Section 4: Regulator's functions

43.     The Regulator has both the functions which are transferred to it from Opra (also see section 7 for detail on the transfer of Opra's powers) and other functions conferred on to it by the Act and any other enactments.

44.     This section sets out further detail on how the Regulator will discharge its functions. The non-executive functions set out in section 8(4) must, by virtue of section 8(2) be discharged by the committee established under section 8. It also reserves the discharge of certain of the Regulator's regulatory functions to a special committee called the Determinations Panel established under section 9. The Regulator's general power to delegate certain functions is subject to the Secretary of State's power to make regulations limiting such delegation (see paragraph 21 of Schedule 1).

45.     The Regulator will also be able to act, as Opra does now, as a prosecutor. No specific legislative provision is required to permit this.

Section 5: Regulator's objectives

46.     The main objectives of the Regulator in discharging its functions are to protect the benefits of members (i.e. members of occupational pensions schemes or stakeholder pension schemes, and members of personal pension schemes who are employees in respect of whom direct payment arrangements exist and, in cases where the scheme is a stakeholder pension scheme, any other members) of work-based pensions (i.e. all occupational and certain personal pension schemes), to reduce the risk of situations arising which may lead to calls for compensation from the Pension Protection Fund, and, to promote the good administration of the schemes which it regulates.

Section 6: Supplementary powers

47.     The Regulator may do anything (except borrow money) which is calculated to facilitate the exercise of its functions, or is incidental or conducive to their exercise. This power enables the Regulator to, for example, lease office space, print stationery, etc.

Section 7: Transfer of Opra's functions to the Regulator

48.     The functions of Opra under the Pension Schemes Act 1993, the Pensions Act 1995, and the Welfare Reform and Pensions Act 1999 are transferred to the Regulator, with definitions amended accordingly.

Non-executive functions

Section 8: Non-executive functions

49.     The Regulator must establish a committee to discharge the non-executive functions on its behalf. Only non-executive members of the Regulator may be members of that committee. The non-executive functions are: to keep under review whether the Regulator's internal financial controls secure the proper conduct of its financial affairs; and to determine the remuneration of the Chief Executive (with reference to paragraph 8(4)(b) of Schedule 1) which is subject to the approval of the Secretary of State.

50.     The committee established under this section must prepare a report on the discharge of the non-executive functions for inclusion in the Regulator's annual report to the Secretary of State under section 11 (annual reports to the Secretary of State). The report on the discharge of the non-executive functions must relate to the same period as that covered by the Regulator's annual report.

51.     The committee established under section 8 may establish sub-committees. The members of these sub-committees may include individuals who are not members of the committee or of the Regulator, but cannot include executive members or other staff of the Regulator.

52.     The committee may authorise any of the non-executive functions to be discharged by any of its members or by any of its sub-committees on behalf of the committee. The Regulator can in accordance with paragraph 20(1) of Schedule 1 also authorise the committee or any of its sub-committees to carry out further functions of the Regulator.

Section 9: The Determinations Panel

53.     This section provides for the Regulator to establish and maintain a committee known as the Determinations Panel which is to consist of a chairman and at least six other members. The Regulator must appoint as the chairman of the Determinations Panel the person nominated in accordance with paragraph 11 of Schedule 1 (which requires the chairman of the Regulator to set up a committee to recommend a person for appointment as chairman of the Determinations Panel.)

54.     The chairman of the Determinations Panel will decide the actual size of the Determinations Panel and nominate suitable people. The Regulator will then appoint these nominees as other members of the Determinations Panel. Any member of the Regulator, any member of staff of the Regulator, any member of the Board of the Pension Protection Fund and any member of the staff of that Board will not be eligible for appointment to the Determinations Panel.

55.     The Panel may establish sub-committees consisting of members of the Panel.

Section 10: Functions exercisable by the Determinations Panel

56.     This section provides that in certain circumstances the power to determine whether to exercise, and to exercise, certain functions of the Regulator is reserved to the Determinations Panel. The functions in question are listed in Schedule 2 and are known as the "reserved regulatory functions". The Regulator can also authorise the Panel to carry out more functions under paragraph 20(4) or (6) of Schedule 1. The Panel may also sub-delegate the exercise of functions to any of its members or sub-committees. This is all subject to any regulations made by the Secretary of State under paragraph 21 of Schedule 1 (which concerns the power to limit or permit the delegation of functions).

Schedule 2: The reserved regulatory functions

57.     This Schedule lists the reserved regulatory functions of the Regulator referred to in section 10. In certain circumstances the power to determine whether to exercise these functions and the power to exercise them is reserved to the Determination Panel (see section 10(1) - (3)).

Annual Report

Section 11: Annual reports to Secretary of State

58.     Subsection (1) provides that the Regulator must produce a report for each financial year. The "financial year" is defined for these purposes as the date of the Regulator's establishment to the following 31 March and then every 12 months thereafter (see subsection (6)).

59.     Subsections (2) and (3) set out information which must be included in the report. Each report will have to cover the activities of the Regulator for the financial year. A report by the committee set up under section 8 must also be included. It must give information about the strategic direction of the Regulator and how this is being kept under review; how the Chief Executive's performance is being monitored; and the steps taken to monitor the Regulator's performance against objectives and targets. Subsection (4) provides that the Regulator must send each report to the Secretary of State as soon as practicable after the end of the financial year. The Secretary of State will then lay a copy of every report received by him under this section before both Houses of Parliament (see subsection (5)).

Provision of information, education and assistance

Section 12: Provision of information, education and assistance

60.     This section enables the Regulator to provide information, education and assistance to those involved in the administration of work-based pension schemes, employers in relation to such schemes or people advising the trustees, managers or employees in the operation of these schemes. The Regulator may also provide information, education and assistance to those who have duties under section 238 of this Act. "Work-based pension scheme" has the same meaning as in section 5 and "employers in relation to work-based pension schemes" means, in the case of stakeholder pension schemes, the persons upon whom duties are imposed under section 3 of the Welfare Reform and Pensions Act 1999 (duty of employers to facilitate access to stakeholder pension schemes).

New powers in respect of occupational and personal pension schemes

Section 13: Improvement Notices

61.     This section provides that if the Regulator is of the opinion that someone has not complied with the "pensions legislation" (as defined in subsection (7)), it may issue an improvement notice directing the person to act to remedy or prevent a recurrence of the contravention. An improvement notice must specify the nature of the contravention and the evidence on which the Regulator has based its opinion that the contravention has occurred. For each step which the notice requires to be taken, the notice must specify the period within which the step must be taken (the time period must not be less than 21 days from the date of the notice).

62.     Subsection (3) provides that an improvement notice may be framed by reference to a code of practice issued by the Regulator under section 90 and may allow the person to whom the notice is made a choice of ways to remedy or prevent the recurrence of the contravention. Subsection (4) states that the requirement to comply with directions in an improvement notice can be dependent on compliance by a third party with a direction or directions contained in a notice under section 14 (which concerns third party notices - see below). The improvement notice can direct the person to whom it was issued to inform the Regulator, within the period specified in the notice, of the measures taken following issue of the notice. Subsections (8) and (9) make provision for the imposition of civil penalties under section 10 of the Pensions Act 1995 (civil penalties) in cases where this section is contravened.

Section 14: Third party notices

63.     This section deals with cases where a person (the third party) fails to do something and this causes another person to contravene the pensions legislation (within the meaning of section 13(7)). The third party can be given a third party notice by the Regulator requiring him to remedy his failure. For example if trustees are unable to comply with the requirements to produce audited accounts because the scheme administrators had not supplied them with the required information, the Regulator could issue a third party notice to the scheme administrators requiring them to remedy the situation within a reasonable period of time.

64.     The notice must specify the nature of the contravention of the pensions legislation and the alleged failure by the third party, and include the evidence on which the Regulator has based its opinion. Each step which the notice requires the third party to take must be taken within the deadline specified the notice (and that deadline must be at least 21 days from the date of the notice). Directions in a third party notice may be framed so as to allow the third party a choice of ways to remedy or prevent the recurrence of the contravention. Subsection (4) provides that a notice may direct the third party to inform the Regulator of actions taken to comply with the notice.

65.     Subsection (6) provides that section 10 of the Pensions Act 1995 (civil penalties) applies to a person who, without reasonable excuse, fails to comply with a third party notice issued to him.

66.     Subsection (7) prevents compliance with a third party notice amounting to a breach of confidentiality.

Section 15: Injunctions and interdicts

67.     This section provides that the Regulator can apply to the High Court for an injunction or, in Scotland, to the Court of Session for an interdict, which the court may grant where it is satisfied that:

• there is a reasonable likelihood that a person will do an act which constitutes a misuse or misappropriation of assets of an occupational or personal pension scheme; or

• a person has done any such act and that there is a reasonable likelihood that he will continue or repeat the act or do a similar act.

Section 16: Restitution

68.     If the Regulator applies to the High Court or Court of Session and the court is satisfied that there has been a misuse or misappropriation of any of the assets of an occupational or personal pension scheme, then the court can direct any person knowingly concerned in the misuse or misappropriation of the assets to take specified steps to restore the parties to their original position.

Section 17: Power of the Regulator to recover unpaid contributions

69.     This section enables the Regulator, on behalf of the trustees or managers of an occupational or personal pensions scheme, to use any power that the trustees or managers would have had to recover employer contributions (within the meaning of subsection (3)) due to a scheme. In the case of personal pension schemes, if the trustees or manages do not have powers under the scheme to recover unpaid employer contributions, subsection (2) ensures the Regulator may still recover those contributions as if they were owed on a debt to the trustees or managers.

Section 18: Pension liberation: interpretation

70.     Subsection (1) provides definitions of terms used in sections 18 to 21 relating to pension liberation. In addition to section 18 itself, those sections are section 19 (court's power to order restitution where pension liberation has occurred) and sections 20 and 21 (Regulator's powers to make restraining orders, and repatriation orders, where pension liberation has occurred).

71.     Subsection (2) defines what is meant by 'money liberated from a pension scheme'. It is money which represents accrued rights which has been transferred from a pension scheme on the basis that it would be used in an authorised way but, despite that, it has not been used in an authorised way and is not likely to be used in an authorised way. Subsection (4) describes the authorised ways. These are, broadly, the ways in which schemes are allowed to give effect to a transfer value as permitted by section 94 or 101AB or 101F of the Pension Schemes Act 1993 or the scheme rules.

Section 19: Pension liberation: court's power to order restitution

72.     This section is concerned with the court's power to order restitution where pension liberation has occurred. It applies where there is recoverable property. Subsection (2) defines 'recoverable property' as being all or some of the money liberated from the pension scheme or as being property which directly or indirectly represents all or some of the money liberated from the pension scheme.

73.     Subsection (3) sets out an exception so that recoverable property will not include property where the beneficial interest in the property has been acquired in good faith and for value. In addition it must have been acquired without notice as to the fact that it represents money liberated from a pension scheme. Property which subsequently represents excepted property will also not fall within the definition.

74.     If the Regulator makes an application, under subsection (4), the court can make any order that it thinks just and convenient for securing that recoverable property or money representing its value or proceeds of sale is transferred to a pension scheme, to an annuity or insurance policy or to the liberated member.

75.     Subsection (5) provides that the court may also order a person who holds recoverable property or has control over it to take steps to ensure that the recoverable property is transferred as directed by the court e.g. he may be directed to sell the property.

76.     Subsection (6) provides that when an order is made under subsection (4) to transfer the recoverable property to a pension scheme, the court may by order direct the trustees or managers of the scheme in question to take steps for that purpose and to apply the property or money transferred in the manner that the court directs for the purpose of providing benefits under that scheme for the liberated member.

77.     Subsection (7) allows for regulations to be made to modify the provisions of the Pension Schemes Act 1993 as they would apply to cases where the court directs trustees or managers of a pension scheme in the manner laid out in subsection (6).

Section 20: Pension liberation: restraining orders

78.     This section gives the Regulator powers, where pension liberation has occurred, to make restraining orders on accounts with deposit takers.

79.     Subsection (1) provides that the Regulator may make a restraining order in certain circumstances. Those circumstances exist if consideration is being given to the making of a repatriation order under section 21 and the Regulator is satisfied that the account contains money that has been liberated from a pension scheme and is an account held by the liberator or someone who will act on the liberator's instructions.

80.     Subsection (2) provides that during the period when the restraining order has effect no credit or debit may be made to the account.

81.     Subsection (3) states that a restraining order must give the name of the deposit taker, identify the account in question and contain any other information which may be prescribed in regulations.

82.     Subsection (4) provides that a restraining order will take effect when the deposit taker is notified of it by the Regulator and will cease after a period of six months from when it was made (but see subsection (7)). Subsection (5) states that the Regulator may extend or further extend the duration of a restraining order, (the Regulator does that by a further order - an "extension order").

83.     Subsection (6) states that the extension order takes effect when the deposit taker is informed of it by the Regulator provided that that happens before the expiry of the restraining order. Subsection (7) states that when an extension order takes effect, the restraining order continues for another six months after the initial six-month period but a further extension order cannot take effect until the end of the extension period.

84.     Subsection (8) states that interest may be credited to an account whilst a restraining order is in effect.

85.     Subsection (9) provides that if money is credited to an account in breach of the order then the deposit taker must return the money to the payer.

86.     Subsection (10) allows payments to be made out of restrained accounts. An application must be made to the Regulator who will make a payment provided that the money will be used to help meet living expenses or carry on a trade, profession or occupation. In addition, the beneficial interest in the money paid out must belong to the person who applied for it (or else the person to whom the beneficial interest belongs must have consented to the application). The money paid out must not represent money liberated from a pension scheme.

87.     Subsection (11) provides that section 10 of the Pensions Act 1995 (civil penalties) will apply to a deposit taker who without reasonable excuse fails to comply with any obligation imposed by a restraining order or this section.

Section 21: Pension liberation: repatriation orders

88.     This section is concerned with the Regulator's power to make repatriation orders. A repatriation order can be made where a restraining order has effect and the Regulator is satisfied that the restrained account contains money liberated from a pension scheme where pension liberation has occurred.

89.     Subsection (2) provides that the Regulator can order the deposit taker to pay a sum no greater than the liberated amount to a pension scheme, to an annuity or insurance policy or to the liberated member. Where the Regulator orders payment to a pension scheme it may also direct the trustees or managers of that scheme to apply the monies in the manner directed, so as to provide benefits under the scheme to or in respect of the liberated member.

90.     Subsection (3) provides that where the Regulator makes a repatriating order under subsection (2) he may determine the sums to be paid out of the restrained account on the basis of what appears to be just and reasonable. This may be done where the Regulator has concluded that the restrained account contains money in relation to two or more liberated members. He will decide this by taking an overall view of transactions in the account before the restraining order was made.

91.     Subsection (4) allows for regulations to be made to modify the provisions of the Pension Schemes Act 1993 where the Regulator directs trustees or managers of a pension scheme how to apply the repatriated amount (subsection (2)(b)).

92.     Under subsection (5), the Regulator may impose a civil penalty (under section 10 of the Pensions Act 1995) on a deposit taker who fails, without a reasonable excuse, to comply with a direction to pay the sum from the account in the manner specified in subsection (2).

93.     Subsection (6) states that the Regulator may impose a civil penalty (under section 10 of the Pensions Act 1995) on a trustee or manager who fails to take reasonable steps to comply with a direction to apply the sum from the account in the manner specified in subsection (2).

Powers in relation to winding-up of occupational pension schemes

Section 22: Powers to wind up occupational pension schemes

94.     This section amends section 11 of the Pensions Act 1995 (powers to wind up schemes) by allowing the Regulator to wind a scheme up during the assessment period in order to minimise the value of claims on the Pension Protection Fund (see Part 2 for claims on the Pension Protection Fund).

Section 23: Freezing orders

95.     This section applies to occupational pensions schemes which are not money purchase schemes. Subsection (2) gives the Regulator the power to make a 'freezing order' where the Regulator is satisfied that it is necessary to protect the interests of the generality of members of the scheme and there is, or is likely to be if the order is not made, an immediate risk to the interests of members or the assets of the scheme.

96.     The order will direct that, during the period it has effect, no benefits are to accrue to, or in respect of, members and that no winding up of the scheme may begin other than by an order of the Regulator (see subsection (3)).

97.     An order may also contain other directions that have effect during the period of the order e.g. no new members, or specified class of member are to be admitted to the scheme; no further contributions or payments or specified contributions or payments are to be paid into the scheme by, or on behalf of, the employer, any members or any specified members; no transfers, or no specified transfers of any member's rights under the scheme rules are to be made from the scheme.

98.     A freezing order may not contain any direction which reduces the benefits payable to, or in respect of, a member during the period of the order to below the level to which the trustees or scheme managers would have the power to reduce them if winding up of the scheme had begun at the time the order took effect.

99.     Subsection (8) provides that an order may require the trustees or managers to obtain an actuarial valuation.

Section 24: Consequences of freezing order

100.     Subsection (1) deals with the consequences of a freezing order. Any action taken in contravention of the freezing order is void unless it is validated by an order under section 26.

101.     Subsection (2) provides that a freezing order does not prevent an increase in benefits to accrue which would accrue apart from the order unless the order specifically so provides.

102.     Subsection (3) provides that a freezing order does not prevent the scheme from being wound up by virtue of an order of the Regulator under section 11 of the Pensions Act 1995 (powers to wind up schemes).

103.      Subsection (4) provides that if a freezing order states that no further contributions (or specified contributions) are to be paid during the period for which the order has effect then contributions which would have been due during that period do not have to be paid and any obligation to pay those contributions is treated as if it does not arise.

104.     Subsection (5) provides that pension sharing orders and pension earmarking orders are not prevented from being complied with even if a freezing order is in place preventing transfers.

105.     Regulations may modify any provisions of Chapter 4 (transfer values) and 5 (early leavers: transfer sums and contribution refunds) of Part 4 (protection for early leavers) of the Pension Schemes Act 1993 in their application to an occupational pension scheme in relation to which a freezing order is made containing a direction under section 23(4)(f), (g) or (h) (no transfers etc of member's rights from the scheme).

106.     If a freezing order is not complied with then section 10 of the Pensions Act 1995 (civil penalties) will apply to a trustee or manager who fails to take all reasonable steps to comply with the order. If an employer is directed to repay certain contributions, and fails to do so without a reasonable excuse, a section 10 penalty will apply to the employer.

Section 25: Period of effect etc of freezing order

107.     This section specifies that a freezing order has to state its duration, which cannot be longer than three months. However, the Regulator has the power to extend the order, but the total duration of the order cannot be more than six months. Under section 101 (powers to revoke orders, notices or directions etc) an order can be amended or revoked by another order (which must state the date the amendment or revocation will take effect. It cannot have retrospective effect).