C1Part III Certification of Pension Schemes and Effects on Members’ State Scheme Rights and Duties
Chapter II Reduction in state scheme contributions and Social Security benefits for members of certified schemes
Preliminary
I140 Scope of Chapter II.
This Chapter has effect for the purpose—
a
of reducing the rates at which certain national insurance contributions are payable by or in respect of earners whose employment is contracted-out by reference to contracted-out occupational pension schemes;
b
of providing for contributions to be paid by the Secretary of State in respect of earners who are members of F14money purchase contracted-out schemes and members of appropriate personal pension schemes; and
c
of making provision concerning the payment of certain social security benefits payable in respect of members and former members of such schemes.
F15Reduced rates of state scheme Class 1 contributionsF15Reduced rates of contributions for members of salary related contracted-out schemes
S. 41(1)(1A) substituted for s. 41(1) (13.3.1996 for specified purposes, 6.4.1996 for specified purposes) by Pensions Act 1995 (c. 26), ss. 137(2), 180(1); S.I. 1996/778, art. 2(1)(5)(a), Sch. Pts. 1, 5
I141F15 Reduced rates of Class 1 contributions for earners in contracted-out employment.F15Reduced rates of Class 1 contributions
1
F15Where the earnings paid to or for the benefit of an earner in any tax week are in respect of an employment which is contracted-out employment at the time of the payment, the amount of a Class 1 contribution in respect of so much of the earnings paid in that week as exceeds the current lower earnings limit but not the current upper earnings limit for that week (or the prescribed equivalents if he is paid otherwise than weekly) shall be reduced—
a
in the case of a primary Class 1 contribution, by an amount equal to 1.8 per cent. of that part of those earnings; and
b
in the case of a secondary Class 1 contribution, by an amount equal to 3 per cent. of that part of those earnings.
F15Where—
a
the earnings paid to or for the benefit of an earner in any tax week are in respect of an employment which is contracted-out employment at the time of the payment, and
b
the earner’s service in the employment is service which qualifies him for a pension provided by a salary related contracted-out scheme,
the amount of a Class 1 contribution in respect of so much of the earnings paid in that week as exceeds the current lower earnings limit but not the current upper earnings limit for that week (or the prescribed equivalents if he is paid otherwise than weekly) shall be reduced by the following amount.
1A
The amount is—
a
in the case of a primary Class 1 contribution, an amount equal to 1.8 per cent. of that part of those earnings, and
b
in the case of a secondary Class 1 contribution, an amount equal to 3 per cent. of that part of those earnings
2
Where—
a
an earner has ceased to be employed in an employment; and
b
earnings are paid to him or for his benefit within the period of 6 weeks, or such other period as may be prescribed, from the day on which he so ceased,
that employment shall be treated for the purposes of subsection (1) as contracted-out employment at the time when the earnings are paid if it was contracted-out employment in relation to the earner when he was last employed in it.
3
This section shall not affect the amount of any primary Class 1 contribution which is payable at a reduced rate by virtue of regulations under section 19(4) of the M1Social Security Contributions and Benefits Act 1992 (reduced rates for married women and widows).
I142 Review and alteration of rates of contributions applicable under s. 41.
1
The Secretary of State may from time to time, and shall when required by subsection (2), lay before each House of Parliament—
C2a
F16a report by the Government Actuary or the Deputy Government Actuary on the percentages for the time being applying under section 41(1)(a) and (b) and any changes in the factors affecting the cost to occupational pension schemes of providing guaranteed minimum pensions since the preparation of the last report under this paragraph; and
F16a report by the Government Actuary or the Deputy Government Actuary on—
i
the percentages for the time being applying under section 41(1A)(a) and (b), and
ii
any changes since the preparation of the last report under this paragraph in the factors in his opinion affecting the cost of providing benefits of an actuarial value equivalent to that of the benefits which, under section 48A, are foregone by or in respect of members of salary related contracted-out schemes
b
a report by the Secretary of State stating whether he considers that, in view of the report of the Government Actuary or the Deputy Government Actuary, there should be an alteration in either or both of those percentages and, if so, what alteration is in his opinion required.
2
The Secretary of State shall lay such reports at intervals of not more than five years.
3
If in a report under subsection (1)(b) the Secretary of State states that he considers that there should be an alteration in either or both of the percentages mentioned in section 41(1)(a) and (b), he shall prepare and lay before each House of Parliament with the report the draft of an order making that alteration; and if the draft is approved by resolution of each House the Secretary of State shall make the order in the form of the draft.
4
An order under subsection (3) shall have effect from the beginning of such tax year as may be specified in the order, but not a tax year earlier than the second after that in which the order is made.
5
No alteration of those percentages shall introduce any distinction on grounds of age or sex.
6
A draft of an order making alterations in either or both of those percentages may contain consequential provisions altering any percentage for the time being specified in paragraph 2(3) of Schedule 4 as that percentage applies in relation to earnings paid or payable on or after the day as from which the order is to have effect.
F17Reduced rates of contributions, and rebates, for members of money purchase contracted-out schemes
Ss. 42A, 42B and cross-heading inserted (13.3.1996 for specified purposes, 6.4.1996 for specified purposes, 6.4.1997 in so far as not already in force) by Pensions Act 1995 (c. 26), ss. 137(5), 180(1); S.I. 1996/778, art. 2(1)(5)(a), Sch. Pts. I, V; S.I. 1997/664, art. 2(3), Sch. Pt. II
42AReduced rates of Class 1 contributions, and rebates
1
Subsections (2) and (3) apply where—
a
the earnings paid to or for the benefit of an earner in any tax week are in respect of an employment which is contracted-out employment at the time of the payment, and
b
the earner’s service in the employment is service which qualifies him for a pension provided by a money purchase contracted-out scheme.
2
The amount of a Class 1 contribution in respect of so much of the earnings paid in that week in respect of that employment as exceeds the current lower earnings limit but not the current upper earnings limit for that week (or the prescribed equivalents if he is paid otherwise than weekly) shall be reduced by an amount equal to the appropriate flat-rate percentage of that part of those earnings.
3
The Secretary of State shall except in prescribed circumstances or in respect of prescribed periods pay in respect of that earner and that tax week to the trustees or managers of the scheme or, in prescribed circumstances, to a prescribed person the amount by which—
a
the appropriate age-related percentage of that part of those earnings,
exceeds
b
the appropriate flat-rate percentage of that part of those earnings.
4
Regulations may make provision—
a
as to the manner in which and time at which or period within which payments under subsection (3) are to be made,
b
for the adjustment of the amount which would otherwise be payable under that subsection so as to avoid the payment of trivial or fractional amounts,
c
for earnings to be calculated or estimated in such manner and on such basis as may be prescribed for the purpose of determining whether any, and if so what, payments under subsection (3) are to be made.
5
If the Secretary of State pays an amount under subsection (3) which he is not required to pay or is not required to pay to the person to whom, or in respect of whom, he pays it, he may recover it from any person to whom, or in respect of whom, he paid it.
6
Where—
a
an earner has ceased to be employed in an employment, and
b
earnings are paid to him or for his benefit within the period of six weeks, or such other period as may be prescribed, from the day on which he so ceased,
that employment shall be treated for the purposes of this section as contracted-out employment at the time when the earnings are paid if it was contracted-out employment in relation to the earner when he was last employed in it.
7
Subsection (3) of section 41 applies for the purposes of this section as it applies for the purposes of that.
42BDetermination and alteration of rates of contributions, and rebates, applicable under section 42A
1
The Secretary of State shall at intervals of not more than five years lay before each House of Parliament—
a
a report by the Government Actuary or the Deputy Government Actuary on the percentages which, in his opinion, are required to be specified in an order under this section so as to reflect the cost of providing benefits of an actuarial value equivalent to that of the benefits which, under section 48A, are foregone by or in respect of members of money purchase contracted-out schemes,
b
a report by the Secretary of State stating what, in view of the report under paragraph (a), he considers those percentages should be, and
c
a draft of an order under subsection (2).
2
An order under this subsection shall have effect in relation to a period of tax years (not exceeding five) and may—
a
specify different percentages for primary and secondary Class 1 contributions, and
b
for each of the tax years for which it has effect—
i
specify a percentage in respect of all earners which is “the appropriate flat-rate percentage” for the purposes of section 42A, and
ii
specify different percentages (not being less than the percentage specified by virtue of sub-paragraph (i)) in respect of earners by reference to their ages on the last day of the preceding year (the percentage for each group of earners being “the appropriate age-related percentage” in respect of earners in that group for the purposes of section 42A).
3
If the draft of an order under subsection (2) is approved by resolution of each House of Parliament, the Secretary of State shall make the order in the form of the draft.
4
An order under subsection (2) shall have effect from the beginning of such tax year as may be specified in the order, not being a tax year earlier than the second after that in which the order is made.
5
Subsection (2) is without prejudice to the generality of section 182
Minimum contributions: members of appropriate personal pension schemes
I143 Payment of minimum contributions to personal pension schemes.
1
Subject to the following provisions of this Part, the Secretary of State shall, except in such circumstances as may be prescribed, pay minimum contributions in respect of an employed earner for any period during which the earner—
a
is over the age of 16 but has not attained pensionable age;
b
is not a married woman or widow who has made an election which is still operative that her liability in respect of primary Class 1 contributions shall be a liability to contribute at a reduced rate; and
c
is a member of an appropriate personal pension scheme which is for the time being the earner’s chosen scheme.
2
Subject to subsection (3), minimum contributions in respect of an earner shall be paid to the trustees or managers of the earner’s chosen scheme.
3
In such circumstances as may be prescribed minimum contributions shall be paid to a prescribed person.
4
Where the condition mentioned in subsection (1)(a) or (c) ceases to be satisfied in the case of an earner in respect of whom the Secretary of State is required to pay minimum contributions, the duty of the Secretary of State to pay them shall cease as from a date determined in accordance with regulations.
5
If the Secretary of State pays an amount by way of minimum contributions which he is not required to pay, he may recover it—
a
from the person to whom he paid it, or
b
from any person in respect of whom he paid it.
6
If the Secretary of State pays in respect of an earner an amount by way of minimum contributions which he is required to pay, but does not pay it to the trustees or managers of the earner’s chosen scheme, he may recover it from the person to whom he paid it or from the earner.
I144 Earner’s chosen scheme.
1
Where an earner and the trustees or managers of an appropriate personal pension scheme have jointly given notice to the Secretary of State, in such manner and form and with such supporting evidence as may be prescribed—
a
that the earner is, or intends to become, a member of the scheme and wishes minimum contributions in respect of him to be paid to the scheme under section 43;
b
that the trustees or managers have agreed to accept him as a member of the scheme and to receive such minimum contributions in respect of him,
that scheme is the earner’s chosen scheme for the purposes of section 43 as from a date determined in accordance with regulations and specified in the notice, unless at that date some other appropriate scheme is the earner’s chosen scheme for those purposes.
2
Either an earner or the trustees or managers of the scheme may cancel a notice under subsection (1) by giving notice to that effect to the Secretary of State at such time and in such manner and form as may be prescribed.
3
When a notice under subsection (2) is given, the scheme ceases to be the earner’s chosen scheme as from a date determined in accordance with regulations and specified in the notice.
I145 Amount of minimum contributions.
1
Subject to subsection (2), in relation to any tax week falling within a period for which the Secretary of State is required to pay minimum contributions in respect of an earner, the amount of those contributions shall be an amount equal to the aggregate amount of the reductions in Class 1 contributions which would fall to be made under section 41(1) if any employment of his which is not contracted-out were contracted-out employment.
2
Where—
a
subsection (1) applies;
b
the tax year in which the tax week falls ends before such date as may be prescribed; and
c
the earner was over the age of 30 on the 6th April with which the tax year began,
there shall be added to the amount payable under that subsection an amount equal to 1 per cent. of so much of those earnings as respects which those reductions would fall to be made.
3
Regulations may make provision—
a
for earnings to be calculated or estimated in such manner and on such basis as may be prescribed for the purpose of determining whether any, and if so what, minimum contributions are payable in respect of them;
b
for the adjustment of the amount which would otherwise be payable by way of minimum contributions so as to avoid the payment of trivial or fractional amounts;
c
for the intervals at which, for the purposes of minimum contributions, payments of earnings are to be treated as made;
d
for the manner in which an earner’s age is to be verified for the purposes of subsection (2);
e
for this section to have effect in prescribed cases as if for any reference to a tax week there were substituted a reference to a prescribed period, and for the references to a tax week in section 41(1) to have effect accordingly so far as they apply for the purposes of this section;
f
as to the manner in which and time at which or period within which minimum contributions are to be made.
45AF11Determination and alteration of rates of minimum contributions under section 45
1
The Secretary of State shall at intervals of not more than five years lay before each House of Parliament—
a
a report by the Government Actuary or the Deputy Government Actuary on the percentages which, in his opinion, are required to be specified in an order under this section so as to reflect the cost of providing benefits of an actuarial value equivalent to that of the benefits which, under section 48A, are foregone by or in respect of members of appropriate personal pension schemes,
b
a report by the Secretary of State stating what, in view of the report under paragraph (a), he considers those percentages should be, and
c
a draft of an order under subsection (2).
2
An order under this subsection—
a
shall have effect in relation to a period of tax years (not exceeding five), and
b
may, for each of the tax years for which it has effect, specify different percentages in respect of earners by reference to their ages on the last day of the preceding year (the percentage for each group of earners being “the appropriate age-related percentage” in respect of earners in that group for the purposes of section 45).
3
If the draft of an order under subsection (2) is approved by resolution of each House of Parliament, the Secretary of State shall make the order in the form of the draft.
4
An order under subsection (2) shall have effect from the beginning of such tax year as may be specified in the order, not being a tax year earlier than the second after that in which the order is made.
5
Subsection (2) is without prejudice to the generality of section 182
45BF18Money purchase and personal pension schemes: verification of ages
1
Regulations may make provision for the manner in which an earner’s age is to be verified in determining the appropriate age-related percentages for the purposes of sections 42A and 45(1).
2
Information held by the Secretary of State as to the age of any individual may, whether or not it was obtained in pursuance of regulations under subsection (1), be disclosed by the Secretary of State—
a
to the trustees or managers of a money purchase contracted-out scheme or an appropriate personal pension scheme, and
b
to such other persons as may be prescribed,
in connection with the making of payments under section 42A(3) or the payment of minimum contributions.
Effect of entitlement to guaranteed minimum pensions on payment of social security benefits
I146 Effect of entitlement to guaranteed minimum pensions on payment of social security benefits.
1
Where for any period a person is entitled both—
a
b
to one or more guaranteed minimum pensions,
the weekly rate of the benefit mentioned in paragraph (a) shall for that period be reduced by an amount equal—
i
to its additional pension, or
ii
to the weekly rate of the pension mentioned in paragraph (b) (or, if there is more than one such pension, their aggregate weekly rates),
whichever is the less.
F22
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F33
Where for any period—
a
a person is entitled to one or more guaranteed minimum pensions; and
b
he is also entitled to long-term incapacity benefit under section 30A of the Social Security Contributions and Benefits Act 1992,
for that period an amount equal to the weekly rate or aggregate weekly rates of the guaranteed minimum pension or pensions shall be deducted from any increase payable under regulations under section 30B(7) of that Act and he shall be entitled to such an increase only if there is a balance after the deduction and, if there is such a balance, at a weekly rate equal to it.
4
Where for any period—
a
a person is entitled to one or more guaranteed minimum pensions;
b
he is also entitled to a Category A retirement pension under section 44 of the M2 Social Security Contributions and Benefits Act 1992; and
c
the weekly rate of his pension includes an additional pension such as is mentioned in section 44(3)(b) of that Act,
for that period section 47 of that Act shall have effect as if the following subsection were substituted for subsection (3)—
3
In subsection (2) above “the relevant amount” means an amount equal to the aggregate of—
a
the additional pension; and
b
the weekly rate or aggregate weekly rates of the guaranteed minimum pension or pensions,
reduced by the amount of any reduction in the weekly rate of the Category A retirement pension made by virtue of section 46(1) of the Pension Schemes Act 1993.
5
Where for any period—
a
a person is entitled to one or more guaranteed minimum pensions;
b
he is also entitled to a Category A retirement pension under section 44 of the M2Social Security Contributions and Benefits Act 1992; and
c
the weekly rate of his Category A retirement pension does not include an additional pension such as is mentioned in subsection (3)(b) of that section,
for that period the relevant amount shall be deducted from the amount that would otherwise be the increase under section 47(1) of that Act and the pensioner shall be entitled to an increase under that section only if there is a balance remaining after that deduction and, if there is such a balance, of an amount equal to it.
6
Where for any period—
a
a person is entitled to one or more guaranteed minimum pensions;
b
he is also entitled—
F4i
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ii
to a Category A retirement pension under section 44 of that Act; or
iii
to a Category B retirement pension under F10section 48A or 48B of that Act; and
c
the weekly rate of the pension includes an additional pension such as is mentioned in section 44(3)(b) of that Act,
for that period paragraph 3 of Schedule 7 to that Act shall have effect as if the following sub-paragraph were substituted for sub-paragraph (3)—
3
In this paragraph “the relevant amount” means an amount equal to the aggregate of—
a
the additional pension; and
b
the weekly rate or aggregate weekly rates of the guaranteed minimum pension or pensions,
reduced by the amount of any reduction in the weekly rate of the pension made by virtue of section 46(1) of the Pension Schemes Act 1993.
7
Where for any period—
a
a person is entitled to one or more guaranteed minimum pensions;
b
he is also entitled to any of the pensions under the M2 Social Security Contributions and Benefits Act 1992 mentioned in subsection (6)(b); and
c
the weekly rate of the pension does not include an additional pension such as is mentioned in section 44(3)(b) of that Act,
for that period the relevant amount shall be deducted from the amount that would otherwise be the increase under paragraph 3 of Schedule 7 to that Act and the beneficiary shall be entitled to an increase only if there is a balance after that deduction and, if there is such a balance, only to an amount equal to it.
8
In this section “the relevant amount” means an amount equal to the weekly rate or aggregate weekly rates of the guaranteed minimum pension or pensions—
F5a
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
b
in the case of subsection (5), reduced by the amount of any reduction in the weekly rate of the Category A retirement pension made by virtue of subsection (1);
and references in this section to the weekly rate of a guaranteed minimum pension are references to that rate without any increase under section 15(1).
F69
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I147 Further provisions concerning entitlement to guaranteed minimum pensions for the purposes of s. 46.
1
The reference in section 46(1) to a person entitled to a guaranteed minimum pension shall be construed as including a reference to a person so entitled by virtue of being the widower of an earner F7...only if—
a
at the time of the earner’s death she and her husband had both attained pensionable age; or
b
he is also entitled to a Category A retirement pension by virtue of section 41(7) of the M3Social Security Contributions and Benefits Act 1992.
2
For the purposes of section 46 a person shall be treated as entitled to any guaranteed minimum pension to which he would have been entitled—
a
if its commencement had not been postponed, as mentioned in section 13(4); or
b
if there had not been made a transfer payment or transfer under regulations made by virtue of section 20 as a result of which—
i
he is no longer entitled to guaranteed minimum pensions under the scheme by which the transfer payment or transfer was made, and
ii
he has not become entitled to guaranteed minimum pensions under the scheme to which the transfer payment or transfer was made.
3
Where—
a
guaranteed minimum pensions provided for a member or the member’s widow or widower under a contracted-out scheme have been wholly or partly secured as mentioned in subsection (3) of section 19; and
b
either—
i
the transaction wholly or partly securing them was carried out before 1st January 1986 and discharged the trustees or managers of the scheme as mentioned in subsection (1) of that section; or
ii
it was carried out on or after that date without any of the requirements specified in subsection (5)(a) to (c) of that section being satisfied in relation to it and the scheme has been wound up; and
c
any company with which any relevant policy of insurance or annuity contract was taken out or entered into is unable to meet the liabilities under policies issued or securities given by it; and
d
the combined proceeds of—
i
any relevant policies and annuity contracts, and
ii
any cash sums paid or alternative arrangements made under the M4Policyholders Protection Act 1975,
are inadequate to provide the whole of the amount secured,
the member and the member’s widow or widower shall be treated for the purposes of section 46 as only entitled to such part (if any) of the member’s or, as the case may be, the member’s widow’s or widower’s guaranteed minimum pension as is provided by the proceeds mentioned in paragraph (d).
4
A policy or annuity is relevant for the purposes of subsection (3) if taking it out or entering into it constituted the transaction to which section 19 applies.
5
For the purposes of section 46 a person shall be treated as entitled to any guaranteed minimum pension to which he would have been entitled—
a
if a lump sum had not been paid instead of that pension under provisions included in a scheme by virtue of section 21(1); or
b
if that pension had not been forfeited under provisions included in a scheme by virtue of section 21(2).
I148 Reduced benefits where minimum payments or minimum contributions paid.
1
Subject to subsection (3), this subsection applies where for any period—
a
minimum payments have been made in respect of an earner to an occupational pension scheme which is a money purchase contracted-out scheme in relation to the earner’s employment, or
b
minimum contributions have been paid in respect of an earner under section 43.
2
Where subsection (1) applies then, for the purposes of section 46—
a
the earner shall be treated, as from the date on which he reaches pensionable age, as entitled to a guaranteed minimum pension at a prescribed weekly rate arising from that period in that employment;
F12b
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
c
in prescribed circumstances F13... age any widow or widower of the earner shall be treated as entitled to a guaranteed minimum pension at a prescribed weekly rate arising from that period;
M5and where subsection (1)(b) applies paragraphs (a) to (c) of this subsection apply also for the purposes of F8section 47(2) of the Social Security Contributions and Benefits Act 1992 and paragraph 3(2) of Schedule 7 to that Act, but with the omission from paragraph (a) of the words “in that employment”.
3
Where the earner is a married woman or widow, subsection (1) shall not have effect by virtue of paragraph (a) of that subsection in relation to any period during which there is operative an election that her liability in respect of primary Class 1 contributions shall be a liability to contribute at a reduced rate.
4
The power to prescribe a rate conferred by subsection (2)(a) includes power to prescribe a nil rate.
F19Effect of reduced contributions and rebates on social security benefits
S. 48A inserted (6.4.1996 for specified purposes) by Pensions Act 1995 (c. 26), ss. 140(1), 180(1); S.I. 1996/778, art. 2(5)(a), Sch. Pt. 5
48AAdditional pension and other benefits
1
In relation to any tax week where—
a
the amount of a Class 1 contribution in respect of the earnings paid to or for the benefit of an earner in that week is reduced under section 41 or 42A, or
b
an amount is paid under section 45(1) in respect of the earnings paid to or for the benefit of an earner,
section 44(6) of the Social Security Contributions and Benefits Act 1992 (earnings factors for additional pension) shall have effect, except in prescribed circumstances, as if no primary Class 1 contributions had been paid or treated as paid upon those earnings for that week and section 45A of that Act did not apply (where it would, apart from this subsection, apply).
2
Where the whole or part of a contributions equivalent premium has been paid or treated as paid in respect of the earner, the Secretary of State may make a determination reducing or eliminating the application of subsection (1).
3
Subsection (1) is subject to regulations under paragraph 5(3A) to (3E) of Schedule 2.
4
Regulations may, so far as is required for the purpose of providing entitlement to additional pension (such as is mentioned in section 44(3)(b) of the Social Security Contributions and Benefits Act 1992) but to the extent only that the amount of additional pension is attributable to provision made by regulations under section 45(5) of that Act, disapply subsection (1).
5
In relation to earners where, by virtue of subsection (1), section 44(6) of the Social Security Contributions and Benefits Act 1992 has effect, in any tax year, as mentioned in that subsection in relation to some but not all of their earnings, regulations may modify the application of section 44(5) of that Act.
F9Women, married women and widows
S. 49 and cross heading substituted (19.7.1995) by Pensions Act 1995 (c. 26), s. 180(2)(a), Sch. 4 para. 16
I149F9Women, married women and widows.
The Secretary of State may make regulations modifying, in such manner as he thinks proper—
a
this Chapter in its application to women born on or after 6th April 1950, and
b
sections 41, 42, 46(1), 47(2) and (5) and 48, in their application to women who are or have been married
Pt. III power to modify conferred by Social Security Administration Act 1992 (c. 5), s. 148 (as read with Pensions Act 1995 (c. 26), ss. 128(3)(4), 180(2) (with s. 128(5)(6)); Child Support, Pensions and Social Security Act 2000 (c. 19), ss. 33(2)-(4), 86(1)(b)(2))