Part I - Stakeholder pension schemes |
DETAILS OF THE DELEGATED POWERS, BY CLAUSE
27. The Bill provides the legislative framework for
stakeholder pension schemes. It is intended that the more detailed
issues will then be dealt with in regulations. This is an approach
adopted with previous pensions legislation - for example, the
Pensions Act 1995. It allows for the legislative provisions for
stakeholder pension schemes - a new form of pension provision
- to be flexible enough to allow adjustments in the light of consultation
and experience of operating schemes.
28. Consultation is proposed on many of the issues
to be covered in regulations, for example the advice and information
required by individuals, on minimum standards (including charges),
and on the requirement for employers to provide access to stakeholder
pension schemes. This process of further consultation is now underway
and will be followed by consultation on draft regulations around
the end of the year. The aim is to have regulations laid by April
2000 - in good time for implementation in April 2001.
29. This section
of the memorandum sets out how the Department intends to use the
delegated powers in Part I of the Bill, subject to consultation.
CLAUSE 1 - MEANING OF "STAKEHOLDER PENSION SCHEME".
30. Clause 1
provides a framework for stakeholder pension schemes and sets
out the conditions which a pension scheme will need to meet in
order to be a stakeholder pension scheme. There are eight conditions
a scheme must meet - for example, it must be established under
a trust (or prescribed equivalent structure), and meet prescribed
requirements on costs. The conditions have been established to
ensure that, as far as is possible, stakeholder pension schemes
are simple, flexible and value for money arrangements that are
an attractive choice for those who are unable to join an occupational
pension scheme and for whom personal pensions are not suitable.
31. In the Department's view the level of technical
detail required to provide for the detailed operation of stakeholder
pension schemes is appropriate to secondary legislation. In addition,
regulations provide the flexibility to allow the detail of stakeholder
pension schemes to be amended following the outcome of the consultation,
to keep pace with developments in the pensions industry, and to
be adjusted in the light of operational experience.
32. Subsection (1)(b) provides a power to prescribe
conditions additional to those set out in subsections (2) to (9).
It is not envisaged that this power will be used at the outset.
However, the power gives flexibility for the future. For example,
it might become desirable to specify the types of investments
in which stakeholder pension funds may be held, or to require
schemes to hold records in a common technological format to assist
data transfer. The need for additional conditions may arise in
a number of ways - for example:
- through monitoring and experience of stakeholder
pension schemes as they start to operate;
- through changes in the way in which the financial
sector operates and advances in technology;
- as a result of the pensions industry raising
33. Subsection (2) requires stakeholder pension schemes
to be set up under trust, or under an alternative arrangement
which may be specified in regulations. A board of trustees is
a long-established way of ensuring that pension schemes are governed
in a way that ensures that members' interests are protected. It
is also proposed to allow other forms of arrangement where these
can be expected to provide comparable security and protection
for scheme members' interests. The Green Paper "A new contract
for welfare: Partnership in Pensions" sought views on such
alternative proposals. No decisions have been made on alternatives
that may be approved, but one example might be a scheme in respect
of which a management committee was appointed to oversee the operation
of the scheme and the activities of scheme professionals such
as investment managers and actuaries.
(3) provides a power to set out the detail of requirements as
to the content of the instruments that set up a scheme. It is
intended to use regulations to set out requirements in relation
to, for example:
- the scope of the trust deed: in particular to
ensure that the trust deed gives the trustees control of the scheme
so that they are able to appoint and dismiss the organisations
or individuals that provide services to the scheme (eg actuaries,
auditors, administrators, investment managers);
- the composition of the trustee board: to require,
for example, a specified proportion of trustees to be nominated
by members of the scheme;
- whether the schemes should provide additional
benefits for scheme members such as an option to take out life
assurance cover, or insurance which provides for contributions
to continue to be paid if the member becomes ill or disabled.
35. If details
of acceptable alternative forms of governance are prescribed under
clause 1(2) then it is intended that regulations will also be
used to set out requirements as to the contents of the instruments
that set up such schemes.
36. Subsection (4) provides that schemes must offer
money purchase benefits to members subject to a regulation-making
power to prescribe exceptions to the rule. Money purchase benefits
are thought to be more suitable for schemes (like a stakeholder
pension scheme) where there may be no employer to stand behind
the pension promise. In addition, individuals will have an identifiable
'pot' of money. This will mean schemes will be able to provide
regular statements on how much each person's 'pot' is currently
worth, transfers of funds will be simpler, and charges more transparent.
Present alternatives, ie salary related schemes, would not in
general be a practicable proposition for a stakeholder pension
scheme, but pensions, like other financial services, are a rapidly
developing field and new arrangements may be developed in the
future which are suitable for stakeholder pension schemes. The
regulation-making power, therefore, provides the flexibility to
allow the framework for stakeholder pension schemes to be amended
to accommodate schemes which may wish to offer benefits on a suitable
37. Subsection (5) allows for regulations to prescribe
requirements in relation to the amounts which may be deducted
from scheme members' pension funds in respect of charges and expenses.
The Government intends to set out in regulations how any charge
is to be calculated, specify limits on the level of the charge,
and specify when a charge can be imposed. For example, it is intended
that there will be no charge for transfers of funds from stakeholder
pension schemes or for changing contribution levels.
38. The Green Paper proposed minimum standards for
stakeholder pension schemes. Setting these standards in a number
of areas means that people taking out a scheme can be sure it
meets those standards, and that it will give them a basic good
deal. One of these standards covers charges. There will be further
consultation before the detail of the standards are set out and
it is intended that they will then be laid down in regulations.
This will give the flexibility to amend the standards in the future
if, as a result of regular review, it becomes appropriate to do
so. For example, the standard for charges may need to be changed
if it proves to be too lenient, or too strict, in the light of
practical experience of running schemes.
39. Subsection (7) provides that schemes must allow
members to make contributions as they think appropriate. This
will mean that members will be able to contribute such sums as
they wish either on a regular basis or as and when they can. However,
the subsection provides a regulation-making power to prescribe
minimum contribution levels and other restrictions on the making
40. As explained above there will be further consultation
before the minimum standards are agreed - this includes the level
of minimum contributions. The minimum contribution will be set
to ensure that people who can only afford modest contributions
are not ruled out from joining a stakeholder pension scheme. Some
restrictions on flexibility may be needed to avoid undue costs
to schemes that could arise, for example, if members could change
contributions whenever they wished.
41. These issues are linked with the charging structure
and will be decided together - following further consultation.
It is intended to set out the detail in regulations.
CLAUSE 2 - REGISTRATION OF STAKEHOLDER PENSION SCHEMES.
42. Clause 2 defines the procedure for the registration
of stakeholder pension schemes and the role of the Occupational
Pensions Regulatory Authority (OPRA) in this.
43. The Department believes that details of the registration
process for schemes with alternative governance arrangements and
the availability of the register are suitable for secondary legislation.
This will provide the flexibility for the arrangements for any
schemes set up under alternative governance to be decided in the
light of experience of scheme operation. It also mirrors the legislative
arrangements for the register of occupational and personal pensions
under the Pensions Schemes Act 1993.
44. Subsection (2) requires OPRA to register a scheme
if the scheme trustees support their application with a declaration
that the scheme meets all the conditions in clause 1. This subsection
provides a power to prescribe that people other than scheme trustees
may apply for registration and make this declaration. This is
needed to cover the situation where a scheme has been set up under
an alternative form of governance (as provided for in clause 1(2))
where there may not be trustees. The person or persons who may
be prescribed here will depend on the type of alternative governance
arrangements which are permitted under clause 1(2). For example,
if an alternative governance arrangement is agreed where there
must be a management committee which has certain responsibilities,
then the people responsible for registration may be the members
of that committee.
(4) provides for trustees applying for registration of a scheme
under subsection (2) to be subject to civil penalties and prohibition
orders in certain circumstances. A power is included to make persons
prescribed in relation to a pension scheme subject to the same
civil penalties in the same circumstances. It is intended to use
this power to make persons who are permitted by regulation under
subsection (2) to apply for registration to be subject to the
same civil penalties as trustees.
46. Subsection (7) contains a power to make regulations
providing for the register of stakeholder pension schemes (or
copies or extracts from it) to be made available for inspection
or supplied to prescribed persons, subject to certain conditions.
This power mirrors the existing power in section 6(4) of the Pension
Schemes Act 1993, which provides for the existing register of
occupational and personal pensions to be made available for inspection.
It is intended that the regulations made under subsection (7)
will be similar to those made under the Pension Schemes Act 1993
and it is intended that they will include:
- to whom the register should be supplied. The
intention is for the register to be available for inspection by
the general public including those employers required to offer
access to schemes for their employees;
- that the information will be supplied in such
form as the registrar may determine;
- that a fee may be charged in connection with
the supply of information to defray the cost attributable to producing
the information and, where applicable, packaging and postage.
There is no intention to use the fee-levying power other than
as a means of recovering the administration costs involved and
a charge will not necessarily be made in every case. (In fact,
although a power to charge for information supplied from the pension
register already exists, the Pensions registrar has, to date,
not been used - ie a charge has never been made). It may be necessary
to use this power for stakeholder pensions if, for example, the
demand for access to the register is high.
CLAUSE 3 - DUTY OF EMPLOYERS TO FACILITATE ACCESS
TO STAKEHOLDER PENSION SCHEMES.
47. Clause 3 defines the obligation of employers
to provide access to stakeholder pension schemes. Employers of
"relevant employees" (see 7(c) below), will be required
to designate a stakeholder pension scheme and facilitate access
to it. They will also be required to, at the employees request,
deduct contributions and pay them direct to the designated scheme
within a specified period.
48. The Department believes that the detail of the
employer access requirement is appropriate to secondary legislation.
This will allow the flexibility to allow any exemptions to the
requirement if appropriate and, in the light of the operation
of schemes remedy any gaps in information-giving quickly or moderate
the requirement for employers to pass on contributions if necessary.
In addition, the forthcoming further consultation will also be
helpful in deciding the role of group personal pensions and how
a clearing house might operate.
49. Subsection (1) enables regulations to provide
exemptions from the employer access requirements. The aim of these
requirements is to provide access to all those who could benefit
from joining a stakeholder pension scheme. However, the potential
burdens on employers with very few employees need to be taken
into account. The Green Paper sought views on this and further
consultation will be undertaken before a decision is taken on
whether any exemptions are appropriate - for example, employers
employing less than a specified number of employees could be exempted.
50. Subsection (3) provides that an employer must
inform his employees of the name and address of the designated
scheme. At present it is envisaged that this will be sufficient
- it will allow an individual to make contact with the designated
scheme to obtain more information. However, this may need to be
reviewed in the light of operating schemes if, for example, it
becomes apparent that employees would benefit from additional
information. Subsection (3)(b) provides a regulation-making power
to require employers to provide such other information as may
be prescribed. This may be simply the name and number of a dedicated
scheme representative to make contact easier or a government information
leaflet on pension choices. In addition, advances in information
technology could mean it becomes easier for employers to pass
on information to employees. It is not intended to add any conditions
that would prove to be a substantial burden on employers. For
example, it would not be reasonable to ask all employers to set
up a dedicated room equipped with an internet link where all employees
could check information.
51. Subsection (5) provides that where an employee
who is a member of a qualifying scheme so requests, the employer
must deduct the employee's contribution from his wages and pay
them to the designated scheme. The subsection contains a regulation-making
power to prescribe restrictions on this requirement - to strike
a balance between costs to the employer and flexibility for the
member. For example, a limit might be placed on how often employees
can ask their employer to alter the amount of the deduction -
perhaps twice a year. It is proposed that there will be further
consultation on how this exemption would apply.
(5)(b) contains a further power to make regulations to provide
for deductions to be paid to a person other than the chosen scheme.
The power would allow regulations to prescribe, for example, for
payments to be made to a clearing house if it was decided, after
further consultation, that one should be established. An employer
with employees in several different stakeholder pension schemes
could then make one payment to a clearing house.
53. Subsection (7)(b) defines a "qualifying
scheme" - this is the employer's designated scheme (or schemes)
or, if regulations provide, any other stakeholder pension scheme.
Initially it is intended that employers would only be required
to make deductions on behalf of employees who are members of their
designated scheme(s). This will ensure that the arrangements for
passing on contributions are not too onerous - employers will
have to deal with only one scheme. If arrangements such as a clearing
house (to receive and pass on contributions) are developed, which
minimise the additional costs to employers of making payments
to a number of schemes, the regulation-making power will enable
the requirement to be extended to other schemes. Employers can
then send one payment, with the appropriate details, to the clearing
house which will forward payments to the appropriate schemes.
There will be further consultation on the merits of a clearing
house, how this might operate and, if it is decided that one should
be set up, the timetable for this. This forms part of the current
programme of consultation. The clearing house arrangement can
then be provided for in regulations if necessary.
(7)(c) defines "relevant employees" - these are all
employees who are not eligible to join an employer's occupational
pension scheme and who earn more than the lower earnings limit.
If an employer has relevant employees then he must, under clause
3, offer access to a stakeholder scheme. The regulation-making
power in this subsection will allow other classes of employees
to be excluded from the definition of relevant employees.
55. The power would, for example, allow the offer
of certain types of group personal pensions to count as compliance
with the access requirement. This would mean that if an employer
offered an occupational pension scheme or a group personal pension
scheme to all his employees he would be exempt from the employer
access requirement. The Green Paper asked for views on the position
of employers who currently offer group personal pensions contributions
to personal pensions, and this will be the subject of further
consultation before final decisions are taken.
SCHEDULE 1 - APPLICATION OF 1993 AND 1995 ACTS TO
56. Schedule 1 also covers the application of some
existing pensions legislation to stakeholder pension schemes.
The reference in sub-paragraph (3)(b), to "a prescribed person"
has the same meaning as that in clause 3(5)(b).