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Occupational Pension Schemes (Contracting-out) Regulations 1996

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PART IIIE+W+S SALARY-RELATED CONTRACTED-OUT SCHEMES

Further contracting-out conditions for salary-related contracted-out schemesE+W+S

17.   A scheme may be contracted-out in relation to the employment of an earner under section 9(2) of the 1993 Act (requirements for certification of a salary-related contracted-out scheme) only if, in relation to an earner’s service on or after the principal appointed day, in addition to satisfying the conditions required by section 9(2B)(a) and (b) of that Act M1 , it also satisfies the requirements of regulations 18 to 22.

Marginal Citations

M1Section 9(2B) was inserted by section 136(3) of the Pensions Act 1995.

Requirement as to resources of the scheme.E+W+S

18.—(1) Subject to paragraph (2) and regulations 72 and 73 (transitional arrangements concerning requirements as to resources), for the purposes of section 9(2B)(c)(i) of the 1993 Act (requirements as to amount of the resources of the scheme), [F1either the resources of the scheme must be sufficient to enable the scheme to meet the statutory funding objective provided for in section 222(1) of the 2004 Act, or the actuary to the scheme must have certified under section 227(6)(b)(i) of that Act that in his opinion the rates shown in the schedule of contributions are such that the statutory funding objective can be expected to be met by the end of the period specified in the recovery plan.]

(2) Paragraph (1) does not apply to a public service pension scheme to which [F2Part 3 of the 2004 Act] does not apply [F3or to any scheme in respect of which any Minister of the Crown has given a guarantee, or made any other arrangements, for the purpose of securing that the assets of the scheme are sufficient to meet its liabilities].

[F4(3) In a case where the trustees of a scheme are authorised under section 288 of the 2004 Act to accept contributions from European employers or approved under section 289 of that Act to accept contributions from a particular European employer, paragraph (1) has effect with the substitution for the words “by the end of the period specified in the recovery plan” of “within two years after the date of the last actuarial valuation under section 224 of the 2004 Act”.]

[F5 Lump sum benefits and salary-related contracted-out schemes.E+W+S

19.  A salary related contracted-out scheme may not provide for the payment of a lump sum instead of a [F6pension except in accordance with—

(a)regulation 20 (payment of lump sum instead of a pension payable under a relevant scheme); or

(b)regulation 60 (payment of a guaranteed minimum pension as a lump sum).]]

[F7Payment of a lump sum instead of a pension payable under a relevant schemeE+W+S

20.(1)  For the purposes of section 12C(1)(c) of the 1993 Act (regulations may prohibit or restrict the payment of a lump sum instead of a pension under a relevant scheme except in prescribed circumstances or on prescribed conditions), a relevant scheme may not provide for the payment of a lump sum instead of a pension unless the payment to be made is authorised under section 164 of the Finance Act 2004 (authorised member payments) and the payment F8 ... —

(a)[F9is permitted] by the lump sum rule in section 166 of that Act (lump sum rule) and qualifies as—

(i)a pension commencement lump sum for the purposes of paragraph 1 of Part 1 of Schedule 29 to that Act;

(ii)a serious ill-health lump sum for the purposes of paragraph 4 of that Part;

(iii)a trivial commutation lump sum for the purposes of paragraph 7 of that Part;

(iv)a winding-up lump sum for the purposes of paragraph 10 of that Part; or

(b)[F9is permitted] by the lump sum death benefit rule in section 168 of that Act (lump sum death benefit rule) and qualifies as—

(i)a trivial commutation lump sum death benefit for the purposes of paragraph 20 of Part 2 of Schedule 29 to that Act; or

(ii)a winding-up lump sum death benefit for the purposes of paragraph 21 of that Part[F10; or

(c)is—

(i)made by a registered pension scheme (within the meaning given in section 150(2) of the Finance Act 2004 (meaning of “pension scheme”));

(ii)a payment that is described in Part 2 of the 2009 Regulations; and

(iii)made to or in respect of a member.]

(2) Where under the scheme—

(a)an earner qualifies for a lump sum payment on the ground of serious ill-health; and

(b)the earner’s widow, widower or surviving civil partner qualifies for a pension (“a survivor’s pension”),

the scheme must continue to include provision for a survivor’s pension notwithstanding the payment of a lump sum to the earner.]

[F11Suspension of section 9(2B) rightsE+W+S

20A.(1) In so far as a person’s accrued rights under an occupational pension scheme are section 9(2B) rights, the circumstances specified in paragraph (2) are prescribed for the purposes of subsection (6) of section 92 of the 1995 Act (circumstances in which subsection (1) of that section does not prevent forfeiture of rights under an occupational pension scheme).

(2) The circumstances referred to in paragraph (1) are that—

(a)the person entitled to payments giving effect to those rights is, in the opinion of the trustees of the scheme, unable to act by reason of mental disorder; and

(b)there is provision in the scheme which requires that, while the person is so unable to act, sums equivalent to those payments—

(i)must, except in so far as such sums are not, in the opinion of the trustees, required for the maintenance of the pensioner, be paid or applied for his maintenance,

(ii)may, in so far as such sums are not, in the opinion of the trustees, required for the maintenance of the pensioner, be paid or applied for the maintenance of any dependants of the pensioner,

(iii)must, in so far as such sums are not, in the opinion of the trustees, required for the maintenance of the pensioner or of any dependant of his, be held by the trustees for the pensioner until he is again able to act or, if he should die before that happens, for his estate.]

Payable age in salary-related contracted-out schemes.E+W+S

21.  For the purposes of section 12D of the 1993 Act (regulations may provide for the ages for payment of benefits in salary-related contracted-out schemes) in respect of an earner’s service on or after the principal appointed day, schemes must provide for benefits to be paid by reference to an age which is equal for men and women and [F12which is permitted under section 164 of the Finance Act 2004 (authorised member payments).]

Each part of scheme to comply with section 12A of the 1993 Act.E+W+S

22.—(1) Where a scheme makes provision in relation to earners in one category of employment which differs from provision made in the case of earners in another such category, the Secretary of State must be satisfied that the scheme satisfies section 12A of the 1993 Act in relation to each of the categories of employment which is to be contracted-out.

(2) Where a scheme makes provision in relation to one description of earners within a category of employment which differs from provision made in the case of another description of earners within that category, the Secretary of State must be satisfied that the scheme satisfies section 12A of the 1993 Act in relation to each such description of earners which is to be contracted-out.

Requirements for meeting the statutory standard.E+W+S

23.  For the purposes of section 12A(4) of the 1993 Act (regulations may provide for the manner of, and criteria for, determining whether pensions are broadly equivalent to those under a reference scheme) in determining whether the pensions provided under the scheme are broadly equivalent to or better than those which would be provided under a reference scheme, the actuary—

[F13(a)must comply with any standards adopted or prepared, and from time to time revised, by [F14the Financial Reporting Council Limited] which are relevant to the matters specified in section 12A(4) of the 1993 Act;]

(b)may not certify that the pensions to be provided by the scheme for earners in employed earner’s employment and their [F15widows, widowers or surviving civil partners] collectively are broadly equivalent to or better than those which would be provided for such persons under a reference scheme if the pensions to be provided for more than 10 per cent. of such earners or their [F15widows, widowers or surviving civil partners] are not broadly equivalent to the pensions which would be provided for them under a reference scheme;

(c)must have regard to the pensions to be provided under the scheme for the persons specified in section 12A(1) of the 1993 Act who are in the scheme at the date from which the certificate has effect;

(d)must not have regard to any pensions to be provided under the scheme [F16in respect of—

(i) earners who are not in contracted-out employment, F17 ...

F17(ii). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

(e) must not have regard to any money purchase benefits; F18 ...

(f)may have regard to the payment of a lump sum [F19but may not have regard to any payment of a lump sum made as a result of the death of an earner]; [F20and

(g)must take no account of any provision made by the scheme for the suspension, in the circumstances specified in regulation 20A(2), of benefits derived from section 9(2B) rights.]

[F21(h)must not have regard to any discretionary benefits; and

(i)must comply with the further requirements set out in Schedule 3.]

Textual Amendments

F17 Reg. 23(d)(ii) and preceding word omitted (6.4.2009) by virtue of Pensions Act 2008 (Abolition of Safeguarded Rights) (Consequential) Order 2009 (S.I. 2009/598) , arts. 1 , 3(3)

Circumstances when actuary other than actuary appointed under section 47 of the 1995 Act may certify broad equivalence.E+W+S

24.  For the purposes of section 12A(6) of the 1993 Act (scheme actuary appointed under section 47 of the 1995 Act to certify whether pensions are broadly equivalent to or better than those in a reference scheme except in prescribed circumstances) the prescribed circumstances are where a scheme is not required to appoint an actuary for the scheme under section 47 of the 1995 Act.

Requirements for a reference scheme.E+W+S

25.   A reference scheme is a scheme which, in addition to complying with the requirements of section 12B(3) and (4) of the 1993 Act, complies with the requirements of Chapter II of Part IV of the 1993 Act (revaluation of benefits in the case of scheme members who leave pensionable service before attaining normal pension age) and section 51 of the 1995 Act (indexation of pensions).

[F22Reference scheme: circumstances in which widows', widowers' or surviving civil partners' pensions need not be payableE+W+S

26.(1) For the purposes of section 12B(4)(a) of the 1993 Act (reference scheme to provide widows', widowers' and surviving civil partners' pensions except in prescribed circumstances), and subject to paragraph (2), the prescribed circumstances are where—

(a)the scheme member marries or forms a civil partnership after having received benefits under the scheme;

(b)the widow, widower or surviving civil partner of the scheme member—

(i)remarries or, as the case may be, marries;

(ii)forms a civil partnership or, as the case may be, forms a subsequent civil partnership [F23or;]

(iii)[F24lives together as a married couple with another person whom he or she is not married to or in a civil partnership with,]

after having received benefits under the scheme;

(c)the widow, widower or surviving civil partner of the scheme member is at the time of the member’s death [F25living together as a married couple with another person whom he or she is not married to or in a civil partnership with.]

(2) [F26The following provisions do not apply where the scheme member died before 5th December 2005—

(a)paragraph (1)(b)(i) so far as it relates to a marriage or remarriage involving two people of the same sex;

(b)paragraph (1)(b)(ii); and

(c)paragraph (1)(b)(iii) and (1)(c) so far as they relate to the living together of two people of the same sex.]]

Textual Amendments

Modification applying to public service pension schemes.E+W+S

27.  In the case of schemes which are public service pension schemes, section 9(2B) of the 1993 Act (requirements for salary-related contracted out schemes in relation to service on or after the principal appointed day) is modified by omitting paragraph (b) (a requirement that the restrictions on employer-related investments apply to the scheme and the scheme complies with those restrictions).

Service in a salary-related contracted-out scheme that does not qualify for further benefitsE+W+S

28.—(1) This regulation applies in cases in which any description of benefit under a salary-related contracted-out scheme is subject to a limit (however imposed) operating so as to prevent service beyond a particular length from qualifying for further benefits.

(2) Subject to the following provisions of this regulation, in cases to which this regulation applies the employment of an earner in employed earner’s employment shall be treated as contracted-out employment in relation to him, notwithstanding that his further service in the employment does not qualify him for further benefits under the scheme, where the following conditions are satisfied, namely that—

(a)the earner’s service in employed earner’s employment has qualified him for benefit up to a limit imposed by the scheme; and

(b)the annual rate of the benefit by way of pension for which that service has qualified him is not less than half the pensionable earnings on which it is calculated; and

(c)the total benefits payable under the scheme (other than benefits attributable to voluntary contributions within the meaning of section 111 of the 1993 Act) are the same as or more favourable than the guaranteed minimum pension and any benefits arising in respect of section 9(2B) rights to which the earner would be entitled in respect of service in that employment and any linked qualifying service during which the earner was in contracted-out employment and any periods of service in that employment which would be contracted-out employment by virtue of this regulation.

(3)  For the purposes of paragraph (2)(c) “total benefits" includes benefits which have accrued to the earner in respect of service in employment whether or not contracted-out employment and whether with the same or another employer, except any part of such benefits which consists of equivalent pension benefits for the purposes of Part III of the National Insurance Act 1965 M2 .

Marginal Citations

M2 1965 c.51 . The relevant provisions were repealed by the Social Security Act 1973 (c.38) but continued in force by S.I. 1974/2057 .

Schemes which cannot be certified under section 9(2B) of the 1993 Act.E+W+S

29.  For the purposes of section 9(2B)(d) of the 1993 Act (prescribed class or description of schemes which may not be salary-related contracted-out schemes) the prescribed schemes are—

[F27(a)a scheme which is not registered under section 153 of the Finance Act 2004, unless it is, or was formerly, a relevant statutory scheme.]

(b)a money purchase scheme.

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