Annual increases in rate of pensions
Section 278: Annual increase in rate of certain occupational pensions
1122.Section 51 of the Pensions Act 1995 requires that certain private sector occupational pensions on or after 6th April 1997 must be increased annually by at least the appropriate percentage. This is the lesser of the revaluation percentage and 5%. This requirement is modified by section 278 so that pensions derived from salary related benefits built up on or after the “commencement day” are to be increased by at least the annual percentage increase in the Retail Prices Index (the general level of prices in Great Britain) or 2.5%, whichever is the lesser. In addition, the requirement for an annual increase will not apply to pensions deriving from money purchase benefits which come into payment on or after the “commencement day”. The “commencement day” is the day appointed for the coming into force of section 278.
1123.Subsection (2) amends section 51(1) in order to clarify the basis on which the section applies.
1124.Subsection (3) ensures that pensions derived from money purchase benefits that are already in payment before the commencement day, continue to be required to be indexed.
1125.Subsection (4) amends section 51(4)(b) by specifying that the maximum “relevant percentage” for Category X and Category Y pensions is 5% and 2.5% respectively. The relevant percentage is the minimum amount by which a pension must be indexed – that is the Retail Price Index or 5%/ 2.5%, whichever is the lesser,
1126.Subsection (5) inserts new subsections (4A), (4B) and (4C). New section 51(4A) defines a Category X pension as being one which is in payment before the commencement day or is a pension which will derive wholly from pensionable service before the commencement day. New section 51(4B) defines a Category Y pension as being one which will derive wholly from pensionable service on or after the commencement day. New section 51(4C) provides for different indexation requirements to apply where the pension becomes a pension in payment on or after the commencement day and will derive from pensionable service before and after the commencement day.
1127.Subsection (6) amends section 51(5) so that any regulations made under this subsection may provide that any of the provisions of section 51 apply to a pension as if so much of it as would not otherwise be attributable to pensionable service or to payments in respect of employment were attributable to such service or payments before or on or after the commencement day.
1128.Subsection (7) inserts new section 51ZA into the Pensions Act 1995 and provides a new definition for the “appropriate percentage” (the minimum amount by which a scheme must increase its pensions in payment). This replaces the definition in section 54(3) of that Act.
Section 279: Annual increase in rate of certain personal pensions
1129.Section 162 of the Pensions Act 1995 requires that personal pensions deriving from protected rights (rights that derive mainly from a National Insurance contribution rebate and its investment return) built up on or after 6th April 1997 must be increased by at least the appropriate percentage. This is the lesser of the percentage which appears to the Secretary of State to be the percentage increase in the Retail Price Index and 5%. This requirement is modified by section 279 so that the annual increase does not apply to pensions deriving from protected rights which come into payment on or after the “commencement day”.
1130.Subsection (2) amends section 162(1) in order to clarify the basis on which the section applies. It has the effect of removing the requirement to increase pensions that come into payment on or after the “commencement day”.
1131.Subsection (3) amends section 163(3) of the Pensions Act 1995 by:
amending the definition of “appropriate percentage” to bring it into line (in part) with the definition as used in section 51 of that Act; and
defining “commencement day” as being the day appointed for the coming into force of section 279.
Section 280: Power to increase pensions giving effect to pension credits etc
1132.Section 40 of the Welfare Reform and Pensions Act 1999 is concerned with pensions in payment derived from a pension credit where there has been a pension sharing order. It contains a power that enables the Secretary of State to make provision for pensions provided to give effect to eligible pension credit rights or safeguarded rights to be increased by the Retail Price Index not exceeding 5%. These requirements are modified in line with the changes being made under sections 278 and 279.
1133.Subsection (2) amends section 40(1) of the Welfare Reform and Pensions Act 1999 by replacing the reference to “5%” with “the maximum percentage”.
1134.Subsection (4) inserts new subsection (2A) into section 40 of the Welfare Reform and Pensions Act 1999 to ensure that subsection (2) of section 40 does not apply to pensions derived from money purchase benefits coming into payment on or after the “commencement day”.
1135.Subsection (4) also inserts new subsection (2B) into section 40 of the Welfare Reform and Pensions Act 1999 and this defines “the maximum percentage” as being:
5% for pensions in payment before the commencement day or where entitlement arose before that day;
2.5% where entitlement arose on or after the commencement day.
1136.Subsection (5) amends section 40(3) of the Welfare Reform and Pensions Act 1999 by defining the “commencement day” as being the day appointed for the coming into force of section 280. The terms “money purchase benefit” and “relevant pension credit” are also defined.
