The Occupational Pension Schemes (Power to Amend Schemes to Reflect Abolition of Contracting-out) Regulations 2015

EXPLANATORY NOTE

(This note is not part of the Regulations)

Section 24(2) of the Pensions Act 2014 (c.19) gives employers sponsoring contracting-out salary related occupational pension schemes a power to amend the scheme rules to reflect the abolition of contracting-out for these schemes: ‘the power’. Amendments may be made to increase employee contributions or alter the future accrual of benefits, or do both, for or in respect of some or all of the scheme members. But the extent to which the scheme rules may be amended using this power is limited by reference to the increase in the sponsoring employer’s national insurance contributions due to the abolition of contracting-out.

These Regulations set out the detail of how the power may be used, in particular how an actuary is to calculate and certify that the value of the proposed amendments is not greater than the increase in the employer’s national insurance contributions.

Regulation 3 defines, as required under section 24(4)(a) of the Pensions Act 2014, who is a ‘protected person in relation to a scheme’. These are employees in the electricity, rail, London transport, coal and nuclear energy industries in relation to whom legislation enacted at the time of privatisation of those industries continues to have effect.

Regulation 4 defines what is meant by the “total annual employee contributions of the relevant members” and specifies how the actuary is to calculate this amount. Regulations 5 and 6 define what is meant by “annual increase in an employer’s national insurance contributions in respect of the relevant members” and a “scheme’s liabilities in respect of the benefits that accrue annually for or in respect of the relevant members” respectively and similarly provide for calculation of these amounts.

Regulation 7 sets out what earnings data should be used in the calculations. Regulation 8 sets out further requirements for how the actuary is to carry out the calculations, and for the use of other data and actuarial methods and assumptions when making the calculations required when using the power. Regulation 8(8) provides that when an employer is using the power to make scheme amendments on a second or subsequent occasion the calculation date must be the same as the original calculation date.

Regulation 9 imposes a restriction on the type of amendments that may be made. An employer may not make an amendment that would take the power to determine any matter away from the trustees or managers of the scheme.

Regulation 10 describes the category of person who may act as the actuary appointed by the employer, and regulation 11 sets out what the actuary must certify before any proposed amendments may take effect. The Schedule sets out the information that must be included in the certificate that the actuary must provide to the trustees or managers and sponsoring employer or principal employer in a multi-employer scheme. Regulation 12 imposes an obligation on the trustees or managers of a scheme to provide any information requested by the sponsoring employer or principal employer in connection with the use of the power.

Regulations 13 to 15 modify certain provisions in the Pensions Act 2014 and these Regulations as these apply to multi-employer schemes. In respect of sections of a multi-employer scheme that have a single sponsoring employer, each section is to be treated as a separate scheme and each employer may make amendments. In schemes which are not segregated, or sections of schemes which have more than one employer, the principal employer in relation to the scheme or section may make the amendments.

Regulation 16 provides that the employer or principal employer must consult with the scheme trustees or managers about an appropriate date for the amendments to take effect and after consultation notify them of the amendment date. No amendments made using the power can take effect before 6th April 2016 when contracting-out for salary related occupational pension schemes is due to be abolished.

An analysis of the impact of this legislation has been made. A copy is available from the libraries of both Houses of Parliament. A copy is annexed to the Explanatory Memorandum which is available alongside this instrument on www.legislation.gov.uk. Copies may also be obtained from the Better Regulation Unit of the Department for Work and Pensions, 2D, Caxton House, Tothill Street, London SW1H 9NA.