Office of Public Sector Information
175.Subsection (7)(a) defines the “applicable limit”, which is the upper earnings limit from 2010-11 until the flat rate introduction year. At that point, the “applicable limit” becomes the upper accrual point (see section 12(1)(b) and (2)(b)).
176.Subsection (7)(b) defines the low earnings threshold by reference to the definition in section 44A of the SSCBA1992.
177.Subsection (7)(c) makes it clear that the earnings factors described in Conditions A and B are derived from primary Class 1 employed earnings below the applicable limit.
178.New section 44C applies for the purposes of Conditions B and C specified in section 44B(4) and (5) for tax years from 2010-11 onwards (subsection (1)).
179.Subsection (2) provides that an individual may enhance their earning factors in any tax year if, for any week in that year, the person is eligible (as specified by subsection (3)). For each week in which the person is eligible, he or she is entitled to an earnings factor credit equal to 1/52 of the qualifying earnings factor for that year (i.e. the lower earnings limit).
180.Subsection (3) specifies the persons who are eligible for earnings enhancement. They are:
Paragraph (a) – relevant carers (i.e. those entitled to credits for basic state pension purposes under new section 23A described in paragraphs 129-135 above);
Paragraph (b) – broadly, persons in receipt of carer’s allowance;
Paragraph (c) – persons to whom severe disablement allowance is payable;
Paragraph (d) – broadly, persons to whom long term incapacity benefit is payable (incapacity benefit will be replaced by the employment and support allowance provided for by the Welfare Reform Act 2007); and
Paragraph (e) - persons satisfying such conditions as may be set out in regulations. This power will allow persons receiving other benefits to be eligible for earnings enhancement. For example, this could be used to award earnings factor credits to employment support allowance recipients.
181.Subsection (4) cross-refers to the meaning of occupational pension scheme and personal pension scheme as set out at section 30DD. A person is in effect deemed to be receiving long term incapacity benefit for the purposes of subsection (3)(d) if that benefit is reduced to nil by virtue of receiving payments from such schemes.
182.Subsection (5) ensures that an individual who has some earnings from paid contributions is only entitled to the number of earnings factor credits required to bring that person up to the qualifying earnings factor.
183.Subsection (6) provides that earnings factor credits that fall within a week that straddles the change in tax years are attributed to the tax year in which the week begins.
184.Subsection (7) defines terms used in this section and in section 44B. In particular, it has the effect that one earnings factor credit is equal to 1/52nd of the qualifying earnings factor (see subsection (2)).
185.Part 6 ofSchedule 1 contains consequential amendments relating to deemed earnings factors. Paragraph 33 ensures that the current provisions set out at section 22 of the SSCBA1992 do not affect the operation of the new provisions inserted by section 9.
186.Paragraph 34 ensures that the current deemed earnings factors provisions at section 44A(1) to (4), which are replaced by the new provision made by section 9, apply only to tax years prior to 2010-11; and that the labour market attachment test will not apply to those on long-term incapacity benefit reaching state pension age on or after 6 April 2010.
187.This section amends Schedule 4A to the SSCBA1992, which contains the rules for the calculation of additional state pension. As the first step towards introducing a flat rate additional pension, the section removes the ‘Band 3’ accrual rate (which is 20%) on earnings factors between the upper earnings threshold and the upper earnings limit currently used in calculating state second pension, starting from the 2010–11 tax year.
188.Subsection (2)(a) restricts the existing 3-band structure to accruals for tax years up to and including 2009-10. Subsection (2)(b) introduces the new two accrual band formulation for the calculation of an individual’s annual surplus earnings factor from 2010-11. A surplus earnings factor for earnings between the lower earnings limit and the low earnings threshold will continue to be based on 40% of relevant earnings. However, surplus earnings factors for any subsequent earnings between the low earnings threshold and the “annual upper earnings limit” will be based on 10% of relevant earnings. Subsection (2)(c) defines the annual upper earnings limit for additional pension purposes.
189.Subsection (3) replicates the provisions of subsection (2) in respect of the calculation of ‘contracted-out’ state second pension entitlement.
190.Subsection (4) replicates the provisions of subsection (2) in respect of the calculation of the amount available by way of top-up for members of an appropriate personal pension scheme (i.e. a contracted-out personal scheme).
191.Subsection (5) defines “AUEL” for the purpose of the amendments in subsections (2) to (4).
192.Subsection (6) amends the heading of Schedule 4A.
193.Subsections (2) and (3) amend section 45 of the SSCBA1992 to provide for the second stage in the calculation of the reformed state second pension, using the flat rate which is set out in the new Schedule 4B to the SSCBA1992 and described above at paragraph 174.
194.Subsection (4) amends section 122 of the SSCBA1992 to define “the flat rate introduction year” – the year from which the reformed state second pension calculation will commence. It will be the tax year which is designated as such by the Secretary of State by order.
195.Subsection (5) introduces Schedule 2. Part 1 inserts new Schedule 4B into the SSCBA1992 and Part 2 makes provision to uprate (in line with earnings) the flat rate accrual amount introduced by the new Schedule 4B by inserting section 148AA into the SSAA1992 (see paragraph 213 below). Part 3 makes consequential and related amendments.
196.Paragraph 1 of Schedule 2 inserts new Schedule 4B into SSCBA1992 to provide for the new method of calculation of additional state pension.
197.Paragraph 1 of new Schedule 4B provides that the amount of additional state pension accrued for the years from the flat rate introduction year onwards is to be the aggregate of the appropriate amounts in respect of each year in which the pensioner was in contracted-in employment, calculated in accordance with Part 2 of Schedule 4B (see paragraphs 198-202 below) and the appropriate amounts in respect of each year in which the pensioner was in contracted-out employment, calculated in accordance with Part 3 of the Schedule (see paragraphs 203-209).
198.Paragraphs 2 to 5 (Part 2) set out the calculation for the amount of additional state pension in respect of years of contracted-in employment.
199.Paragraph 2 provides that Part 2 applies to a tax year if the “contracted-out condition” (see paragraph 12) is not satisfied for any tax week in the year.
200.Paragraph 3 provides that the appropriate amount for the year is to be either the flat rate amount where a person’s total earnings factor does not exceed the low earnings threshold or, where there is a surplus earnings factor exceeding the low earnings threshold, the aggregate of the flat rate and earnings related amounts.
201.Paragraph 4 provides that the ‘flat rate amount’ of additional state pension will be the ‘FRAA’ – £72.80 initially and then as uprated annually under new section 148AA of the SSAA1992 (see paragraph 213 below).
202.Paragraph 5 provides that the ‘earnings related amount’ is calculated by:
identifying the surplus earnings between the low earnings threshold and the upper accrual point; then
multiplying that figure by the relevant amount under the last order under section 148 of the SSAA1992; then
multiplying that amount by 10%; then
dividing that amount by 44.
203.Paragraphs 6 to 10 (Part 3) set out the calculation for the amount of additional state pension in respect of years of contracted-out employment.
204.Paragraph 6 provides that Part 3 applies to a tax year if the contracted-out condition is satisfied for each tax week in the year.
205.Paragraph 7 prescribes that the appropriate amount for the year is to be calculated by subtracting Amount B from Amount A.
206.Paragraph 8 provides that Amount A is the ‘flat rate amount’ of additional state pension, i.e. the ‘FRAA’ – as uprated annually under new section 148AA of the SSAA1992, where there is no surplus above the low earnings threshold.
207.Paragraph 9 provides that where there is a surplus exceeding the low earnings threshold, Amount A is to be calculated by:
identifying the assumed surplus for the relevant year between the low earnings threshold and the upper accrual point; then
multiplying that figure by the relevant amount under the last order under section 148 of the SSAA1992; then
multiplying that amount by 10%; then
dividing that amount by 44; then
adding this amount to the flat rate amount for the year (paragraph 8 refers).
208.Paragraph 10 provides that Amount B is to be calculated by:
identifying the assumed surplus for the relevant year between the qualifying earnings factor and the upper accrual point; then
multiplying that figure by the relevant amount under the last order under section 148 of the SSAA1992; then
multiplying that amount by 20%; then
dividing that amount by the number of years in the pensioner’s working life.
209.Paragraph 10(2) provides that section 44B of the SSCBA1992 (deemed earnings factors) is to be ignored in applying section 44(6) for the purposes of calculating Amount B. This ensures that a person’s actual earnings factors are used in the calculation, thereby producing an amount by way of top-up to the benefits provided by their private pension scheme.
210.Paragraph 11 allows the Secretary of State to make regulations so as to vary any of the calculations described above in circumstances where a person has a combination of contracted-in and contracted-out employment within a tax year or where a contracted-out pension scheme makes arrangements to buy back state scheme rights of their members.
211.Paragraph 12 defines the terms “assumed surplus”, “contracted-out condition”, “the FRAA” “the LET”, “the QEF”, “relevant year”, and “the UAP”.
212.Paragraph 13 further defines “the FRAA”.
Part 2 - Revaluation of Flat Rate Accrual Amount
213.Paragraph 2 of this Schedule inserts new section 148AA into the SSAA1992.
214.Subsection (1) of the new section requires the Secretary of State to review the general level of earnings in the tax year prior to the flat rate introduction year and in subsequent tax years.
215.Subsection (2) defines “review period”.
216.Subsection (3) requires the Secretary of State to make an order under this section where the general level of earnings has increased over the review period.
217.Where a revaluation order is made, subsection (4) requires the FRAA to be increased by not less than the percentage by which the general level of earnings increased during the review period.
218.Subsection (5) refers to the initial rate of the FRAA at £72.80 per year, which equates to a weekly amount of £1.40.
219.Subsection (6) allows the amount of the FRAA as determined by subsections (4) and (5) to be rounded up or down as the Secretary of State considers appropriate.
220.Subsection (7) allows the Secretary of State not to increase the FRAA where an increase would be inconsiderable.
221.If the Secretary of State determines that he is not required to make an order under this section, subsection (8) requires the Secretary of State to lay a report before Parliament explaining his decision not to do so.
222.Subsection (9) allows the Secretary of State to estimate the general level of earnings as he sees fit. In practice this means the Secretary of State will be able to decide which measure or index of earnings growth is to be used for the purposes of earnings uprating.
223.Subsection (10) defines the terms “the flat rate introduction year” and “the FRAA”.
224.Paragraph 3 amends section 39 of the SSCBA1992 to remove redundant references to Schedule 4A (which has no effect in the context of the benefits under section 39) and to repeal subsection (3) of that section (which no longer has any legal effect).
225.Paragraph 4(3) makes a clarificatory drafting amendment to section 39C of that Act.
226.Paragraph 5 amends section 44 of that Act to insert the necessary references to the new State Second Pension accrual regime introduced by the new Schedule 4B. The effect is that from the flat rate introduction year, those accruing state second pension for the purpose of their entitlement to a Category A pension will do so under the new rules.
227.Paragraph 6 inserts a new subsection (4) into section 46 of that Act, the effect of which is to provide that the component of widowed parent’s allowance relating to state second pension will continue to be calculated under the existing regime set out in section 45 (and Schedule 4A) after the flat rate introduction year rather than under the new regime introduced by section 11 (and the new Schedule 4B). Paragraph 4(2) amends section 39C of that Act as a consequence of this.
228.Paragraphs 7 to 10 amend respectively sections 48A, 48B, 48BB and 48C of that Act to insert the necessary references to the new state second pension accrual regime introduced by the new Schedule 4B. The effect is that from the flat rate introduction year, people bereaved after reaching state pension age will have their inherited state second pension entitlement in their Category B pension calculated under the new rules. The same will apply in respect of the state second pension component payable to bereavement allowance recipients.
229.Paragraph 11 removes a redundant reference to section 39(1) in Schedule 4A to that Act to reflect the amendment made by paragraph 3.
230.Paragraph 12 amends section 42 of the PSA1993 to make reference to the new Schedule 4B.
231.Subsection (1) amends section 22 of the SSCBA1992 to replace the reference to the upper earnings limit, which represents the current end point for additional pension accruals, with a reference to the new “applicable limit”. Prior to the flat rate introduction year, the applicable limit will remain as the upper earnings limit. From the flat rate introduction year, however, the applicable limit will be the new “upper accrual point”.
232.Subsection (2) amends section 44 of the SSCBA1992 in line with the provisions of subsection (1) to replace the upper earnings limit with the upper accrual point as the cap for earnings factors as from the beginning of the flat rate introduction year.
233.Subsection (3) amends section 122 of the SSCBA1992 to define the “upper accrual point”. This is defined as an amount equivalent to the upper earnings limit multiplied by 52 for the flat rate introduction year, except that there is power for the Secretary of State by order to specify a different amount should the forecast earnings growth not result in the low earnings threshold and the upper accrual point converging before 2030.
234.Subsection (4) introduces Part 7 ofSchedule 1 which contains consequential amendments relating to the simplified accrual rates.
235.Subsections (5) to (9) allow the Secretary of State to abolish both the low earnings threshold and the upper accrual point when the two converge, which is expected to happen in around 2030. (This will happen because the low earnings threshold increases at each up-rating in line with average earnings while, in contrast, the upper accrual point upon introduction will remain a fixed amount.) Subsection (5) activates these provisions when the low earnings threshold would otherwise be of an amount not less than the upper accrual point. At this time subsection (6) allows the Secretary of State by order to abolish both limits. Subsections (7) and (8) allow such an order to make any transitional or consequential amendments to primary legislation. Subsection (9) requires that any such abolition order must be approved by affirmative resolution of both Houses of Parliament. The effect of the convergence of the limits would be that, from that point, accruals for the state second pension would consist only of the flat rate accrual for any earnings factors over the qualifying earnings factor for the relevant year.
236.Paragraph 35 makes consequential amendments to section 176 of the SSCBA1992, so that any order setting the upper accrual point must be approved by affirmative resolution of both Houses of Parliament, and an order designating the flat rate introduction year will not be subject to any parliamentary procedure (like normal commencement orders).
237.Paragraphs 36 to 39 make consequential amendments to the PSA1993 to cater for the introduction of the upper accrual point. The amendments are all in connection with contracting-out arrangements for defined benefit pension schemes.
238.Paragraph 36 amends section 12B of that Act to prescribe the upper accrual point from the flat rate introduction year as the limit for calculation of qualifying earnings with regard to the reference scheme.
239.Paragraph 37 amends section 41 of that Act to prescribe the upper accrual point from the flat rate introduction year as the limit for calculation of qualifying earnings with regard to reduced rates of Class 1 contributions and provide power for the Secretary of State by regulations to specify how the amount of National Insurance contributions is to be calculated on the range of earnings between the lower earnings limit and the new upper accrual point where a person has an unusual earnings pattern.
240.Paragraph 38 amends section 181(1) of that Act to define “the flat rate introduction year” and the “upper accrual point”.
241.Paragraph 39 amends Schedule 4 to that Act to prescribe the upper accrual point from the flat rate introduction year as the limit for calculation of qualifying earnings with regard to the calculation of reckonable earnings in priority in bankruptcy etc.
242.The rules for determining state pension age are set out in Part 1 of Schedule 4 to PA1995. Subsection (1) of this section introduces Schedule 3 (see below) which amends both section 126 of, and Schedule 4 to, the PA1995 so as to enact increases in state pension age. Under subsection (3) of section 30 (Commencement: see page 66 below), the amendments made by Schedule 3 come into force two months after the date of Royal Assent; but the first increase in state pension age, from 65 to 66, will be phased in between April 2024 and April 2026.
243.Subsection (2) introduces Part 8 ofSchedule 1, which contains consequential amendments relating to the increases in state pension age (see below): these take effect on 6 April 2024 (subsection (3)) i.e. when the phasing-in of the initial change from 65 to 66 commences.
244.Paragraphs 40 to 43 of this Schedule make consequential amendments to the SSCBA1992. These take effect from April 2024 (see the note to subsection (3) of section 13).
245.Paragraph 40 will allow the upper age limit for widow’s pension, which is currently 65, to align with rising state pension age. Widow’s pension is only payable to women who were widowed before 9 April 2001, and was replaced by bereavement benefit for men and women bereaved after that date.
246.Paragraphs 41 and 42 relate to, respectively, the minimum age for entitlement to attendance allowance and the upper age limit for claiming disability living allowance (both 65). The amendments will align the present age thresholds with rising state pension age.
247.Paragraph 43 relates to the qualifying conditions for the Christmas bonus. Where entitlement to the payment is by virtue of entitlement to a war disablement pension, the person is additionally required to have reached the age of 65. The amendment will align the qualifying age with rising state pension age in these cases.
248.Paragraph 44 of this Schedule, which amends the State Pension Credit Act 2002, aligns the qualifying age for entitlement to the savings credit element (currently 65) with rising state pension age.
249.This Schedule amends those provisions of the PA1995 which specify the dates on which men and women reach state pension age (referred to in the Act as pensionable age).
250.Paragraphs 1 and 2 amend section 126 of that Act, which introduces Schedule 4 to that Act, to reflect the extended scope of that Schedule as amended by the Act.
251.Paragraphs 3 and 4 amend Schedule 4 to the PA1995. Paragraph 3 replaces the current heading to the Schedule to reflect the fact that, as amended, the provisions are no longer solely concerned with equalisation of state pension age. Paragraph 4 amends paragraph 1 of that Schedule, which specifies the state pension ages for men and women respectively in a set of ‘rules’.
252.Paragraph 4(2) amends paragraph 1(1), which currently provides that a man attains state pension age when he reaches 65 years. The amendment limits this provision so that it applies only to men who are due to reach that age before 6 April 2024.
253.Paragraph 4(3) amends paragraph 1(3), which introduces the table setting out the state pension ages for women born after 5 April 1950 but before 6 April 1955, i.e. those already affected by the phasing-in of the increase in female state pension age from 60 to 65. The amendment is required as additional tables are introduced by these amendments (see also the amendment made by paragraph 4(5)).
254.Paragraph 4(4) substitutes paragraph 1(4), which currently provides that a woman born after 5 April 1955 has a state pension age of 65, to make provision for women corresponding to that for men made by the amendment at paragraph 4(2).
255.Paragraph 4(6) adds paragraphs 1(5) to (10), which provide how and when state pension age is to be increased from 65 to 68.
256.Paragraph 1(5) introduces the table detailing how the first of the changes (from age 65 to 66) is to be phased in. These arrangements will apply to those who are due to reach age 65 in the period 6 April 2024 to 5 April 2025. The phasing arrangements mirror the approach already used to phase in the increase in state pension age for women where each increase of one year is phased in over two years. Dates of birth are grouped in one-month periods, with a common state pension age date (the 6th of the month) applying to everyone within that group. State pension age increases incrementally in steps of up to one month at a time - that is, those born between 6 April 1959 and 5 May 1959 will reach state pension age on 6 May 2024 (an increase of one month); those born in the following month (6 May 1959 to 5 June 1959) will reach state pension age on 6 July 2024 (an increase of between one and two months) and so on.
257.Paragraph 1(6) provides that state pension age will be 66 for those born in the period 6 April 1960 to 5 April 1968.
258.Paragraph 1(7) sets out how the change in state pension age from 66 to 67 is to be phased in for those born in the period 6 April 1968 to 5 April 1969.
259.Paragraph 1(8) provides that state pension age will be 67 for those born in the period 6 April 1969 to 5 April 1977.
260.Paragraph 1(9) sets out how the change in state pension age from 67 to 68 is to be phased in for those born in the period 6 April 1977 to 5 April 1978.
261.Paragraph 1(10) provides that state pension age will be 68 for those born on or after 6 April 1978.
262.Section 13(1) of the PSA1993 requires a contracted-out scheme to make provision to pay a pension to a member from pensionable age of an amount no less than his guaranteed minimum, as specified under sections 14 to 16. Section 17(1) contains a requirement for the payment of a guaranteed minimum pension to a widow, widower, or surviving civil partner.
263.Subsection (1) of section 14 of the Act allows a scheme to omit provision for a guaranteed minimum pension, as required under section 13(1) of the PSA1993, where certain conditions are satisfied.
264.Subsection (2) similarly allows a scheme to omit provision for a survivor's guaranteed minimum pension under section 17(1), where the specified conditions are met.
265.Subsection (3) sets out the conditions which a scheme must meet in order to be relieved of the liability to pay guaranteed minimum pensions (as well as the rules applying to transfers, scheme amendments and enforcement). This is achieved by the insertion of a number of new sections into the PSA1993. The inserted sections provide as follows:
Section 24A sets out definitions of terms used in sections 24B to 24H.
Section 24B specifies the conditions which a converting scheme must satisfy: actuarial equivalence of the value of members' conversion benefits with those they possessed pre-conversion; no reduction of pensions in payment; conversion benefits not to include money purchase benefits; survivors' benefits to be provided (see section 24D), and specified procedural requirements to be met (see section 24E).
Section 24C provides a power for regulations to be made concerning how actuarial equivalence is to be determined.
Section 24D sets out the detailed requirement for the scheme to provide conversion benefits which include provision for pension to be paid to a widow, widower or surviving civil partner following the death of the member.
Section 24E sets out requirements in relation to obtaining the agreement of the scheme's sponsoring employer, and providing information to members and survivors and to the Commissioners for HMRC about the guaranteed minimum pension conversion.
Section 24F provides a power for regulations to be made concerning conditions for transfers of pension rights out of a guaranteed minimum pension-converted scheme. Subsection (3) provides that the trustees of a scheme which is not guaranteed minimum pension-converted are allowed, for the purpose of transferring a member's rights out of the scheme, to adjust the member’s guaranteed cash equivalent to reflect rights that would have accrued on guaranteed minimum pension conversion, providing the member consents.
Section 24G provides powers for trustees to amend schemes to facilitate guaranteed minimum pension conversion. Subsection (4) makes it clear that trustees may adjust rights under a scheme which is being wound up in order to reflect what would have happened on guaranteed minimum pension conversion.
Section 24H provides powers for the Pensions Regulator in respect of enforcing the conditions for guaranteed minimum pension conversion, and provides for the power under section 10 of the PA1995 (civil penalties) to apply to trustees undertaking a guaranteed minimum pension conversion.
266.Subsection (5) of section 14 inserts provisions into section 47 of the PSA1993 in order to make clear that a person who has had his guaranteed minimum pension converted shall continue to be treated as entitled to that guaranteed minimum pension for the purpose of calculating entitlement to additional state pension (the 'contracted out deduction').
267.Subsections (8) and (9) of section 14 ensure the continuation of the partial protection against inflation of GMP increases included in the payments of state retirement pension where a person has their GMP converted.
268.Subsection (10) of section 14 concerns the situation where a person with an increase to his guaranteed minimum pension such as is mentioned in subsection (8) has his GMP converted prior to his death. This subsection ensures that his widow, widower or surviving civil partner will continue to have entitlement to certain GMP additions awarded with the survivor’s state retirement pension, and that these additions will be protected against inflation.
269.Subsection (12) of section 14 provides that regulations made under the new section 24B (5) - the provision of survivor benefits post-conversion - are subject to the affirmative procedure.
270.Subsection (1) provides that contracting-out certificates for money purchase occupational pension schemes and appropriate scheme certificates (i.e. contracting-out certificates for personal pension schemes) will be cancelled from the date that this subsection is brought into force (“the abolition date”).
271.Subsection (2) defines various terms.
272.Subsection (3) introduces Schedule 4. Parts 1 and 2 of the Schedule contain amendments, mostly to the PSA1993, that arise from the abolition of contracting-out on a defined contribution basis and the removal of certain rules applying to protected rights which will take effect on the abolition date. Part 2 of the Schedule contains amendments relating to the abolition of contracting-out which can be brought into force at a later date. The purpose of bringing the amendments in Part 2 of the Schedule into force at a later date is to ensure that the existing statutory mechanisms for HMRC to deal with administrative matters concerning the contracted-out rebate and certification of schemes etc. remain in place until any matters outstanding at the date of abolition of COMPs and APPs have been dealt with before the amendments are brought into force. Part 3 of the Schedule contains saving provisions relating to amendments made under Part 1 of the Schedule. As with Part 2, the purpose of Part 3 is to ensure that any administrative matters relating to a scheme’s contracted-out status prior to the date of abolition can be completed after that date.
273.Subsection (4) provides for the consequential amendments contained in Part 1 of Schedule 4 to have effect from the abolition date (but where any powers to make regulations are conferred by the amendments, such powers may be exercised before that date so as come into force on that date).
274.Subsection (5) provides a regulation-making power to allow for consequential etc. provision to be made if required as a result of the abolition of contracting-out for money purchase schemes and personal pension schemes, or as a result of the amendment, repeal or revocation of any protected rights provisions.
275.Subsection (6) provides that the power contained in subsection (5) can be used to amend, repeal or revoke any provision of any Act or subordinate legislation whenever passed.
276.Subsection (7) specifies that any use of the power in subsection (5) to modify primary legislation is subject to affirmative resolution.
277.Subsection (8) provides that any other use of the power in subsection (5) is subject to the negative resolution procedure.
278.The amendments in this part of the Schedule will take effect from the date on which COMP and APP contracting-out certificates are cancelled by virtue of section 15(1) of the Act (“the abolition date”).
279.Paragraph 2 amends section 7 (issue of contracting-out and appropriate scheme certificates). As a result of the amendment of subsection (1), HMRC can no longer issue certificates stating that personal pension schemes are appropriate schemes. In addition, when read with the amendments to section 9, the effect is that HMRC can no longer issue a contracting-out certificate in respect of a money purchase occupational pension scheme. Subsections (4) to (6) are omitted to reflect the fact that appropriate scheme certificates can no longer be issued.
280.Paragraph 3 amends the definition of “contracted-out employment” in section 8(1) to reflect the fact that from the abolition date a money purchase occupational pension scheme can no longer be contracted-out in relation to an earner’s employment. Paragraph 3(3) inserts a new subsection (1A) into section 8. New subsection (1A) includes an amended definition of contracted-out employment by reference to a money purchase scheme. This definition now only relates to periods of “contracted-out employment” before the abolition date. This historical definition is required because, although after the abolition date it will no longer be possible for an earner to be in contracted-out employment by reference to a COMP, such periods will continue to be relevant for the calculation of a person’s additional pension. The definition will also be needed during the period immediately after the abolition date for dealing with matters relating to periods before that date which are still outstanding at the date of abolition e.g. contracted-out rebates.
281.Paragraph 3(4) amends section 8(2) to reflect the fact that section 42A is being repealed.
282.Paragraph 4 contains amendments to section 9 (requirements for certification of schemes). Section 9(3), which deals with requirements for a money purchase scheme to be contracted-out, is omitted. Section 9(5), which deals with the requirements for a personal pension scheme to be contracted out, is also omitted. Consequential amendments are made to section 9(6) (which deals with relevant requirements for contracted-out and appropriate schemes).
283.Paragraph 5 amends section 10 (protected rights). Section 10(3)(a) is amended to reflect the fact that the definition of “minimum contributions” is to be repealed.
284.Paragraph 6 omits section 12 (determination of basis on which scheme is contracted-out) to reflect the fact that it will no longer be necessary for certificates to state whether a scheme is contracted-out by virtue of subsection (2) or (3) of section 9, since it will only be possible for schemes to contract out by virtue of section 9(2) (contracting-out requirements for salary related occupational schemes).
285.Paragraph 7 amends section 20 (transfer of accrued rights). Section 20(3) has been amended to include a reference to the new section 25A inserted by paragraph 9.
286.Paragraph 8 replaces the cross-heading before section 26 with “Requirements for schemes with members with protected rights”.
287.Paragraph 9 inserts a new section 25A into the PSA1993. New section 25A applies to money purchase occupational pension schemes which ceased to be contracted-out as a result of section 15(1) of the Act, as well as to personal pension schemes which cease to be appropriate schemes as a result of the same provision. For as long as people have protected rights under such schemes, or are entitled to any benefit giving effect to such rights, new section 25A(3) requires such schemes to continue to comply with sections 26 to 32 (which such schemes would currently be required to comply with in order to be contracted-out) and prescribed requirements (i.e. the requirements which are currently imposed in relation to COMPs and APPs under section 9(3)). It also ensures that the new limited requirements relating to giving effect to protected rights apply to any pension scheme to which protected rights have been transferred.
288.Paragraph 10 inserts a new section 27A into the 1993 Act. The new section 27A has the effect of retaining the rule that requires provision to be made from protected rights for a surviving spouse or civil partner. It also re-enacts (with some modifications) regulation-making powers under section 28 of the 1993 Act to make provision in relation to survivors’ benefits.
289.Paragraph 11 omits sections 28 to 29 to remove the existing rules applying to protected rights which will be replaced by the provisions of the new section 27A.
290.Paragraph 12 inserts a new section 32A into the 1993 Act to ensure that where the protected rights are being given effect to by an insurance policy, the policy must make the same provision as would a scheme to which sections 25A and 27A apply.
Pensions Act 2007