This Chapter has effect in relation to the preservation of benefit under occupational pension schemes to which it applies.

In this Act “the preservation requirements” means the requirements specified in or under sections 71 to 82.

In this Chapter—

• “scheme” means an occupational pension scheme to which this Chapter applies;

• “relevant employment”, in relation to a scheme, means any employment to which the scheme applies;

• “long service benefit”, in relation to a scheme, means the benefits which will be payable under the scheme, in accordance with legal obligation, to or in respect of a member of the scheme on the assumption—

  1. a

     that he remains in relevant employment, and

  2. b

     that he continues to render service which qualifies him for benefits,

  until he attains normal pension age; and in this definition “benefits” means—

  1. i

     retirement benefit for the member himself at normal pension age, or

  2. ii

     benefit for the member’s F11wife, husband, civil partner, widow, widower, or surviving civil partner, or dependants, or others, on his attaining that age or his later death, or

  3. iii

     both such descriptions of benefit.

In this Act, unless the context otherwise requires, “pensionable service”, in relation to a scheme and a member of it, means, subject to subsection (3), service in relevant employment which qualifies the member (on the assumption that it continues for the appropriate period) for long service benefit under the scheme.

The benefit to which a member is entitled under subsection (1) is referred to in this Act as “short service benefit”.

Short service benefit payable on or in respect of the member’s death after normal pension age must be made payable as from his death or within such time after it as long service benefit payable on or in respect of his death would be payable.

In applying subsections (3) and (4), no regard is to be had to the operation of any scheme rule, taking effect at any time after termination of the member’s pensionable service, as to what is normal pension age under the scheme.

Subsection (3) does not apply in relation to a scheme under section 1 of the Public Service Pensions Act 2013.

A scheme must not provide for payment of short service benefit in the form of a lump sum at any time before normal pension age, except in such circumstances as may be prescribed.

For the purposes of subsection (7), no regard shall be had to whether or not the service was of the same description in the whole of the 2 years.

A period of service previously terminated is not to count towards the 2 years’ qualifying service unless it counts towards qualification for long service benefit, and need then count only to the same extent and in the same way.

Subsections (7) to (9) apply, with the substitution for references to 2 years of references to 30 days, for determining whether a person has at least 30 days' qualifying service for the purposes of subsection (1).

Subsection (1)(aa) does not apply in relation to a person's membership of a scheme if any period of relevant service began before the day on which section 36 of the Pensions Act 2014 came into force (whether or not it also ended before that date).

“Relevant service” means service that counts towards the 30 days' qualifying service for the purposes of subsection (1).

A scheme must not contain any rule which results, or can result, in a member being treated less favourably for any purpose relating to short service benefit than he is, or is entitled to be, treated for the corresponding purpose relating to long service benefit.

Subsection (1) does not apply to a rule which merely confers discretion on the scheme’s trustees or managers, or others, so long as it is not a rule requiring the discretion to be exercised in any discriminatory manner against members in respect of their short service benefit.

This section is subject to subsections (3) and (6) of section 71 (age at which short service benefit is to be payable).

The option conferred by subsection (2)(a) is additional to any obligation imposed by F34Chapter 1 of Part 4ZA.

Subject to the provisions of this section, a scheme must provide for short service benefit to be computed on the same basis as long service benefit.

For that purpose, no account is to be taken of any rule making it (directly or indirectly) a condition of entitlement to benefit that pensionable service shall have been of any minimum duration.

Subsection (1) does not apply to so much of any benefit as is of an amount or at a rate unrelated to length of pensionable service or to the number or amount of contributions paid by or for the member.

Regulations may provide that subsection (1) shall not apply to any category of schemes or members, or description of benefit.

So far as any short service benefit is not required to be computed in accordance with subsection (1), it must be computed on the basis of uniform accrual, so that at the time when pensionable service is terminated, it bears the same proportion to long service benefit as the period of that service bears to the period from the beginning of that service to the time when the member would attain normal pension age or such lower age as may be prescribed.

Where long service benefit is related to a member’s earnings at, or in a specified period before, the time when he attains normal pension age, short service benefit must be related, in a corresponding manner, to his earnings at, or in the same period before, the time when his pensionable service is terminated.

A scheme must comply with any regulations relating to the basis of computation of short service benefit, including regulations providing for the avoidance of fractional amounts and otherwise to facilitate computation.

In this section—

• “supplementary credits”, in relation to a scheme and a member’s entitlement to its benefits, means any increase of benefit or additional benefit to which the member may become entitled—

  1. a

     in consequence of any provision made by or under the scheme after he becomes a member of it (to the extent that it applies to any previous pensionable service of his); or

  2. b

     by reference to previous service of his (whether or not pensionable service); or

  3. c

     in such other circumstances as may be prescribed,

  including under paragraph (b) any transfer credits;

• “purchased credits” means supplementary credits for which, under the rules of the scheme, a member may or must make a payment in whole or in part (whether by means of additional contributions, or of deduction from benefit, or otherwise, and whether separately for each credit or by one or more payments for one or more credits);

• “bonus credits” means supplementary credits other than purchased credits or transfer credits.

Where purchased credits have not been paid for in full at or before termination of pensionable service, the short service benefit must include the appropriate proportion of the credits.

Where any such deduction is a percentage of benefit, the percentage must be the same for short service as for long service benefit.

A scheme must comply with any regulations made with respect to the manner in which supplementary credits are to be included in short service benefit, including regulations providing for the avoidance of fractional amounts and otherwise to facilitate computation.

A scheme which by its rules provides for increases of long service benefit from time to time (whether by way of upwards revaluation or otherwise) must provide for corresponding increases of short service benefit in the case of members whose pensionable service terminates at any time after the coming into force of any such rule.

Where the provision for increasing long service benefit involves the exercise of a discretion, a corresponding discretion must be conferred in relation to short service benefit.

If an increase of long service benefit is to take effect at a specified time after termination of service, the corresponding increase of short service benefit must take effect at the same time after the time when short service benefit becomes payable.

Where provision is made for increase of long service benefit otherwise than at a fixed rate, short service benefit may nevertheless be subject to increase at a fixed rate, if the rate is at least 3 per cent. a year compound.

Regulations may provide that a scheme is not to be treated as conforming with the preservation requirements unless it contains express rules to the effect (but not necessarily in the words) of any specified provision contained in sections 71 to 79.

In calculating 365 days for the purpose of subsection (1)(a)(iii), any day which is 29th February shall be disregarded.

F28Subject to subsections (2) to (3B), in the case of such benefits as are mentioned in section 83(1)(a), any pension or other retirement benefit payable under the scheme in question to the member and any pension or other benefit payable under it to any other person in respect of him, is to be revalued by the final salary method.

If any benefit such as is mentioned in paragraph (a) of section 83(1) is a money purchase benefit F40other than a collective money purchase benefit, and in the case of such benefit as is mentioned in paragraph (b) of that section, the benefit shall be revalued using the money purchase method.

If any such benefit as is mentioned in section 83(1)(a) is a collective money purchase benefit, the benefit shall be revalued using the cash balance method.

In this section—

• “average salary benefit” means benefit the rate or amount of which is calculated by reference to the average salary of a member over the period of service on which the benefit is based;

• F30“cash balance benefit” has the meaning given by regulation 2 of the Pensions Act 2011 (Transitional, Consequential and Supplementary Provisions) Regulations 2014;

• F30“final salary”, in relation to a member to or in respect of whom benefits under a pension scheme are payable, means the member’s pensionable earnings, or highest, average or representative pensionable earnings, in a specified period ending at, or defined by reference to, the time when the member’s pensionable service in relation to that scheme ends;

• “flat rate benefit” means any benefit the rate or amount of which is calculated by reference solely to the member’s length of service;

• “average salary method”, F31“cash balance method”, “final salary method”, “flat rate method” and “money purchase method” have the meanings given in Schedule 3.

• F32“pensionable earnings”, in relation to a member of a pension scheme, means earnings by reference to which benefits under the scheme are calculated.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The same money may not be treated as providing both the increase in benefit required by this Chapter and the benefit required by Chapter III.

To the extent that amounts attributable to transfer credits have accrued by reason of any transfer before 1st January 1985, they are to be disregarded for the purposes of subsections (1)(c), (2)(c) and (4)(b).

Nothing in this section shall be construed as entitling an earner who has not reached normal pension age to any portion of a pension under a scheme to which he would not otherwise be entitled.

Paragraph (a) of subsection (1) has effect subject to subsection (5) and to sections 87(5) and 91(1), and paragraph (b) of subsection (1) has effect subject to section 87(5).

Any such benefit is only to be included in the relevant sum to the extent that it does not exceed the amount which the scheme would have had to provide as short service benefit if section 71(1) had effect as mentioned in subsection (3).

If the payment of any part of the earner’s pension is postponed beyond the cessation date, the relevant sum is an amount equal to what would have been the weekly rate of his pension on the day after the cessation date if there had been no such postponement.

For the purposes of this Chapter “the later earnings addition” means the amount (if any) by which the assumed later unguaranteed element exceeds the unguaranteed element.

In calculating an earner’s guaranteed minimum for the purposes of this Chapter his earnings factor shall be taken to be that factor as increased, except as provided by subsection (3), by the last order under section 21 of the M2Social Security Pensions Act 1975 or section 148 of the M3Social Security Administration Act 1992 to come into force before the end of the tax year in which the cessation date falls.

If an earner’s cessation date falls in the tax year in which he attains pensionable age, subsection (2) shall have effect in relation to him as if for the words from “tax year” onwards there were substituted the words “ final relevant year ”.

In this section “final relevant year” has the same meaning as in section 16.

Any reference in this Chapter to the weekly rate of a pension is to be construed, in relation to a pension payable otherwise than weekly, as a reference to the weekly sum which would be payable in respect of a pension of that amount payable weekly.