Pensions Act 2007

Pensions Act 2007

2007 CHAPTER 22

Commentary on Sections

Schedule 5: Removal of Secretary of State’s role in approving actuarial guidance

346. This Schedule amends provisions which require actuarial guidance to have been approved by the Secretary of State.

347. Paragraphs 1 and 2 amend sections 36C and 36F of the Bankruptcy (Scotland) Act 1985 and paragraphs 3 and 4 amend sections 342C and 342F of the Insolvency Act 1986 respectively to remove the requirement that guidance prepared by a prescribed person to calculate the value of a pension scheme is to have been approved by the Secretary of State.

348. Paragraphs 5 and 6 amend the PSA1993. Section 12A is amended to remove the requirement for the Secretary of State’s approval in the case of prescribed guidance to determine whether a pension scheme which has applied to contract out under section 9(2B) meets the statutory standard and section 113 is amended to remove the requirement for the Secretary of State’s approval in the case of prescribed guidance on the information to be given about schemes to members.

349. Paragraphs 7 and 8 amend the PA1995. Section 67D is amended to remove the power to make regulations to require prescribed guidance on calculating the actuarial value of an affected member’s subsisting rights to have been approved by the Secretary of State. Section 119 is amended to remove the power to make regulations to require the prescribed guidance on valuing a scheme’s assets and liabilities to have been so approved.

350. Paragraph 9 amends section 230 of the PA2004 to remove the power to make regulations to require the Secretary of State’s approval in the case of prescribed actuarial guidance.

Section 18: Financial assistance scheme: increased levels of payments

351. Section 18 amends section 286 of the PA2004 which provides for a financial assistance scheme for members of certain pension schemes. The section also makes freestanding provision relating to initial payments made under that financial assistance scheme.

352. Subsection (2) inserts two subsections, (1A) and (1B), into section 286 of the PA2004. Subsection (1A) provides that regulations made under section 286(1) of that Act must ensure that the level of any final assistance payment made to a member (known as an “annual payment”) is set at no less than 80% of that member’s expected pension (as that term is defined in the regulations), taking account of any actual pension (as defined in the regulations, which is, broadly, the actual amount of pension that a member is determined to be receiving based on the assets allocated to them by their scheme). This is subject to certain restrictions set out in the regulations (described in subsection (1B)). Subsection (1A) also requires the regulations to ensure that that level of assistance will be received by all qualifying members, regardless of age.

353. Subsection (1B) sets out the restrictions that can apply to the amount of an annual payment. The specified proportion of the member’s expected pension may be subject to any cap set out in the regulations and regulations may provide that an annual payment is not payable where the member’s actual pension exceeds a specified amount. The current caps are set at £12,000.

354. Subsection (3) inserts new definitions into section 286(2), which are defined by reference to regulations made under section 286(1). Currently the relevant regulations are the Financial Assistance Scheme Regulations 2005 (S.I. 2005/1886, as amended).

355. Subsections (4) to (11) relate to initial payments (which are paid on account of annual payments while pension schemes are winding up) that have been or that will be made under the financial assistance scheme to qualifying members or to their survivors. Initial payments are provided for in regulations made under section 286(1) of the PA2004. These new provisions override those regulations to the extent that they are inconsistent (subsection (8)). Subsection (5) sets initial payments at a level of 80% of the expected pension for a qualifying member less any interim pension the member is receiving from their scheme. Subsection (5) also provides, however, that initial payments are subject to certain restrictions which are set out in the regulations made under section 286(1) (and which are modified by subsection (7)). The cumulative effect is that a cap (currently £12,000) is applied to the product of the calculation of 80% of the member’s expected pension and an initial payment is not payable where a member’s interim pension exceeds a specified amount (also currently £12,000).

356. Subsection (6) sets initial payments for eligible survivors of qualifying members at half of the qualifying member’s expected pension proportion less any interim pension payable to the survivor. If 80% of the member’s expected pension was or would have been subject to a cap then subsection (6) provides for the survivor to receive half the capped amount instead.

357. Subsection (9) provides that the level of initial payments set by this section can be amended by regulations (which under subsection (10) will be subject to the affirmative procedure).

Section 19: Temporary restriction on purchase of annuities

358. Section 19 requires the Secretary of State to make regulations to temporarily prevent the purchase of annuities by trustees of relevant pension schemes except where they have entered into a binding commitment or where the FAS scheme manager considers such purchase to be appropriate.

359. Subsection (1) requires the Secretary of State to make regulations to prevent trustees of relevant pensions schemes from purchasing, or agreeing to purchase, annuities on behalf of qualifying members during the period of 9 months beginning with the date on which the regulations come into force. Paragraph (a) provides for an exception to be made if before the date on which the regulations come into force the trustees have entered into a binding commitment to purchase annuities and paragraph (b) provides for an exception to be made if the purchase of annuities is approved under the terms of subsection (2) .

360. Subsection (2) requires regulations under subsection (1) to make provision for enabling trustees of relevant pension schemes to apply to the scheme manager for approval of the purchase of annuities (paragraph (a)) and for authorising the scheme manager to approve such purchases where he thinks it is appropriate to do so (paragraph (b)).

361. Subsection (3) defines a “relevant pension scheme” as any scheme that is a qualifying pension scheme and which is not fully wound up at any time during the 9 months commencing from the date on which the regulations made under subsection (1) come into force.

362. Subsection (4) states that regulations under section 19 must be made as soon as is reasonably practicable after the passing of the Act (paragraph (a)) and that such regulations may make any consequential, incidental, supplemental or transitional provision s that the Secretary of State considers appropriate (paragraph (b)) .

363. Subsection (5) provides that regulations under section 19 will be subject to the negative resolution procedure.

364. Subsection (6) provides that "occupational pension scheme", "qualifying member", "qualifying pension scheme" and "scheme manager" have the same meanings as in section 286 of the Pensions Act 2004 (c.35).

Part 3: Personal Accounts Delivery Authority

Section 20: Personal Accounts Delivery Authority

365. Section 20 establishes as from the passing of the Act a body corporate called the ‘Personal Accounts Delivery Authority’ (the “Authority”) which is to have a remit covering the whole of Great Britain and Northern Ireland. The Authority is not a servant or agent of the Crown, and as such does not enjoy the associated status, immunity or privileges. The section also introduces Schedule 6, which contains provisions about the membership of the Authority and other matters.

Section 21: Initial function of the Authority

366. The Authority may do what it thinks appropriate to prepare for the implementation of, or for advising on the modification of, any relevant proposals about personal accounts.

367. In this section the phrase ‘advising on the modification of any relevant proposals about personal accounts’ relates to the Authority’s advisory role in helping the Government understand the commercial and operational implications on implementation of policy proposals. This could amount to suggesting additions, omissions or variations in the proposals to reflect, for example, industry best practice.

368. Subsection (2) defines the meaning of ‘relevant proposals’ as being any proposals made by the Secretary of State connected with the establishment of a national low-cost portable pensions savings scheme, and any additional proposals that relate to this subject matter, or relate to matters that are incidental or supplemental to the proposals or to consequential or transitional matters. Proposals are to be considered relevant whether or not Parliament has given the approval on which their implementation would depend. The Government will make proposals relating to personal accounts and the Authority needs to be able to prepare for these before Parliament has given its approval. However, by virtue of subsection (4) the Authority will not be able to implement any proposals requiring the approval of Parliament in advance of Parliament giving its approval.

369. Subsection (3) provides the Authority with incidental powers in connection with the discharge of its main function.

370. Subsection (4) provides that the Authority may not implement any of the proposals requiring Parliament’s approval unless such approval has been received. Before any such approval is given the Authority can only formulate proposals and take preparatory steps towards their implementation when approved and carry out any connected activities.

371. Subsection (5) provides that the Authority may not borrow money for the purpose of, or in connection with, performing its functions from anyone.

372. Subsection (6) provides that the Secretary of State may issue guidance to the Authority from time to time about the discharge of the Authority’s functions as outlined in the section.

373. Subsection (7) obliges the Authority to have regard to any guidance that may be issued by the Secretary of State under subsection (6) in discharging its functions as outlined in the section.

Section 22: Management of the Authority

374. Section 22 places the Authority under a duty, when managing its affairs, to have regard to such guidance concerning the management of public bodies as it considers appropriate and, subject to such guidance and insofar as they are applicable to the Authority, to generally accepted principles of good corporate governance.

375. Guidance on the management of public bodies includes that provided by the Cabinet Office, for example the Guidance on Codes of Practice for Board Members of Public Bodies (October 2004). Principles of good corporate governance include those currently set out in the Combined Code published by the Financial Reporting Council in June 2006.

Section 23: Winding up of the Authority on abandonment etc. of proposals

376. Subsection (1) provides that the Secretary of State may by order provide for the winding up and dissolution of the Authority if he considers that the condition in subsection (3) is met, namely, that as a result of the abandonment or modification of relevant proposals on the personal accounts scheme it is no longer necessary for the Authority to exist.

377. Subsection (2) provides that if the Secretary of State considers that the condition in subsection (3) is met at any time after 2008 he must, as soon as is reasonably practicable, make an order providing for the dissolution of the Authority.

378. Subsection (4) clarifies that the Secretary of State is not obliged to reintroduce an order for the Authority’s dissolution by virtue of subsection (2) if such an order has been previously defeated in either House of Parliament.

379. Subsection (5) makes provision allowing the order to include, among other things, details on the transferring of the Authority’s property, rights and liabilities to the Secretary of State on dissolution of the Authority.

380. Subsection (6) provides that the order can include consequential, incidental, or supplemental provisions, and transitional, transitory or saving arrangements that are considered appropriate by the Secretary of State as a result of the winding up and dissolution of the Authority.

381. Subsection (7) enables the Secretary of State to use the order to remove what will be redundant provisions from the Act in the event of the dissolution of the Authority.

382. Subsection (8) provides that the power to make an order for the Authority’s dissolution is subject to the affirmative resolution procedure in both Houses of Parliament.