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Welfare Reform And Pensions Bill



These explanatory notes relate to the Welfare Reform and Pensions Bill, as brought from the House of Commons on 21 May 1999. They have been prepared by the Department of Social Security (DSS) and the Department for Education and Employment (DfEE) in order to assist the reader of the Bill and to help inform debate on it. They do not form part of the Bill and have not been endorsed by Parliament.

The notes need to be read in conjunction with the Bill. They are not, and are not meant to be, a comprehensive description of the Bill. So where a provision does not seem to require any explanation or comment, none is given.

The document starts with an overview of the Bill: this briefly outlines the different measures and sets them in context. There is then a more detailed clause by clause commentary. Certain overarching issues (for example, the Bill's financial effects, and its impact on public sector manpower) are grouped at the back of the document. Also at the end, there is a glossary of some of the common terms that occur in more than one part of the notes. These terms are underlined wherever they first appear under a heading in the commentary (for example, occupational pension, Incapacity Benefit).


Two points to note:

  • In this document, social security benefits are referred to by their common names and abbreviations (e.g. "Jobseeker's Allowance", "JSA"), rather than by the terms that appear in the legislation (e.g. "a jobseeker's allowance").

  • A Bill has "clauses", most of which are divided into "subsections". When it becomes an Act, these become known as "sections" (and subsections). Many clauses in this Bill amend sections of, or insert sections into, existing Acts. "Paragraph" and "sub-paragraph" are used in the commentary only to refer to Schedule.





Part I (clauses 1-7): Stakeholder pension schemes     

Part II (clauses 8-18): Pensions: general     

Parts III-IV (clauses 19-47): Pensions on divorce and nullity     


Clause 48: Maternity Allowance     

Clauses 49-51: Benefits for widows and widowers     

Clauses 52-53: Work-focused interviews     

Clauses 54-55: Jobseeker's Allowance     

Clause 56: Incapacity for work     

Clauses 57-60: Incapacity benefits     

Clauses 61-63: Disability benefits     

Clauses 64-67: Miscellaneous provisions     

Chapter II (Clauses 68-73): National Insurance contributions     

Chapter III (Clauses 74-75): Miscellaneous     

PART VI (Clauses 76-85): GENERAL     








A: Matrimonial Causes Act 1973, as amended     

B: Family Law (Scotland) Act 1985, as amended     

C: Amended legislation for National Insurance thresholds     


Background to the Bill

Recent developments

In March 1998, the Government published its Green Paper on welfare reform, New ambitions for our country: A NEW CONTRACT FOR WELFARE (Cm 3805). This set out the framework to the Government's programme of welfare reform, based on the Government's central principle of work for those who can, and security for those who cannot.

Following publication of the Green Paper, the Government published consultation documents on fraud and a new approach to Child Support in July 1998. Further proposals were announced in Autumn 1998 for the reform of disability and bereavement benefits and the introduction of a Single Work-Focused Gateway to the benefits system.

The Pensions Green Paper, published in December 1998, proposed a new structure for pensions, including a new State Second Pension to reduce the extent to which low earners have to rely on means-tested benefits, and encouragement for higher earners to save and provide for themselves. Consultation on the proposals in the Pensions Green Paper ended on 31 March 1999.

The measures in the Bill

Following consultation on the welfare reform Green Paper and the proposed reform of disability and bereavement benefits, the Government is taking forward those measures which require primary legislation in the Welfare Reform and Pensions Bill. The Bill also provides for a number of changes to National Insurance contributions (NICs), which were announced in the March 1999 Budget.

The main elements of the Bill are:

  • Part I: The framework for the new "stakeholder pension schemes"

  • Part II: Changes to the regulatory framework for occupational and personal pensions

  • Parts III and IV: Provisions for pension rights to be split as part of a divorce settlement, in the same way as other financial assets

  • Part V (clause 48): Reforms to Maternity Allowance, to offer it to lower paid women

  • Part V (clauses 49-51): A new scheme of bereavement benefits, available to both men and women, to replace the current widows' benefits

  • Part V (clauses 52-55): Provisions to implement the Single Work-Focused Gateway, joint claims for Jobseeker's Allowance and Employment Zones

  • Part V (clauses 56-60): Reforms to Incapacity Benefit and Severe Disablement Allowance

  • Part V (clauses 61-62): Reforms to Attendance Allowance and Disability Living Allowance

  • Part V (clauses 68-73) and Part VI (clause 76): Changes to National Insurance contributions and their administration

  • Part V (clauses 63-67) and Part VI (clauses 77 to 85): Miscellaneous and supplementary provisions .

1. Stakeholder pension schemes

The current position

The UK pension system is a partnership between the State (providing the basic state pension, the State Earnings Related Pension Scheme [SERPS] and income-related benefits for pensioners), employers (providing occupational pension schemes) and private pension providers (providing personal pensions).

Today's pension system is composed of three tiers.

  • the first tier is the basic state pension;

  • the second tier is a mix of state and mainly private provision which are additional to the basic state pension (this tier includes SERPS, occupational and personal pensions); and

  • the third tier comprises other voluntary private provision.

People are already compelled to save towards a pension. All employees and self-employed people, except the very lowest paid, must pay National Insurance contributions. These give entitlement to basic state pension. In addition, employees have to pay towards a second-tier pension - SERPS - unless they opt out and make their own provision (contracting out). If people are contracted out of SERPS into a private scheme their National Insurance contributions are reduced or rebated to reflect the value of SERPS foregone.

The minimum that must be paid to a second pension is an average of about 4.6% of earnings - 1.6% from employees and employers pay 3% on top. While employees are required to contribute to a second pension, self-employed people are not. The only second pension choice for them is a personal pension, but many self-employed people make some provision for their retirement through other savings vehicles and investments.

Of 35 million people of working age in Great Britain, some 10.5 million are in occupational schemes, around 10 million personal pensions are held and over 7 million belong to SERPS.

Second pension schemes are not available to everyone. Occupational pension schemes are not an option for the 35% of employees whose employers do not offer a scheme, nor for the self-employed. Personal pensions can be less accessible for some people, particularly the lower paid and those who change jobs frequently.

Recent developments

The Government's detailed proposals for pensions reform were set out in the consultation paper A new contract for welfare: PARTNERSHIP IN PENSIONS (Cm 4179), published in December 1998.

The consultation paper proposed a new insurance contract for pensions with three main elements:

  • a guaranteed minimum income in retirement for all, increased year by year as resources allow (this does not require primary legislation). Over the longer term the aim is that this should rise in line with earnings;

  • increased provision for low and middle earners, carers and disabled people through a new State Second Pension (replacing SERPS). (Subject to the availability of Parliamentary time, the Government will legislate for this in the future).

  • New, accessible, stakeholder pension schemes. The consultation paper proposed that:

    --    stakeholder pension schemes should be open to everyone but will be targeted at those earning £9,000 to £20,000 and not in an occupational scheme;

    --    there would be a simpler tax regime, allowing up to £3,600 to be paid into schemes each year;

    --    employers who do not already offer an occupational scheme should identify a stakeholder pension scheme and facilitate access to it for their employees; and

    --    stakeholder pension schemes should be set up with an approved governance structure, meet minimum standards and be required to register.

The Government is now proposing to legislate to provide the necessary legislative framework for stakeholder pension schemes (following consultation at the end of 1997).

The measures in the Bill

The measures in the Welfare Reform and Pensions Bill that relate to stakeholder pension schemes are contained in Part I, clauses 1 to 8.

The provisions in the Bill will create a statutory framework for stakeholder pension schemes. There will be further consultation before all the detailed aspects of the framework are finalised. It is also likely that the framework will require adaptation as the schemes evolve. In order to provide this flexibility, many matters of detail will be set out later in secondary legislation.

2. Pension sharing on divorce

The Current Position

Since the 1970s, courts have had to take account of the value of pension rights in divorce and nullity of marriage settlements so that these can be offset against other assets in financial settlements. In addition, attachment and earmarking provisions in the Pensions Act 1995 allow courts:

  • in England and Wales and Northern Ireland, to require occupational and personal pension schemes to pay maintenance from a member's pension directly to their former spouse;

  • throughout the United Kingdom to order part or all of a lump sum payable on the death or retirement of a member to be directed to their former spouse.

Both attachment and earmarking have limitations and as yet have been little used. They do not allow a clean break in most cases, title to the pension rights remains with the spouse in whose name the rights have accrued, and they leave the person receiving the payment at risk of losing the intended retirement income if their ex-spouse dies.

Recent developments

The Government consulted on proposals on pension sharing in Pension sharing on divorce: REFORMING PENSIONS FOR A FAIRER FUTURE in June 1998. The consultation paper included draft primary legislation.

The consultation proposed that:

  • courts and couples should be able to deal with pension rights in the way that provides for the fairest overall financial settlement;

  • all couples should have the opportunity to settle their pension rights by means of a pension share - pension sharing should be available within financial settlements on divorce and nullity of marriage settled both by court order or agreement;

  • pension sharing should be open to couples where rights exist under an occupational or personal pension scheme or under the State Earnings Related Pension Scheme (SERPS);

  • pension sharing should not be compulsory. It should still be possible to offset pension rights against other assets or to use the current attachment and earmarking arrangements;

  • arrangements for pension sharing should respect and comply with the fundamental principles which underpin each family law system (in England and Wales, in Scotland and in Northern Ireland);

  • pension sharing should apply only to proceedings which begin after the implementation of the policy. It should not apply retrospectively.

Following consultation, the Government is now proposing legislation to make the proposed changes.

The measures in the Bill

The main measures in the Welfare Reform and Pensions Bill that relate to pension sharing on divorce and nullity are contained in Parts III and IV, clauses 19 to 47.

The provisions in the Bill largely put in place the proposals on pension sharing set out in the consultation paper. They introduce the option of pension sharing on divorce or nullity of marriage and will:

  • allow pension rights to be treated like other assets and the whole, or a proportion, of their value to be transferred from one spouse to the other as part of the financial settlement; but

  • will not be compulsory - it will still be possible to offset pension rights against other assets or to use the current earmarking and attachment arrangements.

In addition, in the light of comments made during the consultation exercise, the provisions in the Bill put beyond doubt the fact that pension sharing will be available only to those who begin proceedings for divorce or nullity after the legislation has been brought into force. The Bill also includes changes designed to improve the current legislation on attachment and earmarking.

3. Bereavement benefits

The current position

The present widows' benefits scheme was introduced in 1946. Three main benefits are available to women who are widowed. These are based upon the National Insurance contributions record of the late husband, rather than the widow herself. The three benefits are:

  • Widow's Payment - a tax-free lump sum payment of £1,000

  • Widowed Mother's Allowance - This is paid to widows with children, and ends when the youngest child ceases to be a dependant. It consists of a basic allowance for the widow herself, plus an allowance for each child and any SERPS (State Earnings Related Pension) her late husband was entitled to. It is taxable.

  • Widow's Pension - This is paid to widows over 45 who do not have dependant children. It is taxable and consists of a basic pension plus any SERPS. The amount payable depends on the woman's age when she was widowed or stopped receiving Widowed Mother's Allowance.

Under the present arrangements, married men are not entitled to bereavement benefits. This affects some 15,000 newly bereaved widowers and around 35,000 children of widowed fathers each year. (The UK is under challenge in the European Court of Human Rights over the present scheme.) Recent developments

The Government set out its proposals for reforming bereavement benefits in the consultation document A new contract for welfare: SUPPORT IN BEREAVEMENT (Cm 4104). This was published in November 1998.

The consultation paper proposed that:

  • All those who currently receive widows' benefits would continue to receive them;

  • Both widows and widowers would be entitled to a tax-free lump sum "Bereavement Payment" of £2,000;

  • Widowed parents with dependant children would receive a weekly, taxable, but non means-tested benefit - the "Widowed Parent's Allowance" - equivalent to and subject to the same entitlement conditions as the current Widowed Mother's Allowance;

  • Widows and widowers aged 45 and over with no dependant children would receive a weekly, taxable, non means-tested benefit for six months only - the "Bereavement Allowance" - age-related as for the current Widow's Pension, but with no SERPS component;

  • Widows and widowers with children would be guaranteed up to an extra £10 a week through a new disregard of their Widowed Parent's Allowance when calculating entitlement to income-related benefits;

  • Men and women who are over 55 at the start of the new arrangements and who are widowed within the subsequent 5 years would have access to income-related benefits without any job seeking requirements. They would also receive a special premium (worth £14.35 a week at April 1998 rates) to help them maintain their income when their transitional bereavement benefit ended after 6 months.

Following consultation, the Government is now legislating to make the proposed changes.

The measures in the Bill

The measures in the Welfare Reform and Pensions Bill that relate to Bereavement Benefits are contained in Part V, clauses 49 to 51, and Part I of Schedule 8.

The clauses in the Bill provide for implementation of the new Bereavement Payment, Widowed Parent's Allowance and Bereavement Allowance, but this will not be before April 2001.

The remaining changes - the disregard of Widowed Parent's Allowance (£10 for Income Support and £15 for other income-related benefits) and the additional support for widows and widowers over 55 - do not require primary legislation.

4. Welfare to work

The Current Position

Unemployment has been on a downward trend since the early 1990s. However, some groups - such as those with no or low qualifications, some ethnic minorities and people with a long-term illness or disability - remain vulnerable to longer term unemployment. Unemployment also remains consistently high in some geographical areas.

Within the present system, there is limited flexibility to develop customised solutions in areas of particular need. Only people claiming Jobseeker's Allowance (JSA) are automatically offered advice on finding work or improving their employability. The New Deals for Young People, the Long-Term Unemployed, Lone Parents and Disabled People provide tailored help through access to a personal adviser. However, the New Deals are aimed at specific client groups.

Currently, people have to deal with a number of different institutions when claiming benefits - including the Employment Service, Benefits Agency, local authorities and the Child Support Agency.

Recent developments

The Government has made proposals for three new Welfare to Work initiatives. These are:

  • The Single Work-Focused Gateway to the benefit system. The Government set out its plans for the Single Gateway in A new contract for welfare: THE GATEWAY TO WORK (Cm 4102, October 1998). The Single Gateway will bring together the Employment Service, Benefits Agency and other welfare providers at a single point of contact. New claimants of working age will have access to a personal adviser, who will work with them to assess their potential for employment and help them plan a route to independence.

  • The New Deal for Partners of Unemployed People, which was launched in April 1999 following pathfinders in Cardiff, Leeds and Tayside. £60 million from the windfall tax has been set aside to provide partners of unemployed people with expert, personalised help to find work. In addition, partners aged 18 - 24 who do not have children will be able to go onto the New Deal for Young People;

  • Employment Zones, which will target intensive and innovative help on areas of particular need. In Employment Zones, personal job accounts will bring together money currently attributable to benefit, training and other programmes and enable these to be used more flexibly, to help clients back to work. The Employment Zones Consultation Paper, published on 2 February 1999, set out detailed plans for implementing Employment Zones. The consultation period ended on 30 April 1999.

The Single Work-Focused Gateway will be piloted in twelve different areas. The first four pilots will begin in June 1999. Interviews will initially operate on a voluntary basis for non-JSA claimants, pending the passage of the Bill. Five prototype Employment Zones are already operating in Glasgow, South Teesside, Liverpool, North West Wales and Plymouth.

The measures in the Bill

The Welfare to Work measures in the Bill are contained in Part V, clauses 52 to 55, and Schedule 7.

Clauses 52 and 53 contain the provisions for the Single Work-Focused Gateway. This will require individuals claiming certain benefits to take part in work-focused interviews with a personal adviser as a condition of receipt. It will not place any requirement on them beyond taking part in interviews. (For example, they will not be required to attend training courses or seek work other than where the claimant is on JSA, where such requirements are already in operation.) The powers in the Bill will enable the Government to ask people to take part in an interview with a personal adviser at the point of claim and in further interviews while they are on benefit at specified times. These further interviews would be triggered by a change in their circumstances that might have a bearing on their employability (for example, their children reaching a certain age or the claimant taking up or leaving part time work). Clause 53 ensures that local authorities can carry out such interviews with claimants who take part on a voluntary basis. This is over and above the requirements in clause 52.

Clause 54 and Schedule 7 contain provisions which will require childless couples to make joint claims for Jobseeker's Allowance (JSA). It is intended that regulations will prescribe that joint claims will apply to those born after a certain date, with the effect that joint claims will initially apply to young childless couples, but gradually extend to cover older childless couples. The intention of joint claims is to ensure that both partners in childless couples are directly involved in the labour market, to prevent them from becoming dependant on benefit from an early age. Under the new scheme both members of the couple will be claimants with equal rights and responsibilities, rather than the partner being a dependant on the claimant. Those between the ages of 18 and 24 who remain unemployed for six months will go onto to the New Deal for Young People. Couples with children will continue to be offered help on a voluntary basis, through the New Deal for Partners of Unemployed People.

Clause 55 ("Special Schemes for JSA") contains the provisions for implementing Employment Zones. Prototype Employment Zones are already operating under existing legislation. The new powers in the Bill will enable schemes to be set up in designated areas where special benefit rules can apply. In order to help participants back to work, the schemes will allow them to anticipate funding for up to six months' worth of spending on training and jobsearch. They may also combined with money equal to the payments they would normally receive from JSA. The powers in the Bill will also enable the Secretary of State to provide a wider range of support for activities within the Zones which help people to get and keep work, including support for unemployed people who are seeking to become self-employed.

5. Long-term illness and disability

The current position

People with a long-term illness or disability can claim a number of different benefits to help meet their needs. Depending on their circumstances, people can qualify for more than one of these benefits at same time. The main ones are: Incapacity Benefit (contributory); and Severe Disablement Allowance, Disability Working Allowance, Disability Living Allowance and Attendance Allowance (all non-contributory). Several other benefits provide special premiums for disabled adults and children.

Recent developments

The New Deal for Disabled People is developing and testing new ways to help people with a long-term illness or disability to enter and retain work. The national minimum wage and the new Disabled Person's Tax Credit are also intended to help make work pay.

The Government published its plans for reforming benefits for people with a long-term illness or disability in A new contract for welfare: SUPPORT FOR DISABLED PEOPLE (Cm 4103, October 1998). In the consultation paper, the Government set out its view that, although the benefits which are currently available are intended to provide security for all those with a long-term illness or disability, in some respects the level of support does not fully match up to their needs. The Government also indicated its view that changes were needed to Incapacity Benefit - both to restore the original purpose of the benefit in providing a replacement income for people recently in work; and to take account of changing social conditions.

The consultation paper proposed the following main changes:

  • reform of Severe Disablement Allowance, to enable young people who are disabled and cannot work and who claim benefit before 20 to receive Incapacity Benefit. After a year on benefit, their entitlement would be £80.80 a week compared with £54.40 at present - thereby reducing the need to rely on Income Support to top up their income;

  • a new Disability Income Guarantee, which would give single, severely disabled recipients under 60 nearly £6 a week extra, and couples over £8 a week extra;

  • extending the higher rate mobility component of Disability Living Allowance - currently worth £35.85 a week - to 3 and 4 year old severely disabled children;

  • reform of the All Work Test so that, as well as determining entitlement to benefit, it also provides information about people's capabilities which can be used to help them plan a return to work; and changing the name of the test to reflect this new approach;

  • requiring those claiming incapacity benefits to take part in a Single Work-Focused Gateway interview, to ensure that they receive help to plan a route back to work, and get the benefits to which they are entitled;

  • expanding specialist disability services to help disabled people enter work, and examining new ways to improve their retention in work through New Deal for Disabled People;

  • strengthening the link between work and entitlement in Incapacity Benefit, so that it is only paid to those who have recently been in work and paid National Insurance Contributions;

  • taking account of income from occupational and personal pensions in determining Incapacity Benefit. The intention is that people will be able to keep the first £50 of any weekly amount of occupational or personal pension, but that Incapacity Benefit will be reduced by 50p for every additional £1 that they receive. The Government intends to review this before the implementation date.

The measures in the Bill

Following consultation, the Government is now legislating to make the proposed changes.

The measures in the Bill that relate to incapacity and disability benefits are contained in Part V, clauses 56 to 63, and Parts II and III of Schedule 8. The provisions will implement all of the proposed changes in the consultation paper, apart from the Disability Income Guarantee and the expansion of specialist disability services, which do not require new primary legislation.

Two changes were made to the provisions in the Bill during Commons Committee stage. First, the Government introduced an amendment to allow young disabled people to claim Incapacity Benefit up to the age of 25 in prescribed circumstances, without having to satisfy the contribution conditions. (The normal age limit proposed by the Government is age 20.) This extension is intended to benefit young disabled people who go into higher education or vocational training.

Second, the Government introduced a new clause (clause 63) to provide that certain overpayments of incapacity and disability benefits made before 1 June 1999 cannot be recovered from the recipient. This is intended to protect disabled people who could not reasonably be expected to know that their benefit entitlement had changed, for example due to a gradual improvement in their condition, or that they should have reported this change to the Benefits Agency.

The measures in the Bill will not require any disabled people to look for work, if they do not want to. No existing claimants lose any benefit entitlement at the point of change.

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