The Pensions Act 2014 (Abolition of Contracting-out for Salary Related Pension Schemes) (Consequential Amendments and Savings) Order 2016

EXPLANATORY NOTE

(This note is not part of the Order)

This Order is made under sections 53 and 54 of the Pensions Act 2014 (c.19) (“the 2014 Act”), which provides for consequential amendments to be made in connection with provision made by that Act.

The 2014 Act creates a new state pension for people reaching pensionable age after implementation on 6th April 2016. This date is referred to in the Pension Schemes Act 1993 (c.48) (“the 1993 Act”) (as amended by the 2014 Act) as “the second abolition date”. The new pension will be paid at a single weekly rate, replacing the current state pension which has two components: a basic state pension and an additional state pension. Section 24 of the 2014 Act, and Schedule 13 to which it refers, therefore make amendments to existing primary legislation to abolish contracting-out of the additional state pension for salary related pension schemes. This Order makes consequential amendments to subordinate legislation.

In particular, references to a salary related contracted-out scheme are amended to refer to a scheme that was a salary related contracted-out scheme. This term is defined in section 7B of the 1993 Act, which was inserted by the 2014 Act. The Order also amends references to provisions of the 1993 Act which are repealed by the 2014 Act and to the Occupational Pension Schemes (Contracting-out) Regulations 1996 (S.I. 1996/1172), which are revoked and replaced (subject to savings) by the Occupational Pension Schemes (Schemes that were Contracted-out) (No.2) Regulations 2015 (S.I. 2015/1677).

Article 2(3) amends regulation 24 of the Occupational Pension Schemes (Preservation of Benefit) Regulations 1991 (S.I. 1991/167) to clarify that a salary related scheme ceasing to contract-out on the second abolition date does not constitute a “material alteration” of the scheme for the purposes of that regulation.

Article 3 amends the definition of “section 9(2B) rights” in the Occupational Pension Schemes (Contracting-out) Regulations 1996 and article 28 amends the same definition within the Occupational Pension Schemes (Schemes that were Contracted-out) (No.2) Regulations 2015 to ensure consistency between the two definitions and to take account of the changes to the transfer provisions made by article 4.

Article 4 omits certain provisions of the Contracting-out (Transfer and Transfer Payment) Regulations 1996 (S.I. 1996/1462) relating to transfers and transfer payments of pension rights between schemes which are both contracted-out. These provisions continue to have effect under article 5 in relation to transfers which occurred before the second abolition date.

Article 14 amends the Occupational Pension Schemes (Validation of Rule Alterations) Regulations 1998 (S.I. 1998/1846) from 6th April 2016 to allow the regulations to apply to schemes that were contracted-out at the time the rule alteration was made. Article 33 then revokes those regulations from 6th April 2019, along with the Occupational Pension Schemes (Modification of the Pension Schemes Act 1993) Regulations 1998 (S.I. 1998/1466).

Article 26 amends the Occupational Pension Schemes (Cross-border Activities) Regulations 2005 (S.I. 2005/3381) to amend references to contracting-out legislation in the list of legislation that a European pensions institution is required to comply with if it accepts contributions from a UK employer.

Article 27 amends the Employers’ Duties (Registration and Compliance) Regulations 2010 (S.I. 2010/5) to require that the contracting-out certificate (which was evidence that the scheme met the relevant quality standards in relation to automatic enrolment before the second abolition date) be kept for a period of 6 years after the second abolition date.

Articles 29, 30 and 31 amend respectively the Occupational Pension Schemes (Transfer Values) Regulations 1996 (S.I. 1996/1847), 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) to allow for the time for relevant payments to be paid to be extended by the Pensions Regulator where the scheme is still seeking to reach an agreement with HMRC, following the abolition of contracting-out, as to the scheme’s liabilities for guaranteed minimum pensions and section 9(2B) rights through what is known as the Scheme Reconciliation Service. These provisions are then revoked from 6th April 2021 by articles 34, 36 and 37 respectively.

Article 32 removes the requirement for schemes to provide information as to what employment is contracted-out employment under the scheme, from 6th April 2017.

An analysis of the impact of the abolition of contracting-out has been made as part of the analysis of the 2014 Act. A copy is available in the libraries of both Houses of Parliament and from the Better Regulation Unit of the Department for Work and Pensions, 2D, Caxton House, Tothill Street, London SW1H 9NA.