Office of Public Sector Information
1.These Explanatory Notes have been prepared by the Non-Executive Bills Unit on behalf of Alasdair Morgan MSP, convener of the Scottish Parliamentary Pension Scheme Committee (“the Committee”). They have been prepared in order to assist the reader of the Act and to help inform Parliamentary debate. They do not form part of the Act and have not been endorsed by the Parliament.
2.The Notes should be read in conjunction with the Act. They are not, and are not meant to be, a comprehensive description of the Act. So where a section or schedule, or a part of a section or schedule, does not seem to require any explanation or comment, none is given.
3.When the following abbreviated expressions are used throughout these notes their full citation is as shown below. In some places, to assist the reader, the full phrase or title is used.
| “the 1993 Act” | The Pension Schemes Act 1993 (c.48). |
| “the 1995 Act” | The Pensions Act 1995 (c.26). |
| “the 1998 Act” | The Scotland Act 1998 (c.46). |
| “the 1999 Act” | The Welfare Reform and Pensions Act 1999 (c. 30). |
| “the 1999 pensions order” | The Scotland Act 1998 (Transitory and Transitional Provisions) (Scottish Parliamentary Pension Scheme) Order 1999 (No. 1082). |
| “the Finance Act 2004” | The Finance Act 2004 (c.12). |
| “the Pensions Act 2004” | The Pensions Act 2004 (c.35). |
| “Annual Allowance” | The HMRC limit which sets the maximum value of benefits that an individual is allowed to accrue annually tax-free from contributions to registered pension schemes. The annual allowance provisions are in sections 227-238 of the Finance Act 2004 and the limit for 2007-8 is £225,000. |
| “AVC scheme” | The facility for additional pension savings and benefits which are available through the additional voluntary contribution part of the scheme (previously there was a statutory requirement for occupational schemes to have an additional voluntary contribution facility in terms of section 111 of the Pension Schemes Act 1993, now repealed). The rules in respect of the AVC scheme are set out in Part R and Schedule 6 of the 1999 pensions order. |
| “the Civil Partnership Act” | The Civil Partnership Act 2004 (c.33) |
| “FM/PO scheme” | The separate pension scheme for the First Minister and Presiding Officer established by the 1999 pensions order. |
| “Hmrc” | Her Majesty’s Revenue and Customs. |
| “Lifetime Allowance” | The HMRC limit which sets the maximum value of benefits that an individual is allowed to accrue tax-free from registered pension schemes in the course of their lifetime. The lifetime allowance provisions are in sections 214-226 of the Finance Act 2004 and the limit for 2008/09 is £1.65 million. |
| “new rules day” | The first day of the first month following the date which occurs six months after Royal Assent. (see section 5(3) of theAct). |
| “new scheme rules” | The rules contained in Schedule 1 to the Act. |
| “office-holder” | Holders of pensionable offices, defined in rule 22(2) of Schedule 1 to the Act, as that of Presiding Officer, deputy Presiding Officer, one of the Scottish Ministers (this includes the First Minister, Ministers appointed under section 47 of the 1998 Act, the Lord Advocate and the Solicitor General for Scotland) or junior Scottish Ministers (appointed under section 49 of the 1998 Act). |
| “participating members” | The participating MSP members and office-holder members as defined in Rule 109 of Schedule 1 to the Act. See also “deferred pensioners” and “scheme pensioners”, also defined in rule 109, who together with participating members form the different categories of members of the scheme. |
| “Spcb” | Scottish Parliamentary Corporate Body. |
| “Ssrb” | Senior Salaries Review Board. |
| “the Committee” | Scottish Parliamentary Pension Scheme Committee. |
| “the Grants Order” | The Scotland Act 1998 (Transitory and Transitional Provisions) (Grants to Members and Officeholders) Order 1999 (No. 1081). |
| “the Pension Fund” | The Scottish Parliamentary Contributory Pension Fund that was established by article B1 of the 1999 pensions order. |
| “the report” | Report by the Scottish Parliamentary Pension Scheme Committee published on 29 May 2008, (1st Report 2008, SP Paper 103) which contained its recommendations and draft Act. |
| “the scheme” or “the SPPS” | The existing Scottish Parliamentary Pension Scheme established by and the rules of which are contained within the 1999 pensions order. |
4.In 1998 the SSRB was asked to make recommendations on appropriate pension arrangements for MSPs and holders of offices connected to the Parliament. Its priority was to arrive at arrangements which would conform to current good practice and take account of the uncertainties of parliamentary life. The SSRB concluded that the Parliamentary Contributory Pension Scheme,(1) the occupational pension scheme for the UK Parliament MPs and office-holders, should be taken as the model scheme. Based on this recommendation, a scheme for MSPs and office-holders was established on 6 May 1999 by the 1999 pensions order. This is the Scottish Parliamentary Pension Scheme as defined in section 4 of the Act. The 1999 pensions order also established a separate pension scheme, the FM/PO scheme, which was based on the arrangements made by the UK Parliament for the Prime Minister, Speaker and Lord Chancellor (see Parliamentary and other Pensions Act 1987 (c.45)).
5.The SSRB report in November 1998 also covered resettlement grants, ill-health retirement grants and severance arrangements. It recommended that the Scottish Parliament have similar provisions to those at the UK Parliament. The recommendations were followed and the arrangements were also made under a transitional order; the Grants Order.
6.Under section 81(3) of the 1998 Act, the Parliament can make provision for payment of pensions and gratuities in respect of persons covered by the 1999 pensions order and the Grants Order. Under section 81(5) of the 1998 Act such provision is either by resolution conferring functions on the Scottish Parliamentary Corporate Body (“SPCB”) or by an Act of the Scottish Parliament. Continuing the current scheme and updating the scheme rules by resolution is not possible given some of the changes required and the legal status of the 1999 pensions order. Primary legislation is required to update the current rules.
7.The SPCB is responsible for the management and administration of the scheme. The SPCB agreed on 13 June 2007 that, as a result of UK legislative changes, it was necessary to amend the scheme rules contained in the 1999 pensions order. The SPCB asked the Parliamentary Bureau to consider the matter and it proposed that a bill committee be established to develop proposals for a committee bill for consideration by the Parliament. The Parliamentary Bureau recommendation and the Committee remit were agreed by the Parliament on 27 June 2007 and extended on 28 November 2007. The Committee therefore examined the scheme, the FM/PO scheme and the Grants Order.
8.This Act is as a result of a Committee bill (i.e. a bill initiated by a Parliamentary committee under Rule 9.15 of the Parliament’s standing orders). The Bill resulted from the Scottish Parliamentary Pension Scheme Committee’s inquiry and a draft was contained in the report.
9.Since 1999 there have been a number of significant legislative changes at a UK level which have affected all pension schemes. The Finance Act 2004 and the Pensions Act 2004 transformed the legal environment in which pensions schemes operate in the UK, necessitating changes to the rules in the 1999 pensions order.
10.In addition there have been a number of general legislative changes which affect occupational pension schemes, with the major ones being as follows—
the 1999 Act which introduced pension sharing on divorce, where ex-spouses can get membership of a scheme in their own right or a transfer value from the scheme; and
the new status of civil partner introduced by the Civil Partnership Act.
11.The Finance Act 2004 set out a new, simplified tax regime for registered pension schemes. Historically, tax-approved pension schemes have had to comply with tax rules in order to benefit from tax advantages, for example an exemption from tax on the pension fund’s investment income and from capital gains; tax relief on member and employer contributions, and tax-free lump sums on retirement (although pensions in payment are subject to income tax).
12.The Finance Act 2004 replaced the eight then existing taxation regimes with a single set of rules, introduced on 6 April 2006. While there has been a relaxation of some of the tax limits previously imposed, the general principle remains that for a scheme to benefit from the preferential tax treatment it should remain within the tax rules.(2)
13.The 1999 pensions order as currently constituted must be read subject to the general transitional arrangements made under the Finance Act 2004. These arrangements are expected to expire in April 2011 and, if not replaced, would create uncertainty about how parts of the 1999 pensions order comply with tax rules.
14.On 17 October 2007 the Committee published a consultation document and invited comment from MSPs, former MSPs and interested outside bodies on issues to be considered when developing proposals for a replacement for the 1999 pensions order and the Grants Order. The consultation paper was also published on the Scottish Parliament website. The closing date for responses was 17 January 2008.
15.The consultation sought views on a number of areas.
16.These covered mandatory changes required to maintain compliance with other legislative changes (pension sharing on divorce, age 75 taxation rules and minimum pension age taxation rules).
17.Discretionary changes mainly linked to changes in the taxation regime following the Finance Act 2004 in areas such as:-
Contribution limits
Maximum pension available
Amount of tax-free lump sum on retirement
Amount of death in service gratuity
Children’s pension provision
Additional voluntary contributions and added years
Trivial commutation of pension benefits
Ill-health provisions.
18.Other discretionary areas of possible change included age and other equality issues around early retirement, refund of contributions, loss of surviving spouse pension on re-marriage or cohabitation and unmarried partners.
19.Further possible changes covered by the consultation document included scheme administration, the rate at which pension accrued, changes to the FM/PO scheme and the Grants Order.
20.The Committee report was published on 29 May and the proposal for a Committee bill was agreed by the Parliament after debate on 26 June 2008. The report made recommendations in all the areas mentioned in paragraphs 17-20 and had attached to it a draft Bill containing a revised set of rules to replace the scheme rules in the 1999 pensions order; provisions to continue with modification the FM/PO scheme rules in the 1999 pensions order; and rules to replace those in the Grants Order.
21.Section 1(1) of the Act continues the existing scheme while introducing new rules in Schedule 1 to govern it.
22.The SPCB is at present responsible for the management and administration of the scheme. This responsibility includes control and management of the Pension Fund which was established by article B1 of the 1999 pensions order, which vested the Pension Fund in the SPCB.
23.Subsection (2) transfers the Pension Fund and the SPCB’s rights, liabilities and obligations in relation to the Pension Fund to Fund trustees to be appointed under the new rules (see Schedule 1 Part B). The transfer takes effect on the day section 1(2) comes into force, which in terms of section 5(3) is on the first day of the first month following the date which occurs six months after Royal Assent.
24.Subsection (3) introduces Schedule 3 which makes other transitional provisions and savings in respect of the 1999 pensions order in specific circumstances (see paragraph 486 onwards).
25.Section 2 of the Act introduces Schedule 2 which sets out the circumstances in which the SPCB is required to pay grants to individuals after they have ceased to serve as MSPs or have stood down from certain positions as office-holders. As the Schedule makes provision for the payment of gratuities made in accordance with section 81(3) of the 1998 Act, it replaces the Grants Order (see article 2 of the Grants Order which states that it will cease to apply on the making of such provision).
26.The detail of the scheme rules will inevitably require amendment to reflect changes in pension law and also any policy changes. An ability to amend pensions and gratuity provisions in the future without using primary legislation is therefore desirable and reflects section 81(5) of the 1998 Act, which allows for provision on pensions and gratuities to be made by resolution.
27.Section 3 of the Act makes provision for the Parliament by resolution to modify the scheme, the grants scheme set out in Schedule 2 and the FM/PO scheme. The Standing Orders of the Scottish Parliament govern the procedures for motions and resolutions and it is expected that Parliament will consider whether they require to be amended to provide any special procedure for these resolutions.
28.Subsection (1) includes provision for modifications to be made to the scheme by resolution. As the AVC scheme forms part of the scheme the AVC scheme rules saved and modified by paragraph 19 of Schedule 3 can also be amended by such a resolution. Subsection (1) also includes provision for modifications to be made to the FM/PO scheme. The FM/PO scheme is continued in the Act at paragraph 21 of Schedule 3 only in relation to any individual who is or has been a First Minister or Presiding Officer on or before new rules day. The continued FM/PO scheme may need to be amended in future to keep provisions in line with changes to general pensions law.
29.Subsection (2) sets out what can be modified by resolution. The power covers the new scheme rules (Schedule 1), the new grants rules (Schedule 2) and the transitional and savings provisions (Schedule 3). Subsection (2)(c) also makes provision for modification of the 1999 pensions order. In terms of article A3 of the 1999 pensions order, the order ceases to apply when the new scheme rules come into force. However Schedule 3 of the Act continues certain articles within the 1999 pensions order. Paragraphs 2, 5, 9, 18, 19 and 21 make provision for specific rules to continue in force and paragraph 22 makes a general provision continuing any rules that are needed to give effect to the provisions specifically saved by the Schedule (see paragraph 486 onwards).
30.Subsection (3) provides that a resolution under section 3 may make different provision for different purposes. The subsection also provides for provisions to have retrospective effect if required. This is a power generally available for pension schemes, allowing changes in benefits to be made to reflect the start of general legislative changes.
31.As the new rules are contained in primary legislation, amendments must be accessible. Subsection (4) makes provision for the publication of any resolution that is subsequently passed by the Parliament to be treated as if it were a Scottish statutory instrument and allows the Queens Printer for Scotland to publish the resolution. This provision is similar to a provision contained in the Interests of Members of the Scottish Parliament Act 2006 (asp 12) which allowed modification by resolution to provisions within the Schedule to that Act.
32.Section 4 contains definitions of four terms that are used throughout the Act. All have been referred to already in these notes.
33.Section 5 provides for two distinct commencement dates. Subsection (1) provides for a number of provisions to come into force on Royal Assent but only for limited purposes. The limited purposes enable the appointment of trustees and allow participating scheme members to be able to make choices in relation to the level of their scheme member contributions which will apply from the date the remainder of the new scheme rules come into force. The provisions coming into force on the day of Royal Assent are:
sections 4 and 6 which contain definitions of expressions and the Act’s short title;
section 5;
rules 4 and 8 to 11 of schedule 1 which provide for the appointment, conditions, remuneration, resignation and removal of Fund trustees; and
paragraph 1 of schedule 3 in relation to to definition of terms in that schedule; paragraph 4 of schedule 3 in relation to the provisions for scheme members determining what level of contributions they wish to make from the date the new scheme rules come into force; and paragraph 9 of the schedule in relation to the special provisions for participants who reach age 75 between Royal assent and new rules day.
34.Subsection (2) brings section 3 into force on Royal Assent. That section makes provision for modification of the scheme rules, the grants rules, the transitional and saving provisions and the 1999 pensions order. Therefore these provisions could be amended before the general coming-into-force day although the resolution modification power under section 3 is subject to a restriction that, until the remainder of the Act comes into force, only a member of the SPCB may move such a resolution.
35.By virtue of subsection (3) the remainder of the Act comes into force on the first day of the first month following the date which occurs six months after Royal Assent.
36.Part B of the 1999 pensions order established the Fund for the purposes of the scheme set out in that order. The Fund is part of the Scottish Parliamentary Pension Scheme as defined in section 4 of the Act and governed in accordance with the rules of the scheme as set out in Schedule 1 to the Act. Most sums payable under and received by the scheme are paid out of and into the Fund (with the exception of AVC contributions).
37.Under the 1999 pensions order, the Fund is vested in and administered by the SPCB (as set out in Schedule 1 to the order). Contributions are made to it by participants and from the SPCB paying scheme sponsor or “employer”(3) contributions from the Scottish Consolidated Fund.
38.Rule 2 defines “the Pension Fund”, as the Scottish Parliamentary Contributory Pension Fund; which is the Fund established by article B1 of the 1999 pensions order.
39.Rule 3 makes provision for payments to be made out of and into the Pension Fund. This rule provides the general authority for such payments to be made but is supplemented by provisions relating to AVCs in paragraph 19 of Schedule 3. The scheme is a funded scheme. That is, over the course of its lifetime, the amount paid into the Pension Fund by way of contributions from the scheme members and the SPCB as the ‘employer’ or scheme sponsor, together with investment returns, is intended to be sufficient to meet all payments due from the scheme.
40.Rule 3(1)(a) provides that all pensions and lump sums payable from the scheme will be made from the Pension Fund. Generally, these are pensions to former MSPs or to the surviving partner or any children of the MSP and lump sum amounts on retirement or death (all as set out in the rules).
41.Rule 3(1)(b) enables the Fund trustees to make other payments which are payable by them under the scheme from the Pension Fund. For example, administration costs of the trustees in running the scheme and authorised payments to be made insofar as these fall within the rules in Part B of Schedule 1 to the Act. It also covers payments such as transfers of sums of money out of the Pension Fund under Part N; pension sharing arrangements under Part P; taxes under Part R; and any other payments to be made under the scheme.
42.Rule 3(2) provides that the Fund trustees must pay all sums that they receive under the scheme into the Pension Fund. This includes all scheme member contributions (see Part D of schedule 1) and any investment returns.
43.By virtue of paragraph 19(2) of Schedule 3, rule 3 does not apply to benefits payable and contributions received under the Additional Voluntary Contribution (AVC) scheme. The AVC scheme was established under the 1999 pensions order (Part R and schedule 6) and provides for additional pension taken in the form of an annuity purchased with the accrued sum at retirement.
44.The AVC scheme established under the 1999 pensions order will continue to have effect and any agreed AVC contracts continue to operate. However, no individual may become a contributor, and no transfers may be made to the AVC scheme, after new rules day. Schedule 3 also vests rights and functions etc in the Fund trustees from the SPCB (paragraph 19(1)(a)) (see paragraphs 544-554). It will be for the Fund trustees to decide how to manage the existing contractual payments from the AVC contributors to the AVC provider.
45.Part B of Schedule 1 replaces Part B and Schedule 1 of the 1999 pensions order and sets out rules covering Fund trustees who will replace the SPCB, as managers of the Pension Fund. The rules cover the detail relating to the functions, appointment and duties of the Fund trustees.
46.To allow for a smooth transition from the SPCB, the provisions to appoint Fund trustees are brought into force on Royal Assent to allow the first trustees to be appointed. Section 1 of the Act (paragraphs 22-25) applies the new rules to the scheme and transfers the SPCB’s functions, rights, liabilities and obligations to the Fund trustees. That conferral of powers and responsibilities on the Fund trustees comes into force on the first day of the first month following the date which occurs six months after Royal Assent.. Until that time, the SPCB continues to administer the Pension Fund in accordance with the 1999 pensions order.
47.Rule 4 allows only individuals to be appointed and hold office as Fund trustees.
48.Rule 5 makes clear that the principal function of the Fund trustees is to administer the Pension Fund and to manage and apply its assets under the rules.
49.In Scots law, and as pension scheme trustees, the Fund trustees have additional functions and obligations in exercising their functions at common law and under a wide range of statutory provision, including UK legislation relating to occupational pension schemes.
50.Under rule 6 there are to be between 3 and 6 Fund trustees. That rule is, however, subject to rule 13 which permits the maximum number to be exceeded in specified circumstances (see paragraphs 73-75).
51.This rule prevents any individual from being or becoming a Fund trustee where they are prevented under any law from holding that position. This specifically includes section 29 of the 1995 Act which contains provisions that disqualify a person from being a pension scheme trustee. The provisions relate to persons with unspent convictions for an offence involving dishonesty or deception, un-discharged bankrupts, anyone who has granted a trust deed for creditors or anyone disqualified from acting as a company director.
52.Any Fund trustee who becomes barred under these provisions is removed automatically from being a trustee without the application of any further formal procedure for removal (rule 11), and any person who purports to be a trustee while disqualified is subject to criminal penalties in terms of section 30 of the 1995 Act.
53.Rule 8 provides a procedure for the appointment of Fund trustees.
54.Under rule 8(1) it is for the Parliament to appoint all Fund trustees by resolution. They must be individuals nominated by the SPCB, and determined by the SPCB as suitable to hold office. There is no bar on a person who has previously been a Fund trustee from being re-appointed. It is expected that the Parliament will wish to consider whether any further provision to supplement the rule is required to be included within Standing Orders.
55.Before deciding who to nominate, the SPCB is required by rule 8(2)(a) to do its best to ensure that there is a participating member and a scheme pensioner among the Fund trustees. A participating member is defined in rule 109 and includes an MSP or one of the law officers who is not an MSP. The expectation is that there will always be at least one participating member as a Fund trustee but the formulation recognises only persons willing to serve will be nominated.
56.When putting forward nominations for Fund trustees, the SPCB is also required by rule 8(2)(b) to have regard to any recommendations made by serving Fund trustees.
57.Under rule 8(3), appointments as Fund trustees have immediate effect unless the Parliament otherwise provides in terms of the resolution making the appointment. This could apply, for example, where the SPCB and the Parliament become aware that a serving Fund trustee will be demitting office during a forthcoming recess period. Any appointment of a new Fund trustee to replace that person could be made to take effect from the future departure date to avoid breaching the restriction on fund trustee numbers in terms of rule 6.
58.The Court of Session has power to appoint new trustees at common law and in a variety of circumstances under the Trusts (Scotland) Act 1921 (c.58). Rule 8(4) restricts these powers by permitting the Court only to appoint new Fund trustees in the very limited circumstances where a sole trustee wishes to resign and applies to the court to appoint new trustees under section 19(2). Such an application is only likely to be required as a last resort given the Parliament’s powers to appoint new Fund trustees. The provision is necessary because rule 10(3) would otherwise prevent the resignation of a sole trustee in all circumstances.
59.In a similar way to rule 8(4), rule 8(5) disapplies the powers which the Fund trustees would otherwise have to assume new trustees under section 3(b) of the Trust (Scotland) Act 1921 and, ensures that apart from the limited exception provided in rule 8(4), only the Parliament will be able to appoint Fund trustees.
60.Rule 9 makes provision for the payment of expenses to all Fund trustees and for payment of remuneration and allowances to certain Fund trustees, subject to certain conditions being met.
61.Rule 9(1) relates to the payment of remuneration or allowances to Fund trustees. Under condition 1, Fund trustees who have at any time been scheme members are excluded from receiving remuneration or allowances for carrying out their duties.
62.Under condition 2 (in respect of a Fund trustee who meets the first condition), the other Fund trustees, if any, must recommend to the SPCB before appointment is made that the nominee should be remunerated or entitled to allowances. Under condition 3, the SPCB must specify when making a nomination to the Parliament that remuneration and allowances are to be paid, thus giving the Parliament an opportunity to determine the appropriateness or otherwise of payment.
63.Rule 9(2) provides that expenses properly incurred by the Fund trustees in connection with their duties as trustees are to be reimbursed from the Pension Fund. This covers all Fund trustees and not just those who receive remuneration or allowances. The cost of any indemnity insurance (see rule 18) is one example of an expense covered by this rule.
64.Fund trustees may, unless they are a sole trustee, resign at any time and rule 10 sets out the procedure.
65.Under Rule 10(1), a Fund trustee must give notice of resignation to the Presiding Officer and other Fund trustees. No specific period of notice is specified, but the terms of rule 108 apply to such a notice and as a formal communication it should be in writing. Once a resignation has been made to the Presiding Officer and at the same time to the other Fund trustees in terms of subsection (2), it has immediate effect. It is expected that the Parliament will wish to consider whether any further provision to supplement the rule is required within Standing Orders, for example requiring intimation of resignation in the Business Bulletin.
66.Rule 10(3) prevents a sole trustee from resigning under this rule. This avoids there being no Fund trustees in post. This provision has to be read with rule 8(4) which allows resignation of a sole trustee only by application to the Court of Session under section 19(2) of the Trusts (Scotland) Act 1921 (c.58). The sole trustee can resign once the Court appoints new Fund trustees in terms of section 3 of that Act.
67.Rule 11 makes provision for the circumstances in which a Fund trustee is removed from office. The Parliament appoints all Fund trustees and can, by resolution, vote to remove them for any reason and at any time. Under Rule 11(3), any resolution to remove a Fund trustee, if not unanimous, must be supported by at least two-thirds of the MSPs who vote.
68.Removal is automatic in the circumstances set out in rule 11(1)(b) where a Fund trustee becomes disqualified (see rule 7 and paragraphs 52-53 of these notes). Rule 11(c) covers removal following a change in the status of the Fund trustee, where the Fund Trustee’s tenure automatically comes to an end six months after the change takes effect (see rule 12 and paragraphs 70-72 of these notes).
69.Under rule 8(2), the SPCB must do its best to ensure that there is at least one participating member or scheme pensioner included in the Fund trustees. Fund trustees may therefore be appointed partly because of their status as a scheme member or scheme pensioner. Any change in status affects the balance of trustees as does changing status from deferred to scheme member or scheme pensioner. Rule 12 makes provision for any change in status to be notified to the Presiding Officer and other Fund trustees and for the affected Fund trustee’s tenure to come to an end unless the Parliament resolves otherwise. This allows consideration to be given to the change in balance of the composition of the Fund trustees.
70.Rule 12(1) sets out the changes of status of Fund trustees which require to be notified. Rule 12(1)(a) covers a participating member leaving the scheme by opting out or by leaving or losing office under age 65 and becoming a deferred pensioner or, if over 65 or taking early retirement, a scheme pensioner. In addition, any participating member approaching age 75 will, by virtue of the operation of the new rules, convert to a deferred or scheme pensioner. Rule 12(1)(b) applies where a deferred pensioner becomes a participating member on re-election or becomes a scheme pensioner at age 65. It also applies where the deferred pensioner opts to transfer their benefits to another pension scheme and all rights to all scheme benefits are extinguished by virtue of a payment being made to another pension scheme under rule 80. Rule 12(1)(c) applies where a scheme pensioner becomes an MSP or the holder of a qualifying office and has their pension suspended under rule 41.
71.There is no obligation to give prior notice in anticipation of a change in status. However, when a change set out in rule 12(1) takes place, the Fund trustee concerned must, under rule 12(2)(a), give notice to that effect to the other Fund trustees and the Presiding Officer. Under rule 12(2)(b) their tenure of office ceases six months after their status changes unless the Parliament resolves otherwise.
72.Section 241 of the Pensions Act 2004 requires that at least one-third of the total number of Fund trustees are member-nominated trustees. Member-nominated trustees are trustees who are nominated as a result of a process in which all active and pensioner members of a pension scheme can participate or are represented by an organisation representing their rights.
73.Rule 13 makes the necessary provision for member-nominated trustees.
74.The rule at (a) requires the SPCB to put forward to the Parliament any individual nominated as a Fund trustee who the Fund trustees recommend for the purpose of fulfilling their obligations to secure member nominated trustees under section 241. Part (b) disapplies the provisions of rule 6 which restricts the maximum number of Fund trustees holding office where the appointment is made to ensure that the minimum number of one-third member-nominated trustees is reached.
75.Rule 14 allows the Fund Trustees to regulate the procedures that they follow in administering the Pension Fund in so far as this is not otherwise regulated by the scheme rules.
76.Rule 15 sets a quorum for meetings of the Fund trustees at a minimum of three unless there are fewer than three holding post, in which case all must be present.
77.Rule 16 provides the Fund trustees with the authority to employ staff and to seek advice from any other person. The rule supplements the powers and requirements placed on trustees to appoint professional advisers (scheme auditor, actuary and fund manager) under section 47 of the 1995 Act.
78.The power in this rule could be used to appoint staff to undertake the day-to-day administration of the pension scheme. The Fund trustees can set the terms of appointment as they see fit. The rule also allows the Fund trustees to seek advice from specialist advisers, for example medical specialists, in relation to health conditions and prognosis.
79.Section 47(2) of the 1995 Act requires every occupational pension scheme whose assets include investments to appoint an individual or a firm to act as fund manager on behalf of the trustees. Under section 34 of that Act, while trustees (subject to restrictions imposed by any scheme) may make investments as if they were absolutely entitled to the scheme assets, they may also delegate decisions about investments to their fund managers. Section 34(4) of that Act relieves the Fund trustees from responsibilities in relation to the fund managers’ performance, provided they have satisfied themselves that the person appointed has the appropriate knowledge and experience, is carrying out work competently and complies with the investment principles for the scheme.
80.Under rule 17, the Fund trustees must monitor the performance of the fund manager so that they may satisfy themselves in terms of their responsibilities in relation to the delegation of their authority to make investments.
81.The Fund trustees are restricted by their fiduciary duties from using the fund for personal gain. Rule 18 loosens the restriction to the extent that it permits the Fund trustees to purchase insurance indemnifying them against personal liability claims in connection with their performance of their functions. The cost of the insurance premium to that extent becomes an allowable charge to be met by the Fund as a consequence of this rule.
82.Rule 19 permits the Fund trustees to authorise any person, including one or more of the Fund trustees to act on behalf of them all. Their actions are limited to the extent given in the authorisation, which does not need to be in writing.
83.An authorisation does not exempt the Fund trustees from responsibility that would otherwise fall upon them for the delegated task unless that exemption is otherwise provided in law (see paragraph 80 of these notes for such an example). They must, therefore, be satisfied that those authorised have the ability to undertake the task delegated. Likewise it does not prevent them from carrying out a function themselves which was previously delegated.
84.Rule 20(1) ensures that decisions, authorisations and acts of the Fund trustees are not invalidated by defective appointments, changes in those holding the office of Fund trustee or in the event that there are fewer than three trustees holding office.
85.Rule 20(2) allows the Fund trustees to vary or revoke decisions made by or authorisations granted by previous Fund trustees. That power is not applicable in relation to decisions which have the effect of reducing scheme benefits to any person, unless the decision is made under other scheme rules. It would not, however, prevent a change where the new decision increases benefits.
86.This rule generally prevents Fund trustees from reversing discretionary decisions made by their predecessors. For example, a decision to allow a scheme member to purchase added years could not be unilaterally revoked by the Fund trustees. Similarly, an initial decision to award an ill-health pension could not be reversed. However, the scheme provides for a subsequent review of these benefits and the pension could be reduced or revoked under these provisions at a later stage because that would constitute a new decision using other rules.
87.Part C of Schedule 1 sets out rules covering who is entitled to participate in the pension scheme as an MSP and office-holder at any given time, together with rules on how an MSP or office-holder may opt-out of or opt-in to the scheme. These rules replace the rules contained at Part C of the 1999 pensions order.
Scottish Parliamentary Pensions Act 2009 