Select Committee on Delegated Powers and Deregulation Seventeenth Report


Part IV - Pension Sharing

Chapter I - Sharing of Rights under Pension Arrangements

CLAUSE 23 - SCOPE OF PENSION SHARING MECHANISM

131. This clause sets out the scope of the pension sharing mechanism. Pension sharing is available in relation to a person's shareable rights under any arrangement other than an excepted public service scheme.

132. Subsection (2) provides that a person's shareable rights are any of his rights under an arrangement, other than rights of a description specified by regulations. It is intended to use the regulation-making power to, for example, exclude survivors' benefits payable to a member in his capacity as a survivor (such as, a widow's or widower's pension payable in respect of a former marriage), an injury benefit, compensation payment, and incidental benefits such as travel concessions etc.

133. Subsection (3) provides that a public service scheme is excepted if it is specified by order made by such Minister of the Crown or government department as may be designated by the Treasury as having responsibility for the scheme. The Government's clear policy intention is that, wherever possible, pension rights built up in public service pension schemes should available for pension sharing. However, there are a handful of schemes covering the Great Offices of State (currently the Prime Minister, Speaker, Lord Chancellor) where the pension comes into payment immediately the postholder leaves office. This makes it impossible to value the pension rights of an incumbent accurately, so it is intended to exclude these schemes from the pension sharing arrangements. The Department believes that this matter is best left to delegated legislation as it provides the flexibility to add new schemes similar to the Great Offices of State. For example, it is expected that the Scottish First Minister and the Presiding Officer of the Scottish Parliament will have similar pension arrangements to those of the Great Offices of State.

CLAUSE 24 - ACTIVATION OF PENSION SHARING

134. Subsection (1) lists the circumstances in which the pension sharing mechanism is triggered. In subsection (1)(f) the Secretary of State is given a regulation-making power to prescribe the form in which a pension sharing provision must be made where it is included in a qualifying agreement negotiated between the parties that takes effect on divorce or nullity in Scotland.

135. In Scotland, parties who divorce commonly make Minutes of Agreement to settle as many issues as possible before going to court. This allows parties to reach their own decisions (with legal advice) about the division of assets. A Minute of Agreement is conventionally registered in the Books of Council and Session (a public register kept in Edinburgh by the Keeper of the Registers of Scotland in which a variety of deeds may be registered). Deeds are usually registered for preservation and execution. This allows either party to compel the defaulting party to fulfil his or her obligations under the deed without returning to court.

136. It is intended that the regulations will set out the form of words to be used for a pension sharing provision that is contained in a negotiated agreement. This will assist the pensions industry by ensuring that every pension sharing provision received by them is in a standard form. It is envisaged that the form of words will set out:

  1. the details of the pension arrangement that is affected by the provision, and
  2. details of the amount or percentage that is to be transferred.

137. The Department believes that secondary legislation is appropriate for what are essentially technical and detailed procedural requirements.

138. Subsection (2) defines a 'qualifying agreement' for the purposes of subsections (1)(b) and (c) as an agreement which was entered into such circumstances and which satisfies such requirements as, in both cases, the Lord Chancellor may prescribe by regulations.

139. The intention is that the regulations will include requirements:

  1. that the agreement has only been entered into following mediation or negotiation involving a third party. These requirements are intended to correspond closely with those to be prescribed by delegated legislation under the Family Law Act 1996 (section 9 and Schedule 1 para 7) in relation to the evidence, which will be required to be produced to the court before divorce under the Family Law Act 1996 (section 9(2)), of an agreement as to the parties' financial arrangements for the future.
  2. that, in view of the involvement of the person responsible for the pension arrangement, the parties show that prior notice of the terms of the proposed pension share was given to that person and that no objection was made by him. This procedure will identify any practical difficulties with the proposals at an early stage. For example, a public sector pension scheme might indicate that the member spouse is under investigation for serious misconduct and that, if the allegations are proved, the scheme might seek to forfeit the pension.
  3. as to form, content and production to the court (subsection (2)(b)), so that:
    1. all the relevant information, which will be required from the parties by the person responsible for the pension arrangement, will be included in a prescribed form of annex to the agreement. This will protect the privacy of the parties and provide an efficient basis for the processing of the information;
    2. the annex will be sent by the court to the pension scheme. This will prevent premature proposals being sent to the arrangement and will provide a practical and effective means of regulating the process; and
    3. details of how the parties wish to apportion the payment of the expenses of effecting the pension share between themselves.

140. The Department believes that these essentially procedural and evidential matters are best dealt with in delegated legislation to ensure that the requirements can be readily adapted in the light of experience. Similar matters will be dealt with in delegated legislation under the Family Law Act 1996 when the new divorce procedure under that Act is brought into force.

141. Subsection (3) defines the type of agreement in Scotland that qualifies under subsection (1)(f). It requires an agreement to be entered into in such circumstances as the Secretary of State may prescribe and also to be registered in the Books of Council and Session before it can trigger the pension sharing mechanism. The intention is that the regulations will require the parties to show that prior notice of the terms of the proposed pension share was given to the person responsible for the pension arrangement. They will also require the parties to show that no objection was made by that person after a reasonable opportunity had been allowed for him to do so. As for England and Wales, this procedure will identify any practical difficulties with the proposals at an early stage.

CLAUSE 25 - CREATION OF PENSION DEBITS AND CREDITS

142. This clause provides for the member's pension rights to be subject to a debit and for his former spouse to become entitled to a pension credit equal to the amount of the debit. The Department believes such matters are best dealt with in delegated legislation as it would be inappropriate to attempt to identify every benefit to be excluded for the purposes of calculating the cash equivalent in primary legislation, not least because pension schemes are not static: they develop to meet changing circumstances.

143. In England and Wales, the amount of the debit will be a percentage of the current cash equivalent of the member's pension rights in the scheme or arrangement. The percentage will be that stated in the pension sharing order or agreement. In Scotland, the pension sharing order or agreement may specify that the pension sharing legislation is to apply in relation to a specified amount, rather than a percentage, of the member's pension rights (see clause 20(3)) and in that case the amount of the debit will be that specified amount or, if less, the current cash equivalent of the member's rights.

144. It is intended to use the regulation-making power in subsection (6) to disregard certain benefits for the purposes of calculating the cash equivalent of the relevant benefits on the valuation day (as defined in subsection (7)). The benefits excluded will correspond to those excluded when using the regulation-making power in clause 23(2) above. For example, an injury benefit, compensation payment and incidental benefits such as travel concessions will be excluded when calculating the cash equivalent.

CLAUSE 26 - CALCULATION OF CASH EQUIVALENTS

145. This clause contains a regulation-making power to enable the Secretary of State to make provision about the calculation and verification of cash equivalents for the purposes of clause 25.

146. Detailed provisions relating to cash equivalent calculations in other areas of pensions law are dealt with in secondary legislation. The Department believes that delegated powers are appropriate also in pension sharing cases both for consistency with current legislation and because of the highly technical nature of these matters.

147. The intention is that regulations will broadly reflect the principles set out for calculating cash equivalents for early leavers. These provisions are set out in regulations 7 and 8 of the Occupational Pension Schemes (Transfer Values) Regulations 1996 (SI 1996/1847), and regulation 3 of the Personal Pension Schemes (Transfer Values) Regulations 1987 (SI 1987/1112). In addition, it is intended to use the regulations to make provision for calculating the cash equivalent of pensions in payment and annuities in payment.

148. In the case of salary related schemes it is intended that cash equivalents for pension sharing, including cash equivalents of pensions in payment, will have to be calculated in a manner approved by a qualified actuary (for example, a Fellow of the Institute of Actuaries or a Fellow of the Faculty of Actuaries). In cases where members have accrued rights in public service schemes, the manner of calculation will have to be approved by the Government Actuary. It is also intended to provide that the scheme actuary and the Government Actuary should calculate the cash equivalent in accordance with guidance issued by the Institute of Actuaries and the Faculty of Actuaries.

CLAUSE 29 - TIME FOR DISCHARGE OF LIABILITY

149. This clause requires a person subject to liability in respect of a pension credit to discharge his liability before the end of the implementation period for the credit. The implementation period is a period of 4 months beginning with the day set out in clause 30(1)(a) or (b), whichever is the later. It contains two regulation-making powers.

150. Under subsection (2)(a), where the trustees or managers of an occupational pension scheme fail to discharge their liability for the pension credit within the implementation period, they will be required, except in prescribed cases, to notify OPRA of that fact within such period as the Secretary of State may prescribe. These provisions are similar to those in section 99(7) of the Pension Schemes Act 1993 (inserted by paragraph 6(e) of Schedule 6 to the Pensions Act 1995) concerning the late payment of an early leaver's cash equivalent by an occupational pension scheme.

151. The power to prescribe cases where it will not be necessary to notify OPRA of a late payment of a cash equivalent has been included to ensure that if OPRA, in the light of experience, identify cases that they do not wish to be notified to them, then the Department can respond quickly by secondary legislation.

152. Where schemes fail to discharge their liability for the pension credit within the implementation period, it is intended to use the delegated power to require them to notify OPRA before the end of that period. This is consistent with the similar requirement in regulation 13 of the Occupational Pension Schemes (Transfer Values) Regulations 1996 (SI 1996/1847) that requires the trustees or managers of an occupational pension to notify OPRA of a failure to pay a transfer value timeously within the period allowed for making a payment.

153. Subsection (4) contains a regulation-making power similar to that in section 99(4) of the Pension Schemes Act (as amended by paragraph 6(c) of Schedule 6 to the Pensions Act 1995). The intention is that the circumstances in which OPRA may extend the implementation period for an occupational scheme to discharge its liability for a pension credit should be similar to those set out in regulation 13 of the Occupational Pension Schemes (Transfer Values) Regulations. For example, if the scheme is being wound up, or about to be wound up, or where the interests of the other members would be prejudiced if the liability is discharged, or the trustees have insufficient information to discharge the liability properly.

CLAUSE 30 - "IMPLEMENTATION PERIOD"

154. This clause, which contains 4 delegated powers, is concerned with the implementation period for discharging liability for a pension credit.

155. The Department believes that the technical, detailed and often complex provisions in this clause are best dealt with in delegated legislation to ensure that the requirements can be readily adapted in the light of experience.

156. Subsection (1)(b)(ii) confers power on the Secretary of State to make regulations prescribing information relating to the transferor and the transferee. The implementation period will not start until the pension arrangement receives the relevant matrimonial documentation and the prescribed information.

157. It is intended that the regulations under subsection (1)(b)(ii) may include items such as the couple's full names, addresses, ages and National Insurance numbers. This will ensure that the implementation period does not begin until the pension arrangement has the information that it needed to carry out the pension share.

158. Subsection (4) provides the Secretary of State with 3 permissive regulation-making powers. Subsection (4)(a) enables provision to be made requiring the person subject to liability in respect of a pension credit to notify both the scheme member (the transferor) and the former spouse (the transferee) of the day on which the implementation period begins. The intention is to use the power in subsection (4)(b) to permit the implementation period to be suspended where a scheme is being wound up, and is unable to meet its liability to the former spouse in full, and the former spouse has consented to the suspension. Subsection (4)(c) provides a power to enable the implementation period to be modified if a pension sharing order is subject to an application for leave to appeal out of time. It is intended that the regulations will provide for the implementation period to be suspended in such circumstances.

CLAUSE 31 - MODE OF DISCHARGE OF LIABILITY

159. Subsection (1) of this clause gives effect to Schedule 5 which makes provision about how liability in respect of a pension credit may be discharged.

160. Subsection (2) of this clause disapplies Schedule 5 where a former spouse dies after a pension sharing order has taken effect but before it is implemented. It also contains a regulation-making power to enable liability for the credit to be discharged in accordance with regulations to be made by the Secretary of State. The Department believes that such matters are best left to delegated legislation as it will be important to ensure that the requirements take account of the variety of pension arrangements and the range of types of benefits such arrangements provide. For example, where the pension credit had been derived from the member's personal pension scheme, the policy intention is that a personal pension provider would be required to pay the amount of the pension credit to the deceased former spouse's estate, as opposed to the pension rights being returned to the surviving ex-spouse or retained by the personal pension provider.

SCHEDULE 5 - PENSION CREDITS: MODE OF DISCHARGE

161. In broad terms, a pension arrangement may discharge its liability for the pension credit by means of an "internal" transfer (ie setting up rights within the scheme from which the pension credit was derived) or by making an "external" transfer to another pension arrangement. However, the options available to the scheme and to the former spouse who is the beneficiary of the pension credit depend on the type of pension arrangement from which the pension credit was derived. The Department believes that the complex and detailed requirements that are necessary to ensure that pension rights are transferred safely and securely to an appropriate destination, including circumstances where it may be necessary to make a transfer without the consent of the former spouse, are best dealt with in delegated legislation. The intention is that the requirements will be consistent with those set out in secondary legislation for the discharge of liability of a member's pension rights under provisions in the Pension Schemes Act 1993.

FUNDED PENSION SCHEMES

162. Paragraph 1 sets out how a funded pension scheme is to discharge its liability in respect of a pension credit.

163. Sub-paragraph (2) provides that trustees or managers of the member's pension scheme may discharge liability for a pension credit due to a former spouse in one of two ways. The scheme can make the former spouse a member with her consent, or in accordance with regulations where consent has not been given. The Government intends to use the regulation-making power to cover cases where the former spouse neither consents to an internal transfer, nor provides details of an alternative pension scheme or arrangement to which the scheme can discharge its liability for the pension credit. In these cases regulations will provide that the scheme can provide rights for the former spouse under the scheme without her consent. In the absence of such a power the pension credit would remain in limbo.

164. Sub-paragraph (3) provides for the external discharge of liability for a pension credit to enable rights to be set up for the former spouse in another scheme or arrangement. Sub-paragraph (3)(c) provides that the transfer payment can be made with the former spouse's consent or in accordance with regulations where consent has not been given. The Government intends to use this regulation-making power to cover cases where the former spouse does not provide details of an alternative scheme or arrangement to which the scheme can discharge its liability for the pension credit and the scheme does not wish to give the former spouse rights within its own scheme. In these cases regulations will provide that the scheme can discharge its liability for the pension credit by taking out an appropriate policy of insurance or annuity contract for the former spouse, without her consent, to provide benefits equal in value to the pension credit.

UNFUNDED PUBLIC SERVICE PENSION SCHEMES

165. Paragraph 2 sets out how an unfunded public service pension scheme is to discharge its liability in respect of a pension credit. The general rule is that the scheme may only discharge its liability by means of an internal transfer (ie by conferring appropriate rights on the former spouse within that scheme). However, sub-paragraph (3) provides a regulation-making power in cases where an unfunded public service pension scheme from which a pension credit derives is closed to new members. In such cases, it is intended that the Minister of the Crown or government department having responsibility for the closed scheme will use the delegated power to lay regulations specifying an alternative public service scheme to provide the former spouse with pension rights.

OTHER UNFUNDED OCCUPATIONAL PENSION SCHEMES

166. Paragraph 3 sets out how an unfunded occupational pension scheme that is not a public service scheme is to discharge its liability in respect of a pension credit. Sub-paragraph (3) provides that a transfer payment can be made to a "qualifying arrangement", which is a suitable destination for the pension credit and able and willing to accept it, only with the consent of the former spouse, or in accordance with regulations made by the Secretary of State. This regulation-making power mirrors that in paragraph 1(3) of Schedule 5 above and the intention is to use it in a broadly similar way, except that there will be an additional safeguard to ensure that the former spouse is compensated for any tax penalty incurred on account of a transfer out of such a scheme without consent.

OTHER PENSION ARRANGEMENTS

167. Paragraph 4 sets out how liability in respect of a pension credit derived from a policy of insurance or annuity contract is to be discharged.

168. Sub-paragraph (2) contains provisions broadly corresponding to those in paragraph 1(3). As in paragraph 1(3), the Government intends to use the regulation-making power to cover cases where the former spouse does not provide details of an alternative scheme or arrangement to which the arrangement can discharge its liability for the pension credit and the arrangement from which the pension credit is derived does not wish to enter into an annuity contract with the former spouse. In these cases regulations will provide that the scheme can discharge its liability for the pension credit by taking out an appropriate policy of insurance or annuity contract for the former spouse, without her consent, to provide benefits equal in value to the pension credit.

169. Sub-paragraph (4) enables a pension arrangement to discharge its liability for a pension credit by providing an annuity for the former spouse in prescribed circumstances. The Government intends to use this regulation-making power to cover cases where the pension credit is derived from an annuity in payment to the member, and the pension arrangement does not wish to discharge its liability by making a transfer payment to another scheme or arrangement, and the former spouse has not given her consent to the provision of an annuity by the arrangement. In these cases regulations will provide that the scheme can nevertheless provide an annuity for the former spouse without her consent.

170. Paragraph 5 provides that a pension scheme or arrangement will not be taken to have conferred appropriate rights within the scheme (an internal transfer) unless the conditions set out in (a) and (b) are satisfied. It is intended to use the regulation-making power in (b) to ensure that in calculating benefits in respect of a pension credit, the actuary uses methods and assumptions which are consistent with the methods and assumptions used for calculating outgoing cash equivalents from that scheme. The actuary will also be required to certify that the methods adopted and the assumptions made are in accordance with guidance published by the Institute of Actuaries and the Faculty of Actuaries. The Department believes that the complex requirements relating to the conversion of a pension credit into benefits for the former spouse are best dealt with in delegated legislation, particularly because of the need for consistency with the requirements relating to the calculation of outgoing cash equivalents which are currently dealt with in secondary legislation.

171. Paragraph 6 defines qualifying pension arrangements for the purposes of this Schedule. One of the qualifying arrangements listed is a policy of insurance or annuity contract provided that the insurance company concerned satisfies such requirements as the Secretary of State may prescribe by regulations. The intention is to use the regulation-making power in sub-paragraph (2)(b) to prescribe requirements with which insurance companies must comply that are broadly consistent with those in regulation 2 of the Occupational Pension Schemes (Discharge of Liability) Regulations 1997 (S.I. No 1997/784). So, for example, the insurance company will be required to be authorised under section 3 or 4 of the Insurance Companies Act 1982, or in the case of a Friendly Society, authorised under section 32 of the Friendly Societies Act 1992, or an EU company that meets prescribed requirements.

DISQUALIFICATION AS DESTINATION FOR PENSION CREDIT

172. Paragraph 7 sets out the circumstances in which a pension arrangement will be disqualified as a destination for a pension credit.

173. Sub-paragraph (1) provides that if a pension credit derives from a pension arrangement which is tax approved for the purposes of Part XIV of the Income and Corporation Taxes Act 1988, then the receiving scheme must also be approved for those purposes, or it must satisfy such requirements as the Secretary of State may prescribe by regulations. It is intended to use this power to permit a transfer of the pension credit to a scheme which is being considered for approval by the Commissioners of the Inland Revenue for the purposes of Part XIV of the Income and Corporation Taxes Act 1988.

174. Sub-paragraph (2) provides that if a pension credit includes contracted-out rights or safeguarded rights, a pension arrangement is disqualified as a destination for the credit unless it is of a description prescribed by the Secretary of State by regulations and it satisfies such requirements as he may prescribe. The intention is to use the first mentioned regulation-making power to provide that only contracted-out money purchase or salary-related occupational pension schemes, appropriate personal pension schemes and appropriate policies of insurance or annuity contracts will be permitted as destinations for such pension credit rights. Such schemes will also have to satisfy additional requirements to ensure that the pension credit rights are adequately protected and used for the purpose for which they are intended. For example, they will have to meet requirements in respect of the age at which pension derived from a pension credit may be payable to a former spouse.

175. Sub-paragraph (3) provides that an occupational pension scheme is disqualified as a destination for the pension credit unless the rights to be acquired by the former spouse are equal in value, when calculated in accordance with regulations made by the Secretary of State, with the pension credit. The Government intends to use the regulation-making power to disqualify an occupational pension scheme as a destination for pension credit unless, in calculating benefits in respect of a pension credit, the scheme actuary uses methods and assumptions which are consistent with the methods and assumptions used for calculating outgoing cash equivalents from that scheme. The actuary will also be required to certify that the methods adopted and the assumptions made are in accordance with guidance published by the Institute of Actuaries and the Faculty of Actuaries. As explained above, similar requirements have always been dealt with in delegated legislation and the Department believes that the same approach is right in pension sharing cases too.

176. The Government intends to use the regulation-making power in sub-paragraph (4) to determine the terms of the annuity contract or insurance policy which will establish it as a suitable destination for a pension credit. For example, an insurance company will be disqualified unless it is authorised under section 3 or 4 of the Insurance Companies Act 1982.

177. Sub-paragraph (6) defines contracted-out rights for the purpose of sub-paragraph (2) as meaning such rights under, or derived from, an occupational pension scheme contracted-out by virtue of section 9(2) or (3) of the Pension Schemes Act 1993, or a personal pension scheme which is an appropriate scheme for the purposes of that Act, as the Secretary of State may prescribe by regulations. It is intended to use the regulation-making power to ensure that, where the pension credit is derived from contracted-out rights which have been transferred from one scheme to another or to a policy of insurance or annuity contract, then such rights are caught within the scope of sub-paragraph (2). The Department believes that such detailed provisions are best left to delegated legislation.

ADJUSTMENTS TO AMOUNT OF PENSION CREDIT

178. Paragraph 8 provides for the amount of pension credit to be reduced in relation to the discharge of liability for a pension credit by means of an external transfer where a scheme subject to the minimum funding requirement is underfunded on the valuation day. The regulation-making power in sub-paragraph (1)(d) enables the Secretary of State to prescribe additional circumstance that should apply before the pension credit may be reduced. It is intended to use that power to enable the scheme to offer the former spouse a reduced pension credit in circumstances where the former spouse has elected to take a transfer to another scheme or arrangement, having refused the offer of pension credit benefit (without reduction) in the member's scheme.

179. Whether a scheme is underfunded for the purposes of sub-paragraph (1) shall be determined in accordance with regulations made by the Secretary of State. The intention is to use the power in sub-paragraph (2) to prescribe that a scheme will be treated as underfunded on the valuation day if the latest actuarial valuation obtained in accordance with section 57 of the Pensions Act 1995 (which relates to the valuation of assets and liabilities for the purposes of the minimum funding requirement) shows the scheme as having insufficient assets to fully meet its liabilities. The intention is that the provisions will broadly reflect those set out in regulation 8(4) of the Occupational Pension Schemes (Transfer Values) Regulations. For example, if the latest actuarial valuation shows that the scheme was 20% underfunded, then the amount of the pension credit as calculated on the valuation day may be reduced by the same percentage. The Department believes that such technical matters, as has been the case with similar provisions in the past, are best dealt with in delegated legislation.

180. Paragraph 9 is designed to protect the pension arrangement where there is a time lag between the date on which the member's shareable rights under the arrangement become subject to a pension debit and the date on which the arrangement learns about it. The delegated power enables the pension credit to be reduced to a lesser amount in accordance with regulations made by the Secretary of State. It is intended to use the regulation-making power to enable an arrangement to reduce the pension debit by the amount necessary to ensure that it does not suffer a financial loss in respect of a bona fide payment made in ignorance of the pension credit. The matter is best left to delegated legislation for the same reason as set out in relation to paragraph 8 above.

181. Paragraph 10 provides a regulation-making power for increasing the amount of a pension credit where there has been a delay in discharging liability in respect of a pension credit in a case where liability falls to be discharged by means of a transfer payment. If an occupational pension scheme fails without reasonable excuse to make the transfer payment on time, then it is intended that regulations should require the scheme to recalculate the cash equivalent. This will be recalculated as at the date the scheme actually makes the payment. The scheme would be required to pay that amount or, if higher, the original cash equivalent increased by interest at an annual rate of 1% above base rate between the valuation date and the implementation date. If a personal pension scheme fails without reasonable excuse to make the transfer payment on time, it is intended that the member's cash equivalent should be increased by the interest payable on it. This would be at the same rate as that payable for the time being on judgment debts by virtue of section 17 of the Judgment Act 1838, between the date the order or agreement took effect and the date the scheme actually makes the payment, or if it is greater, the cash equivalent recalculated as at the date it actually makes the payment. The Department considers that these technical provisions are best dealt with in delegated legislation. Such an approach will also enable the Department to more readily ensure consistency between the provisions for increasing a pension credit because of late payment and the similar provisions for increasing a transfer value on late payment which is a matter left to delegated legislation (see, for example, Regulation 10 of the Occupational Pension Schemes (Transfer Values) Regulations 1996).

CLAUSE 32 - SAFEGUARDED RIGHTS

182. The clause inserts a new Part IIIA (sections 68A - 68D) into the Pension Schemes Act 1993. The new sections make special provision for "safeguarded rights", that is the pension credit rights of a former spouse deriving from the ex-spouse's membership of a contracted-out occupational pension scheme or an appropriate personal pension (APP) scheme.

183. Section 68A(5) of the Pension Schemes Act 1993 defines "contracted-out rights" for the purposes of section 68A. The definition includes a delegated power to enable the Secretary of State to include within the definition of contracted rights such rights under or derived from a contracted-out occupational pension scheme or an appropriate personal pension scheme as may prescribed. It is intended to use this regulation-making power to ensure that where the pension credit included contracted-out rights that had been transferred into the scheme of the ex-spouse whose pension has been shared, then those rights, as well as the contracted-out rights that the ex-spouse built up within the scheme, are caught within the definition of contracted-out rights.

184. Section 68B provides a general regulation-making power to prescribe requirements in respect of safeguarded rights. It is intended to use this power to prescribe requirements in respect of safeguarded rights that are consistent with those for contracted-out rights built up since April 1997 in an occupational pension scheme or an appropriate personal pension scheme by ordinary members. For example, where the safeguarded rights are used to provide money purchase benefits for the former spouse, the requirements will be similar to those for post-April 97 protected rights as set out in the Personal and Occupational Pension Schemes (Protected Rights) Regulations 1996 (S.I. No 1996/1537).

185. Section 68D provides for regulations to prohibit or restrict the transfer or discharge of liability for safeguarded rights under a contracted-out occupational or personal pension scheme. The provision is similar to the existing power at section 12C of the Pension Schemes Act 1993. The intention is to use the regulation-making powers in this section to lay regulations in respect of the discharge of liability that will be comparable to Part III of the Occupational Pensions Schemes (Discharge of Liability) Regulations 1997. For example, it is intended to prescribe that the policy of insurance or annuity contract must be taken out or entered into with an insurance company such as is described in section 19(4)(a) of the Pension Schemes Act 1993. The regulations will also set out the form of the benefits to be payable and the age at which those benefits payable.

186. Regulations about the transfer of safeguarded rights will be comparable to Part III of the Contracting-out (Transfer and Transfer Payment) Regulations 1996, the Protected Rights (Transfer Payment) Regulations 1996 and the Personal and Occupational Schemes (Protected Rights) Regulations 1996. The regulations will set out the requirements in relation to transfer payments to money purchase contracted-out out schemes, salary-related contracted-out schemes, appropriate personal pension schemes, and overseas schemes. For example, a general requirement will be that a transfer may only take place if the former spouse consents in writing.

CLAUSE 33 - REQUIREMENTS RELATING TO PENSION CREDIT BENEFIT

187. This clause inserts a new Part IVA into the Pension Schemes Act 1993. Chapter I requires rights in an occupational pension scheme derived (directly or indirectly) from a pension credit to be treated in a way broadly similar to the way in which the rights of a deferred member are required to be treated under Chapter I of Part IV of the Act. As with the provisions relating to the accrued rights of early leavers from occupational pension schemes, the key principles are set out in primary legislation, but the detailed requirements derived from those principles are set out in delegated provision.

188. Section 101A defines the scope of the Chapter. The power in 101A(1)(b) has been included to ensure consistency as between this new section and the similar power in section 69(3)(b) of the Pension Schemes Act 1993 that relates to the preservation of benefit for early leavers from occupational pension schemes. Although the latter power has not yet been used, if it were to be used in future, then it would be necessary to return to Parliament to amend this Bill on a technical matter to bring the provisions for pension credit benefit and preserved benefits back into line.

189. Section 101C provides that a payment of pension credit benefit in lump-sum form cannot be made before normal benefit age (between 60 and 65), except in prescribed circumstances. It is intended to use the regulation-making power to permit lump-sum payments in circumstances similar to those set out in Regulation 5 of the Occupational Pension Schemes (Preservation of Benefit) Regulations 1991 (S.I. No 1991/167). An example is where the former spouse's earning capacity is destroyed or seriously impaired by physical or mental infirmity or when the former spouse has reached the age of 50.

190. Section 101D provides for pension credit rights to be treated in broadly the same way as rights for deferred members. Under subsection (1), pension credit benefit must be paid directly out of the resources of the scheme or assured to the former spouse by such means as may be prescribed. The intention is to prescribe that pension credit benefit can be assured by the purchase of an insurance policy or annuity contract entered into with an appropriate insurance company or friendly society. The requirements applying to policies of insurance and annuity contracts will be similar to those set out in Part II of The Occupational Pension Schemes (Discharge of Liability) Regulations 1997. So, for example, the insurance company will be required to be authorised under section 3 or 4 of the Insurance Companies Act 1982, or in the case of a Friendly Society, authorised under section 32 of the Friendly Societies Act 1992, or an EU company that meets prescribed requirements

191. Subsection (2) permits pension credit benefit to be transferred from one pension scheme or arrangement to another or for such alternatives to pension credit benefit as may be prescribed. This provision is similar to that in section 73(2) of the Pension Schemes Act 1993 which makes provision to prescribe alternatives to short service benefit. Regulations 7 to 11 of The Occupational Pension Schemes (Preservation of Benefit) Regulations 1991 (S.I. No 1991/167) set out the alternatives to short service benefit and it is intended to prescribe alternatives to pension credit benefit that are consistent with those requirements. So, for example, the regulations will permit retirement before normal benefit age if certain conditions are satisfied, and the purchase of an insurance policy or annuity contract providing benefits different to those that would otherwise have been provided by the scheme. In both cases, it will be a requirement that the value of the alternative benefits to be provided should be equal in value to the pension credit benefit that would otherwise have been paid to the former spouse under the normal rules of the scheme.

192. The power in subsection (4)(b) to provide an alternative to pension credit benefit without the member's consent in such cases as may be prescribed mirrors the power in section 73(4) of the Pension Schemes Act. The intention is to use it to prescribe conditions similar to those set out in regulation 12(3)-(4) of the Preservation of Benefit Regulations 1991. These regulations are designed to facilitate the bulk transfer of pension rights, for example, following a takeover or merger. A key requirement will be that an actuary must certify that pension credit benefits are adequately protected and secure if transferred without the consent of the former spouse.

193. Section 101E broadly corresponds to the provisions in section 81 of the Pension Schemes Act. It sets out conditions which, if complied with by the trustees or managers of a scheme, will result in their being statutorily discharged from their liability to provide pension credit benefit. A discharge of liability can be secured by the purchase of an insurance policy or annuity contract that meets prescribed requirements. It is intended to use the power in subsection (1)(c) to make regulations similar to those in Part II of The Occupational Pension Schemes (Discharge of Liability) Regulations 1997 (S.I. No 1997/784). For example, the regulations will set out the conditions on which insurance policies and annuities may be assigned, surrendered, and commuted and set out special provisions in relation to safeguarded rights.

194. The power in section 101E(2) is designed to permit through regulations for transfers without the consent of the former spouse (or, if the former spouse has died, the widow or widower of the former spouse) in strictly limited circumstances. An example is where the former spouse is dead and benefit is payable to a person other than his widow or her widower and the arrangement for securing the benefit by means of an insurance policy or annuity contract was made at the written request of the person entitled to it, or with the written consent of that person.

195. Section 101F gives a former spouse with pension credit rights in a funded occupational pension scheme or a personal pension scheme the right to transfer the cash equivalent of those rights to another pension scheme or arrangement.

196. The right of a former spouse to transfer pension credit rights is broadly similar to the right of a deferred member to transfer accrued rights on termination of pensionable service. The delegated powers in subsections (2) and (3) are broadly similar to those provided in section 95(2) and (3) and set out the ways in which a former spouse may exercise the right to transfer her pension credit rights (eg by transfer to an occupational pension scheme, personal pension scheme or a policy of insurance or annuity contract). It is intended to use the powers in section 101F(2)(b) and (c) and (3)(b) to set out requirements that are consistent with the conditions set out in regulation 12 of The Occupational Pension Schemes (Transfer Values) Regulations 1996 for receiving schemes, annuities and other pension arrangements. So, for example, if a transfer payment is used to purchase a deferred annuity, that policy will be required to satisfy conditions on which it may be assigned, surrendered or commuted.

197. Subsection (6) provides a delegated power to define a scheme eligible to receive at transfer payment as one which satisfies prescribed requirements. An example of the way in which it is intended to use this power is in circumstances where a transfer is proposed to a personal pension scheme and the cash equivalent of the pension credit includes safeguarded rights. In such cases, the regulations will require the receiving scheme to be an appropriate personal pension scheme.

198. Section 101H is concerned with statements of entitlement of the amount of the cash equivalent for former spouse members of salary related schemes. The provisions in this section and the delegated powers it contains are similar to the delegated powers in section 93A of the Pensions Act 1993 which is concerned with statements of entitlement for early leavers from salary-related schemes. So, subsection (2)(a) and (b) contain regulation-making powers similar to those in section 93A(2) of the Act to determine the amount of a cash equivalent by a date falling within a prescribed period beginning with the date of the transfer application, and the prescribed period ending with the date on which the statement under that subsection is provided to the applicant. The intention is to use these powers to prescribe requirements broadly analogous to regulation 6(1) and 6(2) respectively of the Occupational Pension Schemes (Transfer Values) Regulations 1996. So, schemes will normally be required to calculate the cash equivalent within 3 months of the date of the former spouse's application and having calculated it, provide it to the former spouse within 10 days of the calculation date.

199. Subsection (3) contains a delegated power to make provision in secondary legislation in relation to applications for transfers under this section. It is intended to use the regulation-making power to mirror the provisions in regulation 6(3) of The Occupational Pension Schemes (Transfer Values) Regulations 1996 made under the broadly similar delegated power in section 93A(3) of the Pension Schemes Act 1993. The regulations will limit the former spouse to one transfer request in a 12 month period unless the rules of the scheme, or the trustees or managers permit a further application to be made earlier.

200. Section 101I contains a delegated power requiring cash equivalents for the purposes of this Chapter to be calculated and verified in the prescribed manner. The intention is to use the regulation-making power to prescribe requirements similar to those in regulation 7 of the Occupational Pension Schemes (Transfer Values) Regulations 1996 made under the power in section 97(1) of the Pension Schemes Act 1993.

201. So, for example, cash equivalents of salary-related benefits will be required to be calculated and verified by adopting methods and assumptions which are certified by the actuary to the trustees of the scheme as being consistent with the relevant professional guidance note published by the Institute of Actuaries and the Faculty of Actuaries.

202. Section 101J contains the time limits for trustees to comply with a transfer notice for pension credit benefit. The normal time limit will be within 6 months of the date on which they receive the transfer notice, except that in the case of a salary-related scheme it will be within 6 months of the valuation date as determined by section 101H(2) above. The regulation-making powers in subsections (2) and (6)(a) provide respectively that OPRA may, in prescribed circumstances, extend the period for complying with the transfer notice, and make provisions in relation to applications for an extension of the 6 month period for complying with the transfer notice. These delegated powers are similar to those in section 99(4) and (4A) (as substituted by paragraph 6(c) of Schedule 6 to the Pensions Act 1995). It is intendeded to use the power in subsection (2) to allow the Regulatory Authority to grant an extension of the time allowed for making a transfer in broadly the same circumstances as provided for in regulation 13 of the Occupational Pension Schemes (Transfer Values) Regulations 1996. So, for example, an extension would be permitted if the scheme is being wound up or the interests of the members of the scheme generally will be prejudiced if the trustees comply with the transfer notice within the 6 month period allowed. It is not intended to use the power in section 101J(6)(a) to make provisions in relation to applications for an extension of the 6 month period unless OPRA advise that, in the light of experience, it would helpful to them for the Department to prescribe requirements on these matters.

203. Subsection (4)(a) requires the trustees or managers of an occupational pension scheme who fail to comply with a transfer notice within the time allowed, except in prescribed cases, to notify OPRA of that fact within the prescribed period. The power to prescribe cases where it will not be necessary to notify OPRA is similar to that in section 99(7) of the Pension Schemes Act which has not been used. However, a similar delegated power has been taken for consistency and to enable a quick response if such cases are identified in the light of experience. It is intended to use the delegated power to prescribe the period within which OPRA should be notified to require notification within the 6 month period allowed for compliance with the transfer notice.

204. The delegated power at subsection (6)(b) enabling regulations to prescribe circumstances in which subsection (4) above will not apply will be used if, following consultation with the pension industry and OPRA, such circumstances are identified.

205. Section 101L provides a power to increase or reduce cash equivalents in respect of pension credit benefits in prescribed circumstances.

206. Subsections (1) and (2) are consistent with the power to increase or reduce cash equivalents under section 97(2)(b) and (3)(b) and (c) of Part IV of Chapter IV of the Pension Schemes Act. It is intended to lay regulations broadly similar to regulations 8 and 9 of the Occupational Pension Schemes (Transfer Values) Regulations 1996 and regulation 4(1) of the Personal Pension Schemes (Transfer Values) Regulations 1987 (S.I. 1987/1112). For example, the regulations will make provision for a cash equivalent to be reduced if a scheme is underfunded or if it is discovered that the amount of the cash equivalent quoted is wrong, then the regulations will permit it to be increased or reduced to the right amount.

207. It is intended to prescribe circumstances in which a cash equivalent shall be increased on account of late payment. The proposed regulations will mirror the provisions set out in regulation 10 of the Occupational Pension Schemes (Transfer Values) Regulations and regulation 4(2) of the Personal Pension Schemes (Transfer Values) Regulations. For example, if an occupational pension scheme without reasonable excuse makes a late payment, then it will be required to pay either the cash equivalent recalculated at the current date, or the original transfer value increased by 1% above the bank base rate over the period from the date of the original calculation until the current date.

208. Section 101P defines some terms used in the Chapter.

209. Subsection (2) defines an occupational pension scheme as salary-related if it is not a money purchase scheme and it does not fall within a prescribed class. This delegated power mirrors that in section 93(1A) of the Pension Schemes Act (inserted by section 152(3) of the Pensions Act). Although pure money purchase schemes and pure salary-related schemes are relatively easy to identify there are many schemes that provide benefits that do not fit neatly into either category. This regulation-making power will provide the flexibility to ensure that such schemes are not subject to inappropriate regulation.

210. Section 101Q provides a delegated power enabling regulations to apply this Chapter with prescribed modifications to occupational pension schemes which are not money purchase schemes but where some of the benefits to be provided are money purchase benefits. It is intended to use this power to deal with those cases where the pension credit benefit includes a mixture of salary-related and money purchase benefits. Essentially the regulations will require the part of the cash equivalent relating to salary-related benefits to be calculated as if the scheme was a salary-related scheme and similarly the part of the cash equivalent relating to money purchase benefits to be calculated as if the scheme was a money purchase scheme.

CLAUSE 36 - OTHER PENSION SCHEMES

211. This clause is concerned with pensions in payment derived from a pension share other than those covered by clause 35 (public service pension schemes). It enables the Secretary of State by regulations to make provision for a pension to be increased, as a minimum, by reference to increases in the retail price index up to a cap of 5% per annum. The Department believes that the detailed technical requirements relating to the indexation of pensions in payment derived from a pension share are best dealt with in delegated legislation. One of the major technical complications will be the need to ensure that pension credit rights that have been transferred from one scheme or pension arrangement to another fall within the scope of the regulations where it is right that they should do so.

212. It is intended to use the regulation-making power in subsection (1) to require an occupational pension scheme to index the part of a pension derived from safeguarded rights and/or post-April 1997 occupational pension rights (excluding additional voluntary contributions) by the increase in prices up to the 5% cap. The proposed regulations will mirror the relevant provisions in the Occupational Pension Schemes (Indexation) Regulations 1996 (S.I. No 1996/1679).

213. Similarly, it is intended to require a pension or annuity in payment derived from safeguarded rights in a personal pension scheme to be protected against inflation up to the 5% cap. The proposed regulations will mirror the relevant provisions in the Occupational Pension Schemes (Protected Rights) Regulations 1996 (S.I. No 1996/1537).

CLAUSE 37 - CHARGES BY PENSION ARRANGEMENTS

214. The purpose of this clause is to enable provision to be made allowing pension arrangements to recover from the couple any reasonable administrative costs incurred as a result of implementing the pension share (for example, final valuation, costs of discharging the liability for the pension credit, reduction of the member's benefit etc). There is already provision under existing pensions law for pension arrangements to recover the costs of providing valuations earlier in the divorce proceedings that they are not statutorily required to provide to members free of charge under the disclosure of information requirements.

215. The Department believes that these technical details are best dealt with in delegated legislation to provide clarity of purpose in the primary legislation while providing the flexibility to readily adjust the details in the light of experience.

216. Subsection (1) enables provision to be made for the recovery of charges from either the member or the former spouse subject to any conditions the Secretary of State may wish to set out in regulations. It is intended to use the regulation-making power to (i) require that charges must be reasonable and limited to the costs incurred in implementing the pension sharing order/agreement; and (ii) that pension arrangements offer the parties a chance to pay charges at the outset before the pension arrangement can deduct them from the pension credit or the member's pension rights or pension payments.

217. Subsection (2) gives further detail concerning what the regulations made under subsection (1) may cover:

  • subsection (2)(a): postponement of the start of the implementation period. The intention is to regulate to allow the scheme to postpone the start of the implementation until the administration charges have been met;
  • subsection (2)(b): in relation to payments in respect of charges recoverable under the regulations, for reimbursement as between the parties to pension sharing. The intention is to allow charges to be recovered from one party (eg the member whose pension is being shared) where that party has defaulted on meeting the administrative charges, and the charges have been met by the other party (eg the former spouse who is the beneficiary of the pension share);
  • subsection (2)(c): in relation to the recovery of charges by deduction from a pension credit, for the modification of Schedule 5. The intention is to provide that, where a pension arrangement deducts charges from a pension credit, the provisions in Schedule 5 about discharge of liability in respect of the credit have effect by reference to the net amount of the credit;
  • subsection (2)(d): for the recovery in prescribed circumstances of such additional amount as may be determined in accordance with the regulations. It is intended to permit a scheme to increase the original charge, by an appropriate rate of interest, when the charges are met not at the time the scheme implements the pension sharing order/agreement but at a later date.

CLAUSE 39 - POWER TO EXTEND JUDICIAL PENSION SCHEMES

218. This clause enables the relevant Minister to make regulations in order to implement pension sharing in respect of judicial pension schemes.

219. Subsection (1) contains a power to make regulations amending the relevant judicial pensions Acts. The regulations may:

  1. extend the rules of judicial pension schemes so as to enable the scheme to provide benefits to former spouses of judges following a pension share, based on pension credits derived from the scheme in question (or from another statutory scheme for which the judicial pension scheme is specified as a replacement); and
  2. prevent the transfer-in of pension credits from another pension scheme.

220. Subsection (2) gives further details concerning what the regulations made under subsection (1) may cover:

  1. make benefits payable out of the Consolidated Fund; and
  2. insert new regulation-making powers into the relevant judicial pensions Acts.

221. The changes the Government intends to make in regulations under clause 39 are analogous to those intended to be made to other statutory pension schemes by virtue of clause 38. A separate provision including a regulation-making power is required in respect of the judicial pension schemes because the main elements of these schemes are set out in primary legislation (unlike other statutory schemes). The power to make regulations amending the relevant judicial pensions Acts will enable the judicial pension schemes to be amended in a manner and at a time which are consistent with other statutory schemes.

222. The reason for specifying that regulations made under clause 39 may make benefits payable out of the Consolidated Fund is to ensure that the new provisions can, where appropriate, match the present provisions (whereby benefits under certain judicial pension schemes are currently payable out of the Consolidated Fund).

223. The reason for providing that regulations under clause 39 may insert new regulation-making powers into the relevant judicial pensions Acts is to enable administrative arrangements concerning pension sharing in the judicial pension schemes, which might need to be changed from time to time, to be dealt with in secondary legislation. This would be consistent with present arrangements, whereby those Acts already contain numerous regulation-making powers for purposes similarly related to the administration of the judicial pension schemes.

224. For avoidance of doubt the delegated power under subsection (2)(b) explicitly provides for the calculation of pension rights in accordance with guidance from time to time prepared by a person specified in the subordinate legislation. It is intended to use this power to specify, for example, the Government Actuary. The delegated power will ensure that the drafting difficulties which bedevilled the drafting of previous subordinate legislation ie the need to spell out complex actuarial calculations on the face of secondary legislation, can be avoided in the case of legislation implementing pension sharing.

CLAUSE 41 - INFORMATION

225. This clause contains a delegated power in subsection (1) to enable the Secretary of State to make regulations requiring pension arrangements, involved in pension sharing, to supply to such persons as he may specify in the regulations, information about the implementation of the relevant pension sharing order or provision. It is intended to use this provision to ensure that the pension arrangement notifies the divorcing couple of the date on which the implementation process was completed and the cash equivalent value of their respective pension rights on that date.

226. In the case of an internal transfer (ie where the former spouse becomes a member of the pension arrangement from which the pension credit was derived), the intention is to require the arrangement to notify the former spouse member of his or her membership number, the name and address of the trustees and details on the benefit package on offer. Where an external transfer has taken place (ie the former spouse has become a member of another pension arrangement), it is intended to require the exporting scheme to notify details such as the name and address of the receiving scheme, together with the date and the amount of the transfer payment.

227. The Department believes that these matters are best dealt with in delegated legislation just as the detailed disclosure of information requirements arising from the Pension Schemes Act 1993 and the Pensions Act 1995 are dealt with in secondary legislation eg the Occupational Pension Schemes (Disclosure of Information) Regulations 1996 (S.I. No 1996/1655).

CLAUSE 44 - ACTIVATION OF BENEFIT SHARING

228. This clause lists the circumstances under which the process of sharing state scheme rights (as defined in clause 43), can be triggered in England and Wales, and Scotland. The provisions are analogous to those in clause 24 of this Bill.

229. Subsection (1) lists the circumstances in which the pension sharing mechanism is triggered. In subsection (1)(f) the Secretary of State is given a regulation-making power to prescribe the form in which a pension sharing agreement must be made where it is included in a qualifying agreement negotiated between the parties that takes effect on divorce or nullity in Scotland.

230. As with regulations under clause 24, relating to the form of the pension sharing provision for pension arrangements, it is intended that the regulations will set out the form of words to be used for a pension sharing provision that relates to state scheme rights. It is envisaged that the form of words will set out

  1. the details of the state scheme rights that are affected by the provision; and
  2. details of the amount or percentage that is to be transferred.

231. Subsection (2) defines a 'qualifying agreement' for the purposes of subsections (1)(b) and (c) as an agreement which was entered into such circumstances and which satisfies such requirements as, in both cases, the Lord Chancellor may prescribe by regulations.

232. The intention is that the regulations will include requirements:

  1. that the agreement has only been entered into following mediation or negotiation involving a third party. These requirements are intended to correspond closely with those to be prescribed by delegated legislation under the Family Law Act 1996 (section 9 and Schedule 1 para 7) in relation to the evidence, which will be required to be produced to the court before divorce under the Family Law Act 1996 (section 9(2)), of an agreement as to the parties' financial arrangements for the future.
  2. in view of the involvement of the Benefits Agency where SERPS rights are to be shared, it is also intended that the regulations will require the parties to show that prior notice of the terms of the proposed pension share was given to the Benefits Agency and that no objection was made by the Agency after a reasonable opportunity had been allowed for it to do so. This procedure will identify any practical difficulties with the proposals at an early stage.
  3. as to form, content and production to the court (subsection(2)(b)), so that:
    1. all the relevant information, which will be required from the parties by the Benefits Agency, will be included in a prescribed form of annex to the agreement. This will protect the privacy of the parties and provide an efficient basis for the processing of the information;
    2. the annex will be sent by the court to the pension scheme. This will prevent premature proposals being sent to the arrangement and will provide a practical and effective means of regulating the process; and
    3. details of how the parties wish to apportion the payment of the expenses of effecting the pension share between themselves.

233. These matters are to be dealt with in delegated legislation to ensure that the requirements can be readily adapted in the light of experience. Similar matters will be dealt with in delegated legislation under the Family Law Act 1996 when the new divorce procedure is brought into force.

234. Subsection (3) defines the type of agreement in Scotland that qualifies under subsection (1)(f). It requires an agreement to be entered into in such circumstances as the Secretary of State may prescribe and also to be registered in the Books of Council and Session before it can trigger the pension sharing mechanism. Similar considerations will apply to these regulations as apply to the regulations under clause 24(3) that prescribe the circumstances in which a negotiated agreement in relation to pension benefits may be entered into. The intention is that the regulations will require the parties to show that prior notice of the terms of the proposed pension share was given to the Benefits Agency and that no objection was made by that Agency after a reasonable opportunity had been allowed for it to do so. As for England and Wales, this procedure will identify any practical difficulties with the proposals at an early stage.

CLAUSE 45 - CREATION OF STATE SCHEME PENSION DEBITS AND CREDITS

235. This clause sets out how a pension sharing order/agreement relating to state scheme rights (ie the rights to the additional pension (AP) element of a Category A retirement pension) will work. An AP may be payable to an employee who has contributed to the State Earnings Related Pension Scheme (SERPS), that is, in any tax year, paid standard rate Class 1 National Insurance contributions.

236. The provisions relating to cash equivalent calculations elsewhere in this Bill and in the Pension Schemes Act 1993 and the Pensions Act 1995 are matters left to delegated legislation and the Department believes that the calculations to place a cash equivalent value on SERPS rights should be dealt with in the same way.

237. Subsection (4) contains a delegated power to enable the Secretary of State to set out in regulations how the cash equivalent of SERPS rights is to be calculated. The regulations will require that the cash equivalent shall be calculated and verified in such manner as may be approved by the Government Actuary or by an actuary authorised by the Government Actuary to act on his behalf for that purpose. The regulations will also require cash equivalents to be calculated and verified by adopting methods and making assumptions which are consistent with guidance published by the Institute of Actuaries and Faculty of Actuaries.

SCHEDULE 6 - EFFECT OF STATE SCHEME PENSION DEBITS AND CREDITS

238. Clause 46 gives effect to Schedule 6 which amends the Contribution and Benefits Act 1992 to take account of the impact of a pension share on the member whose state pension rights are reduced and on the former spouse who receives a pension credit equal in value to the debit. The Schedule inserts sections 45B, 55A, 55B, and 55C into the Contributions and Benefits Act.

239. Paragraph 2 inserts section 45B. This provision covers how and when reductions will be made from an additional pension as a consequence of a pension share. Subsection (7) contains a delegated power to enable cash equivalents for the purposes of this section to be calculated in accordance with regulations. It is intended to prescribe requirements that are broadly the same as those intended in relation to regulations under clause 45 described above. The rationale for leaving the matter to delegated legislation is also the same as that given for the power under clause 45(4) above.

240. Paragraph 3 inserts sections 55A - 55C. Section 55A covers how and when a former spouse will become entitled to a shared additional pension. Subsection (6) contains a regulation-making power for calculating the cash equivalent of a shared additional pension similar to that in section 45B (7) described under paragraph 2 above. The requirements set out in the regulations under section 55A(6) will also be broadly the same as those under clause 45 (4) and section 45B(7).

241. Section 55B provides for the shared additional pension to be reduced in the same way as the additional pension where the former is itself the subject of a pension sharing order or provision. The section, including the regulation making power at 55B(7), mirrors section 45B. The requirements set out in the regulations will also be broadly the same as those under section 45B(7).

242. Section 55C provides for the shared additional pension to be increased where entitlement is deferred. This new section mirrors the existing provisions in the Act which provides for increases of additional pension where entitlement is deferred. A former spouse is entitled to an increment under this section for each complete incremental period in the period of enhancement. Section 55C(9) defines an incremental period as meaning any period of six days which are treated by regulations as days of increment for the purposes of this section. The regulations made under this section will replicate those made under the similar existing delegated power to define the incremental period for the purposes of increasing an additional pension where entitlement is deferred. As it is the policy intention that the provisions for enhancing a shared additional pension where entitlement is deferred should remain in step with the similar provisions where entitlement to the additional pension is deferred, the Department believes that the definition of the incremental period for shared additional pension purposes should also be a matter for delegated legislation.


 
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