Select Committee on Delegated Powers and Deregulation Seventeenth Report

Part I - Stakeholder pension schemes


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.


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 issues.

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.

34. Subsection (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 alternative basis.

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 of contributions.

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.


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.

45. Subsection (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.


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.

52. Subsection (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.

54. Subsection (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.


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).

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