Commentary on Sections Part 3 – General Changes to Pensions Legislation about Pension Schemes Pensions Act 1995
140.Section 37 of the Pensions Act 1995 makes provision in relation to payments to employers when a trust-based occupational scheme is in surplus. Paragraph 7 of Schedule 2 of the Pension Schemes Act 2015 amends subsection (1A) of section 37 of the 1995 Act to disapply that section in relation to funds held for the purposes of collective benefits. Funds held for the purposes of providing collective benefits should only be used to provide those benefits except in very limited circumstances. Employer liability in respect of collective benefits is limited to the employer contributions and they cannot be required to make any additional payments where the funds are insufficient to meet the targets. Correspondingly, they should not, as a general rule, have a right to any surplus in the fund. Regulations made under section 24 of the 2015 Act will set out any exceptions to the rule that the funds must only be used for provision of collective benefits.
141.Sections 51 and 51A of the Pensions Act 1995 relate to indexation requirements for pension schemes (that is, the method by which pensions in payment are increased annually to take account of inflation). Schedule 2 of the Pension Schemes Act 2015 amends subsection (1)(a)(iii) of section 51 of the 1995 Act, which exempts pensions in money purchase schemes from indexation requirements in certain circumstances, by substituting ‘defined contributions scheme’ for ‘money purchase scheme’. It consequently amends section 51A of the 1995 Act to replace ‘money purchase scheme’ with ‘defined contributions scheme’. This means that the indexation requirements exclude all defined contributions schemes, including money purchase schemes, schemes offering collective benefits, and those that are defined as self-annuitising under section 51A.
142.Section 73 of the Pensions Act 1995 deals with distribution of liabilities when an occupational pension scheme winds up. Paragraph 11 of Schedule 2 of the Pension Schemes Act 2015 amends subsection (2) of section 73 of the Pensions Act 1995 to reflect the new scheme categories found in Part 1 of the 2015 Act .
143.Paragraph 11 applies the existing provisions on wind up to the new categories of defined benefits, shared risk and defined contributions schemes. The provisions on winding up do not apply to schemes under which all the benefits that may be provided are money purchase benefits or prescribed schemes or schemes of a prescribed description. This maintains the current position.
144.An ‘employer debt’ is a reference to a statutory debt arising under section 75 of the Pensions Act 1995. Section 75 of the Pensions Act 1995 applies to an occupational pension scheme (other than a scheme which is a money purchase scheme, or a prescribed scheme or a scheme of a prescribed description) where there is a funding deficit in circumstances where either the scheme is winding up or a prescribed event has occurred in relation to the employer.
145.Paragraph 12 of Schedule 2 to the Pension Schemes Act 2015 provides that section 75 of the 1995 Act will not apply to an occupational pension scheme which offers only collective benefits, money purchase benefits, or a combination of the two.
146.Paragraph 12 also provides that where a scheme offers a combination of collective and non-collective benefits, the scheme is to be treated for the purposes of Part 1 of the Pensions Act 1995 as two separate schemes, with one scheme relating to the collective benefits and the other relating to the other benefits. Not all benefits in a defined contributions scheme will necessarily be money purchase – some or all may be collective benefits.
147.Sections 87 and 88 of the Pensions Act 1995 make provision requiring trustees or managers of occupational money purchase schemes to prepare schedules of payments for scheme members. Schedule 2 of the Pension Schemes Act 2015 amends this requirement so that it applies to all defined contribution schemes and any shared risk schemes under which either all of the benefits that may be provided are money purchase benefits, or a combination of money purchase and collective benefits. The wording of subsection (2)(a) of section 87 of the 1995 Act is altered to place focus on the type of benefits that are being offered, in order that ‘relevant benefits’ are considered regardless of whether a scheme is a defined contributions or a shared risk scheme
148.Section 124 of the Pensions Act 1995 is amended so that the terms ‘defined contributions scheme’, ‘defined benefits scheme’ and ‘shared risk scheme’, as set out in Part 1 of this Act, apply in that Act and to include a definition of “occupational” in relation to a defined benefits scheme, shared risk scheme or defined contributions scheme.