Explanatory Note
These Regulations are made as a consequence of provisions in the Pensions Act 2004 (c. 35) (“the 2004 Act”) and relate to the winding up of occupational pension schemes.
These Regulations come into force on 6th April 2005 (except for paragraph 4 of the Schedule which comes into force a year later), but regulations 3 to 13 and most of the amendments made by the other provisions do not apply in the case of schemes that have begun to wind up before that date.
Regulation 3 provides that section 73 does not apply to certain schemes that are excluded from being eligible schemes for the purposes of Part 2 of the 2004 Act. Before the amendments of section 73 by the 2004 Act that section applied only to schemes to which section 56 of the Pensions Act 1995 (c. 26) (“the 1995 Act”) applied (which relates to minimum funding). This disapplication will have a similar effect.
Regulation 4 modifies provisions relating to pension compensation so that when they apply for determining the corresponding PPF liability by reference to which the liabilities within section 73(4)(b) of the 1995 Act are capped, they apply differently from the way in which they apply for determining compensation from the Pension Protection Fund.
Regulation 5 provides that where a person's pensionable service ceases when the scheme begins to be wound up, he is treated as having opted for a contribution refund under Chapter 5 of Part 4 of the Pension Schemes Act 1993 (c. 48) (“the 1993 Act”).
Regulations 6 and 7 prescribe when trustees or managers of schemes are required to adjust entitlements to discretionary awards and to survivors' benefits when schemes are winding up. If winding up is backdated, affected adjustments must also take effect from the earlier date.
Regulation 8 makes provision where a scheme to which section 73 of the 1995 Act applies is being wound up, and after the winding up begins someone becomes entitled to payment of benefits in respect of the member. It excludes from the effects of the winding up provisions the liability for the benefits which would have been paid before the winding up began if they had been paid without delay on the member's death.
Regulation 9 substitutes a new regulation for regulation 4 of the Occupational Pension Schemes (Winding Up) Regulations 1996 (S.I. 1996/3126) (“the Winding Up Regulations”) which contains provisions about the calculation of the value or amount of scheme assets and liabilities.
Regulation 10 modifies sections 73 to 74 of the 1995 Act where liabilities of a scheme are discharged during an assessment period by virtue of regulations under section 135(4) of the 2004 Act. (An assessment period is defined in section 132 of that Act as the period beginning with an insolvency event occurring in relation to a scheme's employer and ending with either the Board of the Pension Protection Fund assuming responsibility for the scheme or ceasing to be involved with it). Regulation 10 ensures that sections 73 to 73B of the 1995 Act do not apply to such discharged liabilities, but that they are treated as fully discharged under section 74 of the 1995 Act.
Regulation 11 prescribes the circumstances in which liabilities are treated as discharged under section 74 of the 1995 Act where a scheme is winding up and the trustees have provided for the discharge by payment of a cash sum. The circumstances prescribed are where the payment is a contribution refund paid to an early leaver under Chapter 5 of Part 4 of the 1993 Act or the payment of a trivial commutation lump sum or a winding up lump sum.
Regulation 12 ensures that the rules in section 124 of the 1995 Act will apply in future to determine when a scheme begins to be wound up, instead of the slightly different rules in regulation 2 of the Winding Up Regulations.
Regulation 13 provides that the same rules apply for the purposes of these Regulations as apply for the Winding Up Regulations for treating as separate schemes sections of multi-employer schemes, the guaranteed and unguaranteed parts of partially government guaranteed schemes and sections of schemes that only apply to members in employment inside or, as the case may be, outside the United Kingdom.
Regulation 14 introduces the Schedule, Part 1 of which contains amendments of the Winding Up Regulations, and Part 2 of which contains amendments of other Regulations. These amendments are consequential on the changes made by section 270 of the 2004 Act, the provisions of these Regulations or the Finance Act 2004 (c. 12).
Regulation 15 amends provisions in the Occupational Pension Schemes (Transfer Values) Regulations 1996 (S.I. 1996/1847) which relate to the valuation of the cash equivalent of a member's benefits and the circumstances in which a scheme may reduce that cash equivalent. The amendments are made as a consequence of the need to amend references to provisions relating to winding up because of their amendment by the 2004 Act. However, because the drafting of these provisions had become so complex as a result of previous amendments, the amendments made by regulation 15 rewrite them in order to incorporate the changes.
Regulations 16 to 18 make amendments in the Pension Sharing (Valuation) Regulations 2000 (S.I. 2000/1052), the Pension Sharing (Implementation and Discharge of Liability) Regulations 2000 (S.I. 2000/1053) and the Pension Sharing (Pension Credit Benefit) Regulations 2000 (S.I. 2000/1054) which correspond to those made by regulation 15. These amendments affect the valuation of the pension rights of a party to a marriage that is dissolved or annulled for the purpose of transferring a part of their value to the other party as a pension credit, the valuation of a pension credit for the purposes of the scheme obliged to give effect to it as benefits under the scheme or wishing to discharge its liability for it, and the valuation of the pension credit where the person entitled to it wishes to have it transferred to another scheme.
As these Regulations are made before the expiry of the period of six months beginning with the coming into force of the provisions on which they are consequential, the requirement for the Secretary of State to consult such persons as he considers appropriate only applies as respects regulations 16 and 17.
A full regulatory impact assessment has not been produced for this instrument as it has no impact on the costs of business, charities or the voluntary sector.