This section is concerned with pensions in payment derived from a pension share not covered by section 31 above. It enables the Secretary of State to protect an occupational pension in payment, derived from a pension share, against inflation. It also enables the Secretary of State to protect a personal pension derived from safeguarded rights against inflation.
Subsections (1) and (2): we intend to use the regulation-making power 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 AVCs) by the retail price index, subject to a cap of 5% per cap per annum. However, for administrative simplicity, schemes will be able to index the whole of the pension if they so choose. Similarly, price indexation up to a 5% cap will apply to personal pensions derived from safeguarded rights. There will be no requirement to index personal pensions derived from non-safeguarded rights but former spouses will be able to purchase an annuity offering protection against inflation if they so choose.
Commentary Indexation Section 40: Other pension schemes