  Clauses 65 and 66 provide for the establishment of a trustee corporation to operate any pension scheme established under clause 58. Chapter 2 sets out the functions of the Pensions Regulator in relation to compliance with the employer duties in Chapter 1. The Authority's functions, set out in clause 69, to assist and advise on the establishment and operation of these functions are intended to be time limited.

215.  The power to dissolve the Authority and, as a consequence to transfer the Authority's property, etc to any other person and to repeal the primary legislation relating to the Authority, has been left to delegated legislation as it is too early to know for certain at what point it will be appropriate to wind up the Authority. For this reason it is also too early to know which of the Authority's property, rights or liabilities will need to be transferred, and to whom.

216.  A similar precedent for dissolution of a Non-Departmental Public Body was introduced in the London Olympic Games and Paralympic Games Act 2006. Section 9 of that Act makes provision for the dissolution of the Olympic Delivery Authority, by affirmative order. Repeal of the provisions of the 2007 Act and this Bill relating to the Authority are entirely contingent on it's winding up, and so are also most appropriately made by order. They are effectively a consequential repeal in the event of winding up.

Chapter 6 - Stakeholder Pension Schemes

Clause 76 - Stakeholder pension schemes

Powers conferred on:     Secretary of State

Powers exercised by:     Regulations (statutory instrument)

Parliamentary procedure:   Negative resolution

217.  This clause amends section 3 of the Welfare Reform and Pensions Act 1999 ("the WRAP Act") removing the statutory duty on employers to have a designated stakeholder pension scheme. A residual duty will remain in relation to existing active scheme members for the period they continue to be active members or until they leave the employers' employment.

Purpose of power

218.  The current powers in section 3(5) of the WRAP Act (to prescribe exemptions and qualifications to the requirement to deduct contributions from an employee's remuneration and to pay these to the trustees or managers of a stakeholder pension scheme, or a prescribed person) are retained, but their application will, from commencement, be limited to the ongoing residual duty. The general power to make exceptions by regulations in section 3(1) is also retained.

Reason for delegation

219.  It remains appropriate to include the detail of how and when the requirement applies (for example the type of detail in regulation 24 of S.I. 2000/1403) in delegated legislation. Similarly, the Parliamentary scrutiny procedure (negative resolution) will not change.

Chapter 7 - Interpretation

Clause 85 - Extension of definition of worker

Powers conferred on:     Secretary of State

Powers exercised by:     Regulations (statutory instrument)

Parliamentary procedure:   Negative resolution

220.  The clause allows groups to be included in the definition of "worker" for the purposes of this Bill.

Purpose of power

221.  Under the definitions in Clause 77, jobholders must be employees or workers. The power in this clause provides for the Secretary of State to make regulations to include for the purposes of the employer duty any prescribed individuals who are not currently captured by the definition of worker. 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 the employer duty.

Reason for delegation

222.  This power would be used if a new definition arose within policy parameters which did not fall within the existing employer duty obligation. This provision will enable policy to adapt to future change so that such individuals will not be excluded from the benefits of the reforms.

223.  There is a precedent for the inclusion of such a power in section 41 of the National Minimum Wage Act 1998.

Part 2 - Simplification etc

Clause 87 and schedule 2 - Revaluation of accrued benefits etc

Powers conferred on:     Secretary of State

Powers exercised by:     Regulations and Order (statutory instrument)

Parliamentary procedure:   Negative resolution

224.  Clause 87 gives effect to Schedule 2, which provides that deferred pensions attributable to rights accrued after the clause comes into effect will be revalued in line with inflation up to a maximum of 2.5%, rather than the maximum of 5% which applies to rights accrued before the clause comes into effect (see paragraphs 1 to 3 of Schedule 2). It makes an equivalent amendment to the provisions setting out how PPF compensation is revalued (see paragraphs 4 to 7 of Schedule 2). Schedule 2 contains three delegated powers.

Paragraphs 5(3) and 6(3) of Schedule 2

Powers conferred on:     Secretary of State

Powers exercised by:     Regulations (statutory instrument)

Parliamentary procedure:   Negative resolution

Purpose of power

225.  Paragraphs 5(3) and 6(3) of Schedule 2 provide a power to specify whether a period of actual or notional pensionable service should be treated as falling before or after the commencement date of clause 87 of this Bill. These powers apply when calculating PPF compensation under the Pensions Act 2004. (No equivalent power needs to be inserted into Schedule 3 to the Pension Schemes Act 1993 because the scheme rules for the pensions covered by that Schedule enable trustees to decide when the pensionable service falls.)

Reason for delegation

226.  There may be cases where it is not clear whether compensation in relation to some pension rates should be revalued up to a maximum of 5% or 2.5%, because it is not clear how the pension scheme would have treated the accrued rights. It is not possible at this point to identify such cases, but this regulation-making power gives the Secretary of State the ability to clarify the situation if needed in the future.

227.  This power parallels the powers at paragraph 28(6) of Schedule 7 to the Pensions Act 2004, which permit regulations to be made that specify how notional service should be treated when calculating how compensation should be increased annually. Regulations have been made under those powers to prescribe that, in general, service that rights a scheme would treat as being accrued pre-1997 would also be treated in this way by the PPF, and that the Board of the PPF has discretion where the position is unclear - see regulation 24 of the Pension Protection Fund (Compensation) Regulations 2005 (SI 2005/670).

Paragraph 3(2) of Schedule 2

Power conferred on:     Secretary of State

Power exercised by:     Order (statutory instrument)

Parliamentary procedure:   Negative resolution

Purpose of power

228.  Paragraph 2(1) of Schedule 3 to the Pension Schemes Act 1993 requires the Secretary of State to make an annual Order specifying the percentage by which deferred final salary pension rights are to be revalued. Paragraph 3(2) of Schedule 2 to the Bill changes what has to be specified in that Order. The revaluations of accrued pension rights under the Pension Schemes Act 1993 are now to be carried out by reference to the higher or lower revaluation percentage. These percentages are whichever is lower, over the revaluation period, of (a) the inflation rate as determined by the Secretary of State or (b) 2.5% per year for rights accrued after clause 87 comes into effect or 5% per year for rights accrued before it comes into effect (see paragraph 3(3) and (4) of Schedule 2).

Reason for delegation

229.  The existing power requires the Secretary of State to make an annual Order mainly because there will be changes over time of (a) the rate of inflation used for revaluation and (b) the revaluation periods. A different revaluation rate may therefore be necessary each year. The same arguments apply to the amended provisions. Delegated powers provide a flexible way for making annual changes without needing to take up Parliamentary time.

230.  (For information only, revaluation has to take place over a period which, broadly, starts when the member left pensionable service and ends when the member reaches the scheme's normal pension age. Each annual Order deals with revaluation for members who reach normal pension age in the following calendar year, and the revaluation percentages therefore need to take account of the rate of inflation (capped, if necessary, at 5% or, as the case may be, 2.5% per annum) over the entire period of deferral.)

Paragraphs 5(4) and 6(4) of Schedule 2

Powers conferred on:     Secretary of State

Powers exercised by:     Regulations (statutory instrument)

Parliamentary procedure:     Negative resolution

Purpose of power

231.  The revaluations of PPF compensation under the Pensions Act 2004 are carried out by reference to the higher or lower revaluation percentage. These percentages are either the (a) inflation rate or (b) 2.5% or 5%. The Secretary of State is required to determine the inflation rate. Paragraphs 5(4) and 6(4) of Schedule 2 to the Bill include a power to prescribe the manner in which the inflation rate is to be determined. These powers are the same as the powers they replace in paragraphs 12(4) and 17(4) of Schedule 7 to the Pensions Act 2004.

Reason for delegation

232.  The new delegated powers, as with the existing delegated powers, deal with potentially technical methods of determining the rate of inflation which may need to be changed over time. Delegated powers are appropriate for such provisions.

Part 3 - Pension Compensation

3.1 Chapter 1 - Pension Compensation on Divorce

233.  Part 3, Chapter 1 of the Bill contains the main provisions about the sharing of Pension Protection Fund compensation on divorce and nullity of marriage or dissolution of a civil partnership.

234.  Schedule 4 sets out how compensation payable to a person who is awarded a share of compensation is to be calculated, and Schedule 5 amends existing matrimonial, civil partnership and family law to enable the court to make pension compensation sharing orders on divorce and nullity of marriage or dissolution of civil partnership.

235.  The provisions in Schedule 5 also insert new provisions into the Matrimonial Causes Act 1973 to allow for attachment orders against pension compensation.

236.  The provisions in Schedule 6 insert new provisions into the Family Law (Scotland) Act 1985 to allow for the courts in Scotland to make orders and decisions relating to pension compensation.

Overall reason for delegation

237.  This part includes a number of delegated powers in the Bill concerning the proposals on pension compensation sharing for divorcing couples. Many of these are regulation-making powers concerned with requirements imposed upon the Board of the PPF. Given the need for these requirements to be both relevant to the types of scheme benefits the Fund compensates, and the calculation of benefits derived from various pension scheme rules, the requirements will themselves be detailed and it would, the Department believes, be inappropriate to attempt to deal with every aspect of such requirements, and for every circumstance, in primary legislation. It would also be impossible to be sure that all the required provisions with regard to every circumstance that needs to be addressed by the Board have been covered.

238.  There will also be a need to change the detailed requirements from time to time as the intention is that compensation sharing will, as far as is practicable, follow the same principles and procedures as pension sharing, where again, for reasons of technical complexity and variety between schemes, the main technical provisions are provided through regulations.

239.  In the main, the powers in this part mirror existing provisions relating to pension sharing and family law and are intended to be used to ensure consistency and commonality in provision between pension sharing and pension compensation sharing.

Clause 90 - Scope of mechanism

Powers conferred on:     Secretary of State

Powers exercised by:     Regulations (statutory instrument)

Parliamentary procedure:   Negative resolution

Purpose of power

240.  This power will allow the Secretary of State to describe certain types of PPF compensation which will not be subject to sharing orders. The intention is that the power be used in a similar way to regulation 2 of the Pension Sharing (Valuation) Regulations 2000 (SI 2000/1052) to specify that pension compensation paid to survivors in respect of a previous marriage or civil partnership will not be shareable.

Reason for delegation

241.  This power will enable the Secretary of State to ensure that the types of compensation rights which will not be shareable are consistent with the types of pension rights which are not shareable. It is therefore important that this power mirrors that in existing pension sharing law in section 27 of the Welfare Reform and Pensions Act 1999. It is also necessary given the large variety of schemes and scheme rules which could be brought into the Pension Protection Fund, and to ensure that compensation sharing rights remain appropriate. Regulations will relate to exclusions which may be of a technical nature, making them appropriate for the negative procedure.

Clause 92 - Activation of pension compensation sharing

Powers conferred on:     Secretary of State

Powers exercised by:     Regulations (statutory instrument)

Parliamentary procedure:   Negative resolution

Purpose of Power

242.  Subsection (g)(ii) contains a regulation making power to allow the Secretary of State to make provision regarding the prescribed form which is necessary to activate pension compensation sharing in relation to qualifying agreements. The intention is that regulations will be similar to the Pensions on Divorce etc. (Pension Sharing) (Scotland) Regulations 2000 with the appropriate changes to reflect the pension compensation scheme.

Reason for Delegation

243.  Detailed provision relating to the prescribed form of qualifying agreements for pension sharing are set down as stated above in the Pensions on Divorce etc. (Pension Sharing) (Scotland) Regulations 2000. Equivalent detailed provision therefore needs to be made for qualifying agreements activating pension compensation sharing. The Department believes that delegated powers are appropriate because the technical nature of these matters makes the use of negative procedure appropriate.

Clause 93 - Creation of pension compensation debits and credits

Powers conferred on:     Secretary of State

Powers exercised by:     Regulations (statutory instrument)

Parliamentary procedure:   Negative resolution

Purpose of power

244.  Subsection (4) contains a power for the Secretary of State to exclude certain parts of a person's pension compensation from the calculation of the value of the sums that are to be shared. It is intended to use the power to exclude the value of those types of compensation excluded from the scope of pension compensation sharing by regulations made under the power in clause 85 above - for example, the value of any compensation being received as a surviving member of previous marriage or civil partnership.

Reason for delegation

245.  Please see clause 90.

Reason for negative resolution

246.  The Department believes that secondary legislation and the negative procedure is appropriate for these regulations as they will be technical in nature and will follow from the commencement of other pre-existing legislation. It is also important that the provisions remain consistent with the corresponding pension sharing provisions which are set out in regulations.

Clause 94 - Cash equivalents

Powers conferred on:     Secretary of State

Powers exercised by:     Regulations (statutory instrument)

Parliamentary procedure:   Negative resolution

Purpose of power

247.  This clause contains a regulation-making power to enable the Secretary of State to make provision about the calculation and verification of cash equivalents for the purposes of clause 93. The intention is that regulations will broadly follow the principles applied in calculating cash equivalents for early leavers and in pension sharing.

Reason for delegation

248.  Detailed provisions relating to cash equivalent calculations in other areas of pensions law, such as early leavers and pension sharing, are dealt with in secondary legislation. The Department believes that delegated powers are appropriate also in compensation sharing cases both for consistency with current legislation and because of the highly technical nature of these matters. For these reasons, the use of the negative procedure is also appropriate.

Clause 96 - Time for discharge of liability

Powers conferred on:     Secretary of State

Powers exercised by:     Regulations (statutory instrument)

Parliamentary procedure:   Negative resolution

Purpose of power

249.  This clause sets out that the Board of the PPF must discharge their liability by the end of the implementation period set out in clause 97. There is a power in subsection (3) enabling the Secretary of State to prescribe where this period can be extended: for example, where although provided with the information prescribed by regulations made under the power in clause 89, the Board hold insufficient information to implement the order.

Reason for delegation

250.  Detailed provisions relating to the extension of time limits for the implementation of orders are dealt with in secondary legislation elsewhere in pensions legislation. The Department believes that regulation making powers following the negative procedure are appropriate also in compensation sharing cases, both for consistency with current legislation and because of the highly technical nature of these matters.

Clause 97 - "Implementation period"

Powers conferred on:     Secretary of State

Powers exercised by:     Regulations (statutory instrument)

Parliamentary procedure:   Negative resolution

Purpose of power

251.  This clause specifies that the implementation period, subject to any extension by regulations made under clause 96, is the period of four months following from the later of either the date the court order or provision in a qualifying agreement takes effect, or the date when the Board are provided with relevant documents and such information relating to the parties to the divorce as the Secretary of State prescribes. This information is intended to include information which will enable the Board to identify the parties so that the relevant compensation can be transferred between them. This information would include their names, addresses, dates of birth and other identifying information in a similar way as prescribed in respect of pension sharing by the Pensions on Divorce etc (Provision of Information) Regulations 2000 (SI 2000/1048). The power in subsection (1)(b)(ii) is to enable the Secretary of State to specify the same sort of information in respect of pension compensation sharing. The power in subsection (4) will ensure that the Board provides notice to the parties of the implementation of the order or provision in a qualifying agreement, and provides the necessary flexibility to ensure the provisions are consistent with relevant provisions relating to the appeals and time limits.

Reason for delegation

252.  The Department believes that, given the technical nature of the provisions and the need to keep alignment with the corresponding provisions in pension sharing law, regulations following the negative procedure are appropriate.

Clause 98 - Discharge of liability

Powers conferred on:     Secretary of State

Powers exercised by:     Regulations (statutory instrument)

Parliamentary procedure:   Negative resolution

Purpose of power

253.  Clause 98 sets out how the Board must discharge its liability to implement a compensation sharing order or provision in a qualifying agreement, by reference to Schedule 4 which contains the detailed provision about how the transferee's compensation is calculated. Subsection (6) creates a power for the Secretary of State to make provision about the calculation of cash equivalent values. This power corresponds to the power in clause 94 and will enable the calculation of cash equivalents to be consistent between the two provisions. Subsection (8)(a) disapplies these provisions where the transferee dies after a pension sharing order or provision in a qualifying agreement has taken effect but before it is implemented. Subsection (8)(b) contains a regulation-making power to enable liability for the credit to be discharged in accordance with regulations to be made by the Secretary of State. These powers are required to ensure that appropriate provision is made for survivor's benefits to be paid to partners and dependents where the transferee dies whilst the order is being implemented.

Reason for delegation

254.  The Department believes that these matters are most appropriately provided for by delegated legislation as it will be important to ensure that the provisions, which will be of a technical nature, take proper account of the variety of arrangements that may need to be provided for, and to ensure the necessary flexibility and consistency with the arrangements for pension sharing.

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

Powers conferred on:     Secretary of State

Powers exercised by:     Regulations (statutory instrument)

Parliamentary procedure:   Negative resolution with the exception of the power in 9(7), which is affirmative.

255.  Schedule 4 sets out how compensation is calculated following the discharge of the Board's liability to implement a pension compensation sharing order or provision in a qualifying agreement. The schedule contains a number of powers, which generally mirror corresponding provisions in Schedule 7 of the Pensions Act 2004 and will be utilised in the same way to ensure as far as is practicable the same principles apply to the calculation of compensation due to transferees as apply to recipients of Pension Protection Fund compensation generally.

Paragraphs 5(4) and 7(4) - Compensation payable to widower or widow

Purpose of power

256.  Currently pension compensation is paid in respect of surviving partners in prescribed circumstances. These powers are intended to allow the Secretary of State to make equivalent provision in relation to the widow or widower of a person who as benefited from a compensation share due to the break up of a previous relationship. The regulations made under these powers would apply the same principles as regulation 3 of the Pension Protection Fund (Compensation) Regulations 1995 (SI 2005/670), where compensation to survivors is not payable where there is no provision in the eligible scheme rules for a survivor's pension.

Reason for delegation

257.  It will be important to ensure that the legislative requirements take account of the variety of pension scheme rules that may need to be provided for, and to ensure the necessary flexibility. Secondary legislation is therefore the most appropriate.

Paragraph 8(4) - Revaluation

Purpose of power

258.  It is intended that revaluation for this period should be similar to that which would have applied to the member had the Board not assumed responsibility for the scheme and had the member attained normal pension age on the assessment date, and consistent with other provisions in schedule 7 of the Pensions Act 2004 relating to deferred members.

Reason for delegation

259.  This follows the provisions for occupational pension schemes and is extremely complex. The details are therefore more appropriately placed in secondary legislation.

Paragraph 9 - Commutation of periodic compensation

260.  On first receiving their pension compensation, people are entitled to receive up to 25% of it as a lump sum. The four powers in paragraph 9 are intended to be used to set out how this right may be exercised by a transferee:

Power to specify when commutation may take place

Purpose of power

261.  The power in paragraph 9(1) will be used to specify that, subject to the transferor having not exercised their rights to a lump sum before the share took place, the transferee will have the same rights to commute part of their compensation into a lump sum.

Reason for delegation

262.  To ensure consistency with the rules applying to pension compensation more generally, and to ensure consistency with the tax rules applying to pensions and pension compensation, the Department believes that regulations, following the negative procedure, are appropriate.

9(2) -Power to allow commutation in excess of the 25% limit

Purpose of power

263.  The power in 9(2) will be used to enable a person to ask the Board to commute small amounts of periodic compensation into an actuarially equivalent lump sum, and to enable the precise definition of "small" to be updated from time to time. The underlying objective is to avoid administrative costs which could be disproportionate relative to the monthly amount of compensation.

Reason for delegation

264.  To ensure consistency with the rules applying to pension compensation more generally, and to ensure consistency with the tax rules applying to pensions and pension compensation, the Department believes that regulations following the negative procedure are appropriate.

9(6) - Power to prescribe the manner in which an option to commute can be exercised.

Purpose of power

265.  Paragraph 9(6) provides that regulations may prescribe the manner in which an option to commute may be exercised. These are matters of operational detail, such as requirements as to the nature of the application and the information to be supplied in connection with the application.

Reason for delegation

266.  To ensure consistency with the rules applying to pension compensation more generally, and to ensure consistency with the tax rules applying to pensions and pension compensation, the Department believes that regulations following the negative procedure are appropriate.

9(7) - Power to change the 25% commutation limit

Purpose of power

267.  Paragraph 9(7) provides that the Secretary of State may make an order amending the 25% commutation limit.

Henry VIII power

268.  This is a Henry VIII power and is intended to ensure that this limit remains aligned with commutation limits elsewhere in pensions and tax law. It parallels the delegated power taken at paragraph 24(8) of Schedule 7 to the Pensions Act 2004, which permits amendment of the commutation limit for persons entitled to periodic compensation from the PPF.

Reason for delegation

269.  As the commutation limit is intended to mirror HMRC limits on commutation, secondary legislation provides the Secretary of State with the necessary flexibility to respond to any changes made to the tax limit on pension commutation. An order under paragraph 9(7) will be subject to the negative resolution procedure as any change will only be made to correspond to changes made to the tax regime.

Paragraph 10 - Early payment of compensation

Purpose of power

270.  Paragraph 10(1) provides regulation-making powers to prescribe the circumstances in which, and conditions subject to which, a person may become entitled to compensation before normal pension age or, where relevant, normal benefit age. It is envisaged that the regulations made under this power will mirror regulation 2 of the Pension Protection Fund (Compensation) Regulations 2005 (SI 2005/670). Conditions will include the earliest age at which an individual may take an early payment of compensation.

Reason for delegation

271.  To ensure consistency with the rules applying to pension compensation more generally, and to ensure consistency with the tax rules applying to pensions and pension compensation, the Department believes that regulations following the negative procedure are appropriate.

Paragraph 11 - Deferral of compensation

Purpose of power

272.  This power allows the Secretary of State, through regulations following the negative procedure, to prescribe circumstances in which a transferee who is entitled to compensation may choose to receive it from a later date, with an appropriate increase calculated on an actuarial basis due to the delayed payment. The intention is to provide for situations where a person may be required by provisions elsewhere in this Schedule to receive compensation from their normal pension age under their eligible scheme rules even though they may, given the choice, wish to receive payment at a higher rate from a later date.

Reason for delegation

273.  The wide variety of scheme rules mean it would be difficult to anticipate all the possible situations where it would be to the advantage of members to make provision for delayed payment of compensation. The Department therefore thinks it appropriate to make provision though regulations made under the negative procedure to provide the necessary flexibility to respond to changes in the nature of the types of schemes that enter the Pension Protection Fund.

Paragraph 12(6) - Annual increase in periodic compensation

Purpose of power

274.  The power in paragraph 12(6) allows the Secretary of State, through regulations, to set out how the transferee's compensation is adjusted for inflation where the transferor's compensation has not been calculated under one of the provisions of Schedule 7 listed in paragraph 12(5), for example, were regulations have been made under the power introduced by paragraph 8 of Schedule 7 to this Bill.

Reason for delegation

275.  The provisions for calculating the effect of inflation on compensation in the circumstances envisioned in this provision are likely to be technical and complex. The details are therefore more appropriately placed in secondary legislation.

Paragraph 13 - Compensation cap

Purpose of power

276.  This power allows the Secretary of State, through regulations, to set out how the transferee's compensation may be restricted. The intention is to ensure that the compensation payable to the transferee is subject to limits in a similar way as the compensation payable to the transferor is capped. The intention is that the overall compensation of the transferee and transferor should not be greater than the value of the cap.

Reason for delegation

277.  The provisions for calculating the application of the compensation cap to the transferee's compensation are likely to be technical and complex. The details are therefore more appropriately placed in secondary legislation.

Paragraph 14 - Compensation in form of dependant's benefits

Purpose of power

278.  Under paragraph 22(1) of Schedule 7 of the Pensions Act 2004 regulations may provide for compensation to be payable in prescribed circumstances to, or in respect of, prescribed dependants of prescribed descriptions. This provision is intended to provide a parallel power so that the Secretary of State can specify the circumstances when it is appropriate to pay compensation in respect of dependants of the transferee. The provision sets out a non-exhaustive list of what regulations made under the power may include; for example, paying compensation to dependants until a defined time, such as when a dependant leaves non-higher education. The intention therefore, is to make similar provision, where appropriate, to that made by regulation 6 of the Pension Protection Fund (Compensation) Regulation 2005 (SI 2005/670).

Reason for delegation

279.  Due to the detailed and technical nature of the provisions, the need to provide for dependants in different circumstances and the need to ensure that the rules for the dependants of transferees prescribed by this power are aligned with those applying to recipient of pension compensation more generally, the Department considers that regulations made under the negative procedure are appropriate.

Clause 99 - Charges in respect of pension compensation sharing costs

Powers conferred on:     Secretary of State

Powers exercised by:     Regulations (statutory instrument)

Parliamentary procedure:   Negative resolution

280.  A principle of divorce etc. is that the parties undertaking the divorce or dissolution are responsible for bearing the costs of the undertaking. This clause provides for the Board of the PPF to recover its costs from the parties, and to ensure that the share can be delayed where costs have not been paid.

Purpose of power

281.  The regulation-making powers in this clause enable the Secretary of State to provision to be made allowing the Board of the Pension Protection Fund to recover any reasonable administrative costs incurred as a result of implementing the pension compensation share (for example, final valuation, costs of discharging the liability for the pension credit, reduction of the member's benefit etc). This will broadly follow the similar provisions in relation to pension sharing set out in the Pensions on Divorce etc (Charging) Regulations 2000 (SI 2000/1049).

Reason for delegation

282.  The Department believes that these technical details are best dealt with in delegated legislation to provide clarity of purpose in the primary legislation while providing the flexibility to readily adjust the details in the light of experience.

Clause 100 - Supply of information about pension compensation in relation to divorce etc.

Powers conferred on:     Secretary of State

Powers exercised by     Regulations (statutory instrument)

Parliamentary procedure:   Negative resolution

283.  This powers in this clause are intended to ensure that the parties to divorce etc. have available to them the relevant information to enable the court to make an order to share pension compensation where that is appropriate.

Purpose of power

284.  The powers in this clause enable the Secretary of State to make regulations which would require the Board to supply information to the parties in respect of compensation sharing, the calculation of amounts and also make provision concerning the recovery of related costs by the Board. It is intended to use this power to require the Board of the PPF to supply to the couple information following from powers in the matrimonial Causes Act 1973 and the Matrimonial and Family Proceedings Act 1984, the Family Law (Scotland) Act 1985 along with the relevant sections of the Welfare Reform and Pensions Act 1999 and the relevant chapter of this Bill regarding provisions contained in qualifying agreements including relating to the calculation and verification of compensation and charges of fees for providing such information.

Reason for delegation

285.  The Department believes that these matters are best dealt with in delegated legislation to ensure that the requirements can be readily adapted in the light of experience, and to ensure flexibility and consistency alongside existing arrangements as they apply to pension sharing.

Clause 101 - Supply of information about pension compensation sharing

Powers conferred on:     Secretary of State

Powers exercised by:     Regulations (statutory instrument)

Parliamentary procedure:   Negative resolution

286.  This clause will enable regulations ensuring that the parties to a pension compensation share receive appropriate information about how the order has been implemented.

Purpose of power

287.  The power in the clause allows the Secretary of State to require the Board of the PPF to supply information to the parties of a pension compensation share. It is intended to use this power to require the Board of the PPF to supply information in relation to the calculation of relevant benefits and the creation of the credit and debit, for example, details of payments and future entitlements.

Reason for delegation

288.  The Department believes that these matters are best dealt with in delegated legislation to ensure that the requirements can be readily adapted in the light of experience, and to ensure flexibility and consistency alongside existing arrangements as they apply to pension sharing.

Clause 102 - Pension compensation sharing and attachment on divorce etc.

Powers conferred on:     Secretary of State

Powers exercised by:     Regulations (statutory instrument)

Parliamentary procedure:   Negative resolution

289.  Clause 102 gives effect to Schedule 5 and Schedule 6, which make amendments and additions to matrimonial and civil legislation following from this chapter. It contains several powers which are intended to mirror existing powers relating to divorce and dissolution of civil partnerships.

Schedule 5

Paragraphs 3 and 15 - power to prescribe when a pension compensation sharing order shall take effect.

Powers conferred on:     Lord Chancellor

Powers exercised by:     Regulations (statutory instrument)

Parliamentary procedure:   Negative resolution

Purpose of power

290.  Paragraph 3 inserts into the Matrimonial Causes Act 1973 several new provisions which enable the courts, on divorce or annulment, to make pension compensation sharing orders. The power in new subsection 24F(1) enables the Lord Chancellor to set out in regulations the period following the making of an order before it has effect. Paragraph 15 makes similar insertions into the Civil Partnership Act 2004 and the new power created by 19E(2) is for the same purpose.

Reason for delegation

291.  As these powers will be used to provide for an interval for technical reasons associated with other legislation relating to appeals and procedure, the Department believes that for consistency and flexibility reasons, regulations using the negative procedure are appropriate.

Paragraphs 7 and 17 - Attachment of pension compensation

Powers conferred on:     Lord Chancellor

Powers exercised by:     Regulations (statutory instrument)

Parliamentary procedure:   Negative resolution

292.  The provisions in paragraph 7 create additional provisions in the Matrimonial Causes Act 1973 by inserting new sections 25F and 25G. These ensure that the court may make attachment orders in respect of PPF compensation in a similar way to that in which that the courts can make attachment orders in respect of pensions under the current provisions of the Matrimonial Causes Act. Corresponding provisions are also inserted into Schedule 5 to the Civil Partnership Act 2004.

Purpose of power

293.  New section 25G provides powers for the Lord Chancellor to specify, through regulations, the manner in which the PPF discharges its liability in respect of an order made under section 25F, the manner in which payment is calculated and is made, and the information to be provided in relation to payments. Paragraph 34B is inserted into Schedule 5 of the Civil Partnership Act 2004 and creates the corresponding power in relation to an order under new paragraph 34A in respect of dissolution of a civil partnership.

Reason for delegation

294.  Due to the technical nature of the provisions to be made under these two sets of powers, and the need for these provisions to have the flexibility and consistency to operate alongside existing provisions made, the Department considers that delegated legislation under the negative procedure is appropriate.

Schedule 6

Paragraph 4 - sharing of value of matrimonial property or partnership property

Powers conferred on:     the Scottish Ministers

Powers exercised by:     Regulations (statutory instrument)

Parliamentary procedure:   Negative resolution

Purpose of power

295.  Paragraph 4 of the new Schedule amends Section 10 of the Family Law (Scotland) Act 1985 to provide the Scottish Ministers with the power to make provision with respect to the calculation, verification and apportionment of PPF compensation. This regulation would be subject to negative resolution within the Scottish Parliament. The intention is that the power would be used in a similar way to The Divorce etc. (Pensions)(Scotland) Regulations 2000 which made provision with respect to the calculation and verification of benefits under a pension arrangement in relation to actions for divorce or actions for declarator of nullity of marriage.

Reason for delegation

296.  Due to the technical nature of the provisions to be made and the need for these provisions to have the flexibility and consistency to operate alongside existing provisions, the Department considers that delegated legislation under the negative procedure is appropriate. The Subordinate legislation Committee of the Scottish Parliament considered this proposal on 19 February 2008 and the Committee reported to the lead committee (Justice) and Parliament and that it is content with the powers in the Bill (as amended) conferred on the Scottish Ministers to make subordinate legislation.

297.  The report can be found at: http://www.scottish.parliament.uk/s3/committees/subleg/reports-08/sur08-08.htm

Chapter 2 - Other provision about pension compensation

Clause 104 and Schedule 7 - Amendments of Schedule 7 to the Pensions Act 2004

Powers conferred on:     Secretary of State

Powers exercised by:     Regulations (statutory instruments)

Powers exercised by:     Negative resolution

298.  Clause 104 gives effect to Schedule 7, which amends Schedule 7 to the Pensions Act 2004. Schedule 7 of that Act sets out the amount of compensation payable by the Board where it has taken responsibility for a pension scheme following insolvency. The amendments create one new power and extend an existing power. They are aimed at helping the members get PPF compensation at the time most suitable to them and ensuring that the compensation matches more closely the amounts the members would have received from their pension schemes if the sponsoring employer had not become insolvent.

Paragraph 7 of Schedule 7 - Power to prescribe when compensation may be deferred

Purpose of power

299.  Paragraph 7 inserts new paragraph 25A into Schedule 7. The new power in new paragraph 25A(1) allows the Secretary of State, through regulations following the negative procedure, to prescribe circumstances where a person who is entitled to compensation may choose to receive it from a later date. (The Board of the PPF will decide an appropriate increase calculated on an actuarial basis due to the delayed payment.) The intention is to use the power to provide for situations where a person may be required to receive compensation from their normal pension age under their eligible scheme rules even though they may, given the choice, wish to receive payment at a higher rate from a later date.

Reason for delegation

300.  Due to the variety of scheme rules it would be difficult to anticipate all the possible situations where it would be to the advantage of members to make provision for delayed payment of compensation. The Department therefore thinks it appropriate to make provision, through regulations made under the negative procedure to provide the necessary flexibility to respond to changes in the nature of the types of schemes that enter the Pension Protection Fund.

Paragraph 8 of Schedule 7 - Power to prescribe levels of PPF compensation where pension payable under scheme rules would increase or fall.

Purpose of power

301.  Schedule 7 to the Pensions Act 2004 can be modified by regulations made under paragraph 33 of that Schedule. Such regulations can change the way Schedule 7 applies to certain pension schemes.

302.  For example, some scheme rules provide for the calculation of pensions to either increase, decrease or cease at some point following the member's normal pension age. A scheme may have one rate of payment from age 60, the normal retirement age, but a lower rate of pension from age 65 in recognition that from that age the State Pension would become payable. Under the current provisions in Schedule 7, the rate in payment at age 60 would continue in payment after age 65. To ensure the existing power in paragraph 33 is wide enough to make modifications to cover such schemes, paragraph 8 of Schedule 7 to the Bill extends it.

Reason for delegation

303.  Paragraph 8 makes provision for the Secretary of State, through regulations made under the negative procedure, to provide the necessary flexibility to respond the range of types of schemes that enter the Pension Protection Fund. Due to the variety of scheme rules it would be difficult to anticipate all the possible situations where it might be necessary to adjust the rate of compensation to better reflect the rate of pension that would be payable. The Department therefore thinks it most appropriate to provide for this through secondary legislation.

Part 4 - Financial assistance scheme

Clause 105 - Financial assistance scheme

Powers conferred on:     Secretary of State

Powers exercised by:     Regulations (statutory instrument)

Parliamentary procedure:   Affirmative resolution

304.  This clause amends section 286(2) of the Pensions Act 2004 in order to extend the Financial Assistance Scheme (the FAS). The definitions of "qualifying member" and "qualifying pension scheme", both of which contain delegated powers, are to be amended. The amendments are to enable the FAS to make payments to all members of qualifying schemes (whose remaining assets are now to be taken over by government) including those whose benefits would otherwise have been met in full when their schemes completed winding up and who, as a result, fall outside existing provisions.

305.  The delegated powers in question exist in the current section 286(2); however the required amendments have necessitated changes in the structure of the provisions which affect those powers.

Purpose of powers

306.  The powers are:

(a) to prescribe in regulations the time at which a person is or has ceased to be a member of a qualifying pension scheme, in order to be a qualifying member for the purposes of FAS. This power is currently part of the definition of "qualifying member", which is the definition to be extended. As a result, the power is also extended so that it is part of the new definition; and

(b) to prescribe the time at which the pension scheme must be under-funded to be a FAS "qualifying pension scheme" and to prescribe the way in which scheme liabilities are to be calculated in order to determine if a scheme has insufficient assets to meet those liabilities in full. Currently, these powers are in the text at the end of subsection (2); however the amendments mean that it is more appropriate that they form part of the definition of "qualifying pension scheme". The nature of the powers will not change as a result of the amendments.

Reason for delegation

307.  The Department is seeking consistency with the current provisions where the precise circumstances of the people and pension schemes to be included in the FAS are set out in delegated legislation. Including this level of detail in delegated legislation ensures that the requirements can be readily adapted in the light of ongoing operational experience and following consultation.

308.  By virtue of section 316(2)(n) of the Pensions Act 2004, a statutory instrument containing regulations under section 286 of that Act is to be made under the affirmative resolution procedure. It is appropriate for the same procedure to apply to the amended s.286.

Part 5 - Miscellaneous

Clause 107 and Schedule 8 - Interest on late payment of levies

Powers conferred on:     Secretary of State

Powers exercised by:     Regulations (statutory instrument) and guidance

Parliamentary procedure:   Negative resolution

309.  Clause 107 introduces Schedule 8, which inserts delegated powers into the Pension Schemes Act 1993 and the Pensions Act 2004.

Purpose of power

310.  This Schedule inserts delegated powers providing the Secretary of State with discretion to make regulations allowing for a prescribed rate of interest to be charged on late payment of the general levy (paragraph 1); the Pension Protection Fund (PPF) administration levy (paragraph 3); the Pension Protection Levy (paragraph 5); the Fraud compensation levy (paragraph 7); and the PPF Ombudsman levy (paragraph 8). Exercise of the powers to charge interest would incentivise prompt payment and ensure that the PPF or the Secretary of State does not lose money from late payments.

Reason for delegation

311.  The Department recognises that there will be circumstances where it might be inappropriate to charge interest on late payment of levies - for example, in the case of the Pension Protection Levy, where an eligible scheme has appealed its levy invoice and had its appeal upheld. It is therefore important that the Secretary of State has power to prescribe in regulations the circumstances where the charging of interest may be waived.

312.  The provision of delegated powers in Schedule 8 provides the flexibility to develop and consult on detailed proposals, including the circumstances where the charging of interest may be waived, as described above, and the rate of interest. These are technical issues which are most appropriately dealt with in secondary legislation. Also, the rate of interest may change over time as interest rates in the general economy change over time. Delegated powers provide a flexible way for making any such changes without needing to take up Parliamentary time.

313.  Regulations made under the powers inserted by this Schedule are subject to the negative procedure. The use of the negative procedure is consistent with the procedure for other similar provisions, for example, provisions requiring sums to be transferred from the Pension Protection Fund (section 173(3)(k) of the Pensions Act 2004) or the waiver of the Pensions Protection Levy (section 181(8)(b) of the Pensions Act 2004).

Clause 110 - Exclusions of transfers out in certain cases

Powers conferred on:     Secretary of State

Powers exercised by:     Regulations (statutory instrument)

Parliamentary procedure:   Negative resolution

314.  Clause 110 will enable the Secretary of State to prohibit personal accounts members from transferring pension funds to other pension schemes.

Purpose of power

315.  This power is an extension of an existing regulatory making power contained in Part IV, Chapter IV, section (93) 1B of the Pension Schemes Act 1993. The power will allow the Secretary of State to prescribe the circumstances in which the ban on transfers out will apply to personal accounts scheme members.

316.  It will also allow the Secretary of State to introduce regulations under section 101F of the Pension Schemes Act 1993 to prevent the transfer of pension credits benefits, which are associated with pension sharing orders on divorce, out of the scheme.

Reason for delegation

317.  Current legislation generally allows pension scheme members to transfer funds out of their scheme into another scheme. But, there is also a limited provision that enables schemes to ban transfers-out under prescribed circumstances. Existing powers are not wide enough to enable a general transfer-out ban in the personal accounts scheme. In order to enable the Secretary of State to ban transfers-out under prescribed circumstances, we are amending an existing delegated power. Parliament has already decided that if Chapter IV is to be disapplied it should be done by secondary legislation.

318.  An amendment to existing legislation will also give the Secretary of State power to prevent the transfers-out of pension credit benefits under section 101F.

319.  The power has been left to delegated legislation to give us the degree of flexibility required for the personal accounts scheme which is not necessary for other occupational pension schemes.

320.  Pension credit provisions are associated with pension sharing orders on divorce which are subject to complex rules. These include highly technical and detailed information which is not appropriate for primary legislation.

321.  For information only: A pension credit is the share of a member's pension rights awarded to a former spouse on divorce. Personal accounts trustees will accept the discharge of a pension credit into personal accounts, if this is what the former spouse wishes to do. If the pension credit has come from a personal account member or the former spouse (the beneficiary of a pension credit) has a personal account in their own right as an active or deferred member. The former spouse may have the pension credit discharged into another pension arrangement - a personal pension for example - if they prefer; there is no compulsion for them to use personal accounts. However, once a pension credit is discharged, it becomes a pension credit benefit and the intention is that normal personal account transfer rules will apply.

Part 6 - General

Clause 115 - Orders and regulations: supplementary

Powers conferred on:     Secretary of State

Powers exercised by:     Regulations or Order (statutory instrument)

Parliamentary Procedure:   Negative resolution or Affirmative resolution, depending on the S.I.

322.  This clause provides that any power under the Bill to make an order or regulations may include related incidental, etc, provision.

Purpose of power

323.  This clause contains general provisions in respect of the Regulations and Orders that will be made under powers conferred by or under the Bill. It allows the inclusion of consequential provisions, transitional provisions and provisions which give persons a discretion. It also allows Regulations and Orders to apply to specified persons or to apply differently for different persons.

324.  Subsection (2) allows for any Order establishing a scheme under clause 58 to include provisions for delegation. This provision is required for operational reasons so that decision making in relation to the running of the scheme can be delegated to an appropriate person, most particularly the scheme trustee or (where appropriate) its professional advisers.

Reason for delegation

325.  These are standard provisions of a type common to much legislation. They can be used to make technical amendments, repeals of enactments and transitional provisions. The latter requirements are a common feature of pension schemes of this sort and are necessary in this particular case because of the size and complexity of the scheme.

Clause 116: Power to make further provision

Powers conferred on:     Secretary of State

Powers exercised by:     Order

Parliamentary Procedure:   Affirmative resolution for amendments to primary legislation, negative resolution for other uses of the power

326.  This clause gives the Secretary of State separate power to make provision of a consequential or transitional nature. It can be used to achieve the purposes of the Bill or it can be used in consequence of any provision of the Bill.

Henry VIII Power

327.  This power includes a Henry VIII power, but only to the extent that it applies for the purposes of the establishing a pension scheme under clause 58. It allows the Secretary of State to use an Order to amend, repeal or revoke primary legislation for the purpose of giving full effect to provisions of or made under Chapter 4 of Part 1.

Purpose of power

328.  The power includes provision to amend, repeal or revoke enactments for the purpose of giving effect to the establishment by the Secretary of State of a pension scheme under Chapter 4 of Part 1. This power applies to any existing enactments and to any enactments passed in the same Session as this Bill. The exercise of this power is in addition to, and without prejudice to, amendments made by or under any other provision of the Bill.

Reason for delegation

329.  It is common practice to include a power of this sort to make consequential, etc, provision. The particular changes that may be needed following the Bill will of course generally depend on the content of orders or regulations under other powers conferred by the Bill, and so their detail is entirely contingent on those other orders. It may be more logical, or clearer for users of pensions law, for those changes to be made in a separate order than as a component part of a series of other orders or regulations under this Bill. This is particularly the case in relation to the scheme to be established under clause 58, where it will almost certainly be desirable to separate the functional features of the scheme itself (the equivalent of the usual trust deed and rules) from any legislative changes that are simply a consequence of introducing the scheme by legislation. It is primarily for these reasons that the separate power in subsection (1) is sought.

330.  The particular power to amend, repeal or revoke primary legislation is required to ensure that provisions of existing legislation relating to pensions or trustees can be applied as appropriate in relation to any pension scheme established by the Secretary of State under Chapter 4 of Part 1. Because the scheme established by the Secretary of State will be established by Order rather than by trust deed, some existing legislative provisions will not bite correctly on the new scheme. We want to achieve broadly the same net effect in relation to this scheme as in relation to comparators. However, that will require some detailed technical changes to existing legal rules.

331.  The same is true in relation to certain rules of law which apply to other corporate trustees: those have been primarily designed with companies in mind, rather than statutory corporations. We anticipate that some technical changes will therefore also be needed to ensure that such rules bite on the trustee corporation clearly and to broadly the same effect as on companies which are corporate trustees.

332.  The application of other legislation to the scheme will also depend on the form the scheme Order takes. The Personal Accounts Delivery Authority is advising on various areas that might be included in the scheme order. Once the final form of the scheme order is known, appropriate modifications to relevant legislation can be made using this power. The power is limited to the matters set out in subsection (1)(a) and (b) i.e. mainly consequential and transitional measures and is subject to the draft affirmative resolution procedure.

Clause 119- Commencement

Powers conferred on:     Secretary of State

Powers exercised by:     Order

Parliamentary procedure:   None

333.  This clause gives the Secretary of State power to commence most provisions of the Bill by Commencement Order. The exceptions are the sections listed in clause 119(2), which come into force on Royal Assent, and those in subsections (3) and (4), which come into force after two months and on 6 April 2009 respectively.

Purpose of Power

334.  Subsection (1) allows the Secretary of State to determine when the trustee corporation clauses come into force. Clauses 58 to 64, relating to the Personal Accounts scheme, will commence on Royal Assent to the Bill. However, the trustee corporation cannot be created until other elements of the scheme are more developed. Therefore, the Secretary of State needs to determine a later commencement date for the trustee corporation.

Reason for delegation

335.  It is crucial that flexibility is retained on the date the trustee corporation clauses will commence, based upon the progress of implementation negotiations of commercial arrangements and other operational factors. The optimal time will be selected, allowing for the trustee corporation to do some essential work on their investment approach prior to the scheme enrolling members.

Schedules

Schedule 1: The Trustee Corporation

Part 4: Supplementary: Interpretation

Powers conferred on:     Secretary of State

Powers exercised by:     Order

Parliamentary Procedure:   Negative resolution

336.  Paragraph 26(1) provides for the interpretation of words or expressions used in this Schedule. One of these is the term financial year and is used in paragraph 20 of this Schedule.

Purpose of power

337.  To allow the period of the financial year for the trustee corporation to be decided later by Order.

Reason for delegation

338.  It is normal practice with non departmental public bodies to use the 1st of April to the 31st March as their financial year. This is because most non departmental public bodies are publicly funded and so align to departmental accounting years. The trustee corporation, however, will be funded by the scheme set up under clause 59. It is, therefore, more appropriate for its financial year to be aligned to that of the scheme. The scheme year will not be known until it is set in the scheme Order.

Extent

339.  The provisions of this Bill extend to England and Wales and Scotland. Certain provisions within this Bill also extend to Northern Ireland

Wales

340.  The Bill's effect in Wales is the same as in England. The Bill contains no provisions which relate exclusively to Wales, or affect the National Assembly for Wales.

Scotland

341.  The Bill generally applies in Scotland as it does in England. The power to initiate the new mechanism of pension compensation sharing on divorce (contained in Chapter 1 of Part 3) is conferred on courts in England and Wales by amendments of matrimonial and civil partnership legislation (contained in Schedule 5). The Bill contains equivalent amendments to the Scottish matrimonial and civil partnership legislation (Schedule 6).

342.  The Sewel Convention provides that Westminster will not normally legislate with regard to devolved matters in Scotland without the consent of the Scottish Parliament. The agreement of the Scottish Parliament to this extension has been given by means of the necessary Legislative Consent Motion.

Northern Ireland

343.  Provisions relating to the Personal Accounts Delivery Authority and the scheme established under clause 58 extend to Northern Ireland. This Bill also contains provisions relating to the operation of pensions bodies that operate on a UK-wide basis (such as the Pensions Regulator, Pensions Protection Fund and Financial Assistance Scheme) and therefore these changes will also apply in Northern Ireland. The agreement of the Northern Ireland Assembly to this extension has been given by means of the necessary Legislative Consent Motion.

Department for Work and Pensions

May 2008

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