House of Lords - Explanatory Note
Child Support, Pensions And Social Security Bill - continued          House of Lords

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New section 26B: Information to be given in cases where s. 22 disapplied

499. The new section 26B sets out the circumstances in which reports must be made to Opra on the insolvency of the employer where the scheme is not required to have an independent trustee (section 22 of the Pensions Act 1995).

500. New section 26B(1) requires the persons involved (if any) in the administration of a trust scheme, where there is no requirement for an independent trustee, to notify Opra where the employer of the scheme is the sole trustee and he becomes insolvent, unless they have an assurance from the employer. For multi-employer schemes this will apply only where all the employers are insolvent.

501. New section 26B(2) provides that for the purposes of this section an employer's assurance has been received if the employer has told the persons involved in the administration of the scheme that there is no reason why the employer should not continue to act as a trustee of the scheme, he does not withdraw that statement, and the trustees of the scheme have not changed since the employer has made that statement.

502. New section 26B(3) removes the requirement for a report to be made under subsection (2) where it appears that Opra are already aware of the situation or where the prescribed period has not elapsed, or at any other time which is prescribed.

503. New section 26B(4) provides that section 10 of the Pensions Act 1995 applies to anyone who fails to comply with the requirements in this section.

New section 26C: Construction of ss. 26A and 26B

504. The new section 26C sets out further details relating to the requirements in new sections 26A and 26B.

505. New section 26C(1) sets out who is considered to be involved in the administration of the scheme for the purpose of the requirements in sections 26A and 26B. For example, those persons who are involved in the administration of the scheme in their professional capacity, such as actuaries and auditor, the fund manager, the employer of the scheme, their employees, agents or contractors who carry out administration tasks, are not considered to be involved in the administration of the scheme.

506. New section 26C(2) provides that regulations may add to the list of those who are not considered to be involved in the administration of the scheme.

507. New section 26C(3) provides that wherever there is a requirement in section 26A or 26B to do something "as soon as reasonably practicable", that may be replaced by time limits specified in regulations.

508. Subsection (3) of clause 46 makes a consequential amendment to section 118(2) of the Pensions Act 1995 to allow for regulations to exempt schemes from the new requirements in sections 26A to 26C.

509. Subsection (4) inserts a new section 118(3) into that Act to allow for regulations to modify sections 26A and 26B so as to impose the notification duty on persons other than trustees and other than those involved in the administration of the scheme.

510. Subsection (5) amends the provisions in the Pension Schemes Act 1993 so that regulations may prescribe who is to be treated as a trustee for the purposes of sections 22 to 26 of the Pensions Act 1995 and the new sections inserted by this clause.

Clause 47: Modification of scheme to secure winding-up

511. This clause inserts a new section 71A into the Pensions Act. This is to extend Opra's existing powers to modify scheme rules, to enable winding-up to continue.

New section 71A: Modification by Authority to secure winding-up

512. New section 71A(1) enables Opra to modify scheme rules to ensure that the scheme is properly wound up but only where the scheme is being wound up and the employer is insolvent.

513. New section 71A(2) only allows Opra to modify scheme rules where they have been asked by the trustees or managers to do so. The request cannot be made in advance. As with the modification itself, the request may be made only while the scheme is being wound up and the employer is insolvent.

514. New section 71A(3) requires that unless regulations provide otherwise, the application to Opra must be in writing.

515. New section 71A(4) allows regulations to set out the detail of the information which is contained in, or documents which must accompany, the application. The regulations may also provide for certain people to be told about the request for a modification; what the notification must contain; for the time limit in which they will have to contact Opra to make representations; and how Opra must deal with the request for modification.

516. New section 71A(5) limits Opra's powers to modify scheme rules to the minimum necessary to enable the scheme to be wound up properly and for any modification to be restricted to those which would not have a significant adverse effect on accrued rights or benefit entitlements under the scheme.

517. New section 71A(6) makes it clear that any modification made by Opra will be as effective in law as if it had been made under scheme rules and without any requirement to obtain consent before any modification can be made.

518. New section 71A(7) allows regulations to exempt certain types of schemes in particular circumstances or for the requirements in the section to apply with modifications in particular circumstances.

519. New section 71A(8) sets out the circumstances in which an employer is to be treated as insolvent for the purpose of this clause. The circumstances are those which trigger the application of section 22 of the Pensions Act 1995 (or would trigger it if that section applied to the scheme) ie. where an insolvency practitioner or official receiver takes up office. These terms are defined in section 22(3) by reference to the Insolvency Act 1986.

520. New section 71A(9) excludes public service pension schemes from this section.

Clause 48: Reports about winding-up

521. This clause introduces a number of provisions including a requirement for trustees or managers to make reports to Opra, a definition of when a scheme begins to wind up and a requirement for records to be kept of a decision to wind up a scheme.

New section 72A: Reports to Authority about winding-up

522. New section 72A(1) introduces a requirement for trustees or managers of a scheme which began to wind up after a specified date to make regular reports to Opra about the progress of winding-up.

523. New section 72A(2) allows regulations to specify when the first report should be made to Opra. That period will be within a specified period of the date on which winding-up began, or the date on which the winding-up was brought within the section (if later).

524. New section 72A(3) sets out the timing of subsequent reports to Opra which must be made at no more than twelve-monthly intervals after the date of the previous report. If the last report was made late, the next one must still be made no later than twelve months after the last one was due.

525. New section 72A(4) allows Opra to extend the deadline for making any follow-up reports. Opra can only extend the interval by up to twelve months (under new section 72A(5)), and can only grant the extension within the time limit, not after it. There is no similar power to extend time for the first report.

526. New section 72A(6) allows more than one extension of the deadline for the follow-up report, but the total extensions for that report must not exceed the twelve-month limit mentioned in subsection (5).

527. New section 72A(7) provides that regulations may make requirements as to the reports to Opra, including how the reports should be made, and what they must contain.

528. New section 72A(8) provides that regulations may provide for circumstances in which reports need not be made to Opra, and may vary the twelve-monthly period in which further reports must be made. It also provides that regulations may alter the periods in which follow-up reports must be made, and the period over which Opra can extend the time limit for those reports.

529. New section 72A(9) applies sections 3 and 10 of the Pensions Act 1995, so that Opra may prohibit from being a trustee someone who fails to take reasonable steps to ensure compliance, and may impose a financial penalty on a trustee or manager who fails to comply with the requirements.

530. Subsection (2) of clause 48 inserts into section 124 of the Pensions Act 1995 a definition of when winding-up begins for the purposes of Part I of that Act.

531. Subsection (3) adds to the requirements in section 49 regarding records, by inserting a new section 49A. The new section 49A requires trustees or managers of an occupational pension scheme to keep written records of their decision to wind up the scheme, of decisions about when steps should start to be taken for the purposes of winding-up the scheme, and of any decision to defer winding-up. It provides that regulations may extend the requirements to any person, who although not a trustee or manager, can nevertheless make a decision to wind the scheme up. It also allows regulations to make requirements about the form and content of the record. Sanctions under sections 3 and 10 of the 1995 Act can be imposed for non-compliance. Where regulations extend the requirements to other persons, sanctions may be provided for in regulations (under section 10(3) of that Act).

Clause 49: Directions for facilitating winding-up

532. This clause inserts new section 72B which allows Opra to direct that specific information should be provided, or action taken within a prescribed timescale, where a scheme has begun winding-up. It also inserts new section 72C which imposes sanctions on those not complying with Opra's directions.

New section 72B: Directions by Authority for facilitating winding-up

533. New section 72B(1) provides that where a scheme has begun winding-up, Opra will have power to give directions if they feel it is appropriate to do so on any of the grounds in subsection (2).

534. New section 72B(2) sets out the grounds Opra may take into account. It also allows regulations to prescribe further circumstances in which Opra may give directions.

535. New section 72B(3) limits Opra's powers to direct to where the first report has been made, or should have been made, to Opra under new section 72A, unless regulations prescribe otherwise.

536. New section 72B(4) allows regulations to provide that in certain circumstances Opra may only give directions when asked to do so by the trustees or managers of schemes.

537. New section 72B(5) provides that a direction from Opra must be given in writing, and can be given to trustees or managers, persons involved in the administration of the scheme or persons prescribed in regulations.

538. New section 72B(6) sets out requirements that can be imposed by a direction. They include providing information to the trustees, or managers, or persons involved in the administration of the scheme, or persons prescribed in regulations (which may include Opra), and requiring other steps to be taken.

539. New section 72B(7) allows Opra to extend the time limit for persons to comply with the direction, on more than one occasion if necessary, where Opra consider it appropriate to do so.

540. New section 72B(8) allows for regulations to limit what Opra may require in their directions and sets out requirements as to when and how applications must be made for an extension to the period for complying with the direction.

541. New section 72B(9) sets out who is considered to be involved in the administration of the scheme for the purposes of these requirements. It is almost identical to new section 26C(1) (see clause 46).

542. New section 72B(10) provides that regulations may add to the list of those who are not considered to be involved in the administration of the scheme. It is identical to new section 26C(2) (see clause 46).

New section 72C: duty to comply with directions under 72B

543. New section 72C(2) provides that section 3 of the Pensions Act 1995 (Opra may prohibit a person from being a trustee) applies to any trustee who fails to take reasonable steps to ensure compliance, and has no reasonable excuse.

544. New section 72C(3) applies section 10 of the 1995 Act (financial penalties) to any trustee or manager who fails to take reasonable steps to ensure compliance, and has no reasonable excuse.

545. New section 72C(4) applies section 10 to anyone else who fails to comply with a direction and has no reasonable excuse.

546. New section 72C(5) provides that any duty of non-disclosure is not a reasonable excuse for failure to supply information in accordance with directions from Opra. The statutory duty to comply with directions will mean that a person complying with a direction will not be in breach of the non-disclosure duty.

Other provisions

Clause 50: Restriction on index-linking where annuity tied to investments

547. Rights which accrue from 5th April 1988 in respect of Guaranteed Minimum Pension and protected rights have to be indexed by Retail Price Index (RPI), capped at 3%. If inflation is above 3% SERPS is fully indexed.

548. All rights accrued from 6th April 1997 in salary-related and money purchase schemes have to be indexed at RPI, capped at 5%. Protected rights in appropriate personal pension are also subject to the same level of indexation. Additional voluntary contributions and personal pensions are not subject to an indexation requirement.

549. The Department of Social Security issued a public consultation document on 31stJanuary 2000 seeking views on whether greater flexibility should be allowed so that members of money purchase schemes could choose to buy either an investment-linked annuity or a traditional index-linked annuity to satisfy the indexation requirements. The document was circulated widely within the pensions industry, employers and was available on the internet for other interested groups and members of the public.

550. The consultation ended on 29th February. 40 responses were received, of which 34 supported the proposal for change and generally welcomed the Government's willingness to recognise innovative annuity products which are being developed by annuity providers.

551. Investment linked-annuities enable the annuitant to benefit from growth in a range of underlying investments after retirement, though this goes hand in hand with a risk of possible falls in pension income if investment performance is poor. Although an investment-linked annuity will not guarantee to produce an increase in the pension each year, such annuities have performed better overall than the traditional index-linked annuity in recent years.

552. The measure in the Bill would give members of defined contribution occupational pension schemes the option of using the non-protected rights element of their accumulated pension fund accrued from April 1997 to buy an investment-based annuity instead of an index-linked annuity. They would continue to be able to choose a traditional index-linked annuity if they wished. The clause also provides for a power to prescribe the conditions which investment-based annuity products must satisfy (sub-paragraph (1)(c)), although it is not envisaged that this power would be used in the short term. Regulations would only be considered necessary if investment-based products were, in future, designed in such a way that they provided a high starting income with little prospect for future increases.

This clause sets out the circumstances when an investment-linked annuity can be used to satisfy the indexation requirements which are currently contained in section 51(2) of the Pensions Act 1995.

Subsection (1) provides for a new section 51A to the Pensions Act 1995 to supersede the requirement to increase a pension in payment annually by the published RPI figure, capped at 5%.

Subsection (2) provides for the insertion of a new section 51A in the Pensions Act 1995.

New section 51A: Restriction on increase where annuity tied to investments

553. New section 51A(1) provides that an annual increase under section 51 is not required in respect of the element of money purchase scheme funds as described in sub-paragraphs 1(a), (b) and (c).

Sub-paragraph 1(a) stipulates that the alternative pension is payable from an investment-linked annuity.

Sub-paragraph 1(b) prevents the inclusion of benefits in respect of protected rights.

Sub-paragraph 1(c) provides that regulations may prescribe conditions to be satisfied for investment-linked annuity products.

554. New section 51A(2) provides for the option of an investment-linked annuity whether provided under an annuity contract or payable from the funds of money purchase schemes.

555. New section 51A(3) provides for the new rule to apply to increases after the date appointed for the new section 51A to come into force.

Clause 51: Information for members of schemes

556. The Government intends to introduce amendments to existing regulations that require annual benefit statements to be sent to members of occupational and personal pension schemes with money purchase benefits.

557. In addition to the existing information about contributions paid and the current value of the "pot", they will be required to include an illustration of the likely value of the "pot" at retirement age, and the benefits it might provide, expressed in today's prices.

558. This clause makes changes to section 113 of the Pension Schemes Act 1993.

559. Subsection (1) adds a new sub-paragraph (ca) of section 113(1) of the Pension Schemes Act to permit regulations to require an annual benefit statement in a money purchase scheme to include an illustration of the future benefits that might become payable under the scheme.

560. Subsection (2) adds a new subsection (3A) to section 113 of the Pension Schemes Act to allow the basis for calculating any forecast of future benefits to be calculated by reference to guidance notes. This will allow the Secretary of State for Social Security to delegate responsibility for deciding the method of calculation to a suitable professional body such as the Institute and Faculty of Actuaries.

561. Subsection (2) also inserts a new subsection (3B) into section 113 to provide for regulations made under that section to allow Opra to extend time limits for compliance with requirements set out in regulations, in relation to cases where schemes are being wound up.

Clause 52: Jurisdiction of the Pensions Ombudsman

562. The Social Security Act 1990 created the office of Pensions Ombudsman by inserting new provisions in the Social Security Act 1975. The functions of the Pensions Ombudsman are now contained in sections 145 to 152 of the Pension Schemes Act 1993. His jurisdiction was extended under amendments to that Act introduced by section 157 of the Pensions Act 1995. The Pensions Ombudsman can investigate complaints of injustice caused by maladministration and disputes of fact and law brought by members of occupational and personal pension schemes, and their spouses and dependants, against trustees, managers or employers of those schemes. Complaints can also be brought by the same people against the administrators of schemes. The Ombudsman is also able to investigate complaints and disputes from employers against trustees or managers in relation to the same scheme and vice versa for complaints (but not disputes), and investigate complaints from trustees or managers of one scheme against trustees or managers of another.

563. This clause extends the Pensions Ombudsman's jurisdiction by making amendments to section 146 of the Pension Schemes Act 1993. This clause will allow a greater range of people to refer complaints or disputes to the Pensions Ombudsman.

564. Subsection (1) indicates that this clause makes amendments to section 146 of the Pensions Schemes Act 1993.

565. Subsection (2) extends the application of section 146(1) to another type of complaint which the Pensions Ombudsman can investigate. The new section 146(1)(ba) allows the Pensions Ombudsman to investigate complaints made by the independent trustee (the trustee who is required under the Pensions Act 1995 to be in place when the sponsoring employer of a final salary occupational scheme is insolvent) alleging maladministration by the other trustees, or the former trustees, of a scheme. This will enable an independent trustee, if he believes that the actions of other trustees, or former trustees, constitute maladministration which would have a detrimental effect on the scheme members, to refer the matter to the Pensions Ombudsman.

566. Subsection (3) inserts into section 146(1), by way of new subsections (1)(e) to (g), additional types of disputes or complaints that the Pensions Ombudsman can investigate.

New section 146(1)(e) allows trustees of the same scheme to refer disputes between themselves to the Pensions Ombudsman. This will include "friendly" disputes where the trustees are seeking a direction as to how they should act.

New section 146(1)(f) allows the Pensions Ombudsman to investigate a dispute between the independent trustee and other trustees, or former trustees, of the scheme. This will mean that an independent trustee, who has concerns about the actions of the trustees or former trustees prior to his appointment, will be able to refer the matter to the Pensions Ombudsman. At present, the independent trustee and the other trustees of the scheme are barred from referring such matters to the Pensions Ombudsman.

New section 146(1)(g) allows a sole trustee to raise a question with the Pensions Ombudsman about the carrying out of his functions. This will enable sole trustees to obtain a direction from the Pensions Ombudsman regarding how they should act, in the same way as trustees in "friendly" disputes can.

567. Subsection (4) inserts new subsections (1A) and (1B) into section 146.

568. New section 146(1A) prevents the Pensions Ombudsman from investigating the complaints or disputes listed in section 146(1)(c) to (g) unless they are referred to him by particular people, as provided for in the new subsection (1A)(a) to (e).

New section 146(1A)(a) reproduces the effect of existing section 146(1)(c). It prevents the Pensions Ombudsman from investigating a dispute between a scheme member or another beneficiary of the scheme and the trustees or employer unless it is referred to him by the member or beneficiary. This prevents employers or trustees referring disputes with members to the Pensions Ombudsman.

New section 146(1A)(b) prevents the Pensions Ombudsman from investigating a dispute between employers and trustees or the trustees of different schemes unless the dispute is referred to him by one of the employers or the trustees. This removes the bar on trustees referring disputes with the scheme's sponsoring employer to the Pensions Ombudsman, which is the unintentional effect of the current wording of section 146(d).

New section 146(1A)(c) limits the Pensions Ombudsman to only investigating a dispute between the trustees of the same scheme in circumstances where half or more of the trustee board has agreed to refer it to him. Having half or more of the trustee board agree to refer the matter will prevent a minority in the board delaying the actions of the majority. This will also allow trustees to seek clarification of scheme rules without having to go to court. This will be particularly useful when a scheme is winding up, as it will reduce costs on the scheme at a time when it needs to conserve its resources.

New section 146(1A)(d) allows only the independent trustee of a scheme subject to insolvency procedures to refer a dispute to the Pensions Ombudsman and not the other trustees of the scheme.

New section 146(1A)(e) ensures that the Pensions Ombudsman will not accept a question referred to him about the functions of the sole trustee unless it is referred to him by that sole trustee.

New section 146(1B) ensures that the Pensions Ombudsman can treat a question referred to him by a sole trustee as if it were a reference to him, or determination by him, of a dispute.

569. Subsection (5) will allow members of a personal pension scheme to make complaints about actions of the employer. At present, if an employer is involved in the running of a personal pension scheme, particularly a group personal pension scheme, members of the scheme cannot refer complaints about the employer's actions to the Pensions Ombudsman.

570. Subsection (6) makes replacement provision in respect of one of the circumstances where the Pensions Ombudsman cannot investigate. At present, if a case has gone to an employment tribunal or a court, even in error, the issue cannot then be referred to the Pensions Ombudsman. The new provision will allow the Pensions Ombudsman to accept a complaint or a dispute for investigation where the subject matter has previously gone before an employment tribunal or a court, and the case has been discontinued. Subsection (10) ensures that the changes made by subsection (6) to the Pensions Ombudsman's remit will not apply to any cases that were referred to him before the provisions come into force.

571. Subsection (7) provides that a person entitled to a pension credit as against the trustees or managers of a scheme can be considered an actual or potential beneficiary within the meaning of section 146(7), for the purposes of making a complaint or referring a dispute to the Pensions Ombudsman. This will allow those who have an entitlement to a pension credit, but who will not become a member of the scheme awarding the credit, to make a complaint or refer a dispute to the Pensions Ombudsman.

572. Subsection (8) inserts a definition of "independent trustee" into section 146(8). The independent trustee will be the trustee appointed as such by the insolvency practitioner under section 23(3)(b) of the Pensions Act 1995.

573. Subsection (9) replaces the words "complaints and disputes" in 146(1) with the word "matters". This ensures that the Pensions Ombudsman can consider questions from sole trustees which could not be regarded as a dispute. It also replaces the latter part of section 146(1)(b) of the Pension Schemes Act 1993. This clarifies the position regarding the identity of the scheme to which the complaint relates in cases where complaints of maladministration are made by the trustees of one scheme against the trustees of another scheme. This subsection also removes the words "which arises" from sections 146(1)(c) and 146(1(d). This will allow disputes between current and former trustees to be considered by the Pensions Ombudsman.

Clause 53: Investigations by the Pensions Ombudsman

574. As a result of a Court of Appeal judgement, under the current legislation, the Pensions Ombudsman should not accept a case if the investigation of it would impact upon the interests, particularly the financial interests, of those not directly involved in the case. This is because those not directly involved in the case are currently not able to make representations to the Ombudsman and are not, therefore, bound by his determinations. This clause amends sections 148, 149 and 151 of the Pension Schemes Act 1993 as amended by the Pensions Act 1995.

575. Subsection (2) inserts new paragraphs (ba) and (bb) into section 148(5). They extend the meaning of who is a party to an investigation for the purposes of staying court proceedings. These new paragraphs allow the Pensions Ombudsman to link to a case those whose interests may be affected by the complaint or dispute or its outcome.

576. Subsection (3) replaces subsection (1) of section 149 with a new section 149(1) which lists the person to whom the Pensions Ombudsman is obliged to give the opportunity to comment, with regard to matters being investigated by him. The replacement subsection obliges the Pensions Ombudsman to give those who are being complained against, those who are responsible for the management of schemes to which the dispute relates, and those whose interests are, or may be, affected, the opportunity to put their point of view to him.

577. Subsection (3) also inserts two new subsections (1A) and (1B) into section 149. Inserted subsection (1A) ensures the Pensions Ombudsman is not required to give an opportunity to make representations from someone who (as the person making the complaint or reference) has had adequate opportunity to comment or whose interests are being represented by a person appointed to do so. Inserted subsection (1B) makes clear that if a person has been appointed to represent a group, after making initial representations on his own behalf, that person should also be given the opportunity to make comments as a representative of that group.

578. Subsection (4) inserts new paragraph (ba) in section 149(3), which lists those matters that can be covered in the Pensions Ombudsman's procedure rules. New paragraph (ba) allows rules to be made permitting the Pensions Ombudsman to appoint a person to represent a group of those who have the same interest in a complaint, for instance, such a group as all the pensioner members. It will then be this appointed person who will make representations on behalf of that group. The precise manner in which these representative persons will be appointed will be laid out in the Personal and Occupational Pension Schemes (Pensions Ombudsman) (Procedure) Rules. The procedure for selection will ensure that those nominated as representing a particular group can satisfy the Pensions Ombudsman that they are truly representative of that group and do not have a conflict of interest in the particular case.

579. Subsection (5) inserts new paragraph (d) which adds an additional item in the list of items that can be included in the rules. This will enable the procedure rules to include provisions to allow the Pensions Ombudsman to order that the cost of legal expenses in a particular case can be met from the funds of the scheme. It is envisaged that such orders will be made when the case is particularly complex and involves the interests of several groups. The procedure rules may state that the order should cover only certain expenses up to a certain limit.

580. Subsection (6) inserts subsection (8) into section 149. This is intended to ensure that those whose interests may be affected by any determination, or any directions the Pensions Ombudsman may give in relation to the dispute, will also have the opportunity to make representations rather than only giving the opportunity to those with a direct interest in the complaint or dispute itself.

581. Subsection (7) inserts new paragraph (c) into subsection (1) of section 151. Section 151(1) specifies who should be given notice of the Pensions Ombudsman's determination in a particular case. The additional provision requires the Pensions Ombudsman to issue a copy of his determination in a particular case to all those who could have commented on the allegations. Therefore, determinations will be sent to those against whom the allegations are made and to those who could have made representations to the Pensions Ombudsman. These would be either those identified by the Pensions Ombudsman as able to make representations directly to him on their own behalf, or those who are representing groups of individuals who have the same interest.

582. Subsection (8) replaces part of subsection (3) of section 151. Subsection (3) specifies who will be bound by the Pensions Ombudsman's determination. This ensures that those who have had the opportunity to comment or make representations - either individually or via an appointed person - will be bound by the Pensions Ombudsman's determination. Those who are bound by the determination can appeal against it on a point of law to the High Court (see section 151(4)).

583. Subsection (9) ensures that these changes to the Pensions Ombudsman's remit will not apply to any cases that are referred to him before the provisions come into force.

 
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