Commentary on Sections Contracting-out Section 12: Conversion of guaranteed minimum pensions
Section 9(1) of the Pension Schemes Act requires a contracted-out scheme to make provision to pay a pension to a member from pensionable age of an amount no less than his guaranteed minimum, as specified under sections 10 to 12 of that Act. Section 13(1) of that Act contains a requirement for the payment of a guaranteed minimum pension to a widow, widower or surviving civil partner.
Section 12(1) allows a scheme to omit provision for a guaranteed minimum pension, as required under section 9(1) of that Act, where certain conditions are satisfied.
Subsection (2) similarly allows a scheme to omit provision for a survivor’s guaranteed minimum pension under section 13(1) of that Act, where the specified conditions are met.
Subsection (3) inserts new sections 20A to 20H into the Pension Schemes Act which set out the conditions which a scheme must meet in order to be relieved of the liability to pay guaranteed minimum pensions (as well as the rules applying to transfers, scheme amendments and enforcement).
Section 20A sets out definitions of terms used in sections 20A to 20H.
Section 20B specifies the conditions which a converting scheme must satisfy: actuarial equivalence of the value of members’ conversion benefits with those they possessed pre-conversion; no reduction of pensions in payment; conversion benefits not to include money purchase benefits; survivors’ benefits to be provided (see section 20D), and specified procedural requirements to be met (see section 20E).
Section 20C provides a power for regulations to be made concerning how actuarial equivalence is to be determined.
Section 20D sets out the detailed requirement for the scheme to provide conversion benefits which include provision for pension to be paid to a widow, widower or surviving civil partner following the death of the member.
Section 20E sets out requirements in relation to obtaining the agreement of the scheme’s sponsoring employer, and providing information to members and survivors and to the Commissioners for Her Majesty’s Revenue and Customs about the guaranteed minimum pension conversion.
Section 20F provides a power for regulations to be made concerning conditions for transfers of pension rights out of a guaranteed minimum pension-converted scheme and provides that the trustees of a scheme which is not guaranteed minimum pension-converted are allowed, for the purpose of transferring a member’s rights out of the scheme, to adjust the member’s guaranteed cash equivalent to reflect rights that would have accrued on guaranteed minimum pension conversion, providing the member consents.
Section 20G provides powers for trustees to amend schemes to facilitate guaranteed minimum pension conversion and makes it clear that trustees may adjust rights under a scheme which is being wound up in order to reflect what would have happened on guaranteed minimum pension conversion.
Section 20H provides powers for the Pensions Regulator in respect of enforcing the conditions for guaranteed minimum pension conversion, and provides for the power under Article 10 of the 1995 Order (civil penalties) to apply to trustees undertaking a guaranteed minimum pension conversion.
Subsection (5) amends section 43 of the Pension Schemes Act in order to make clear that a person who has had his guaranteed minimum pension converted shall continue to be treated as entitled to that guaranteed minimum pension for the purpose of calculating entitlement to additional state pension (the “contracted-out deduction”).
Subsections (8) and (9) ensure the continuation of the partial protection against inflation of guaranteed minimum pension increases included in the payments of state retirement pension where a person has their guaranteed minimum pension converted.
Subsection (10) concerns the situation where a person with an increase to his guaranteed minimum pension such as is mentioned in subsection (8) has his guaranteed minimum pension converted prior to his death. This subsection ensures that his widow, widower or surviving civil partner will continue to have entitlement to certain guaranteed minimum pension additions awarded with the survivor’s state retirement pension, and that these additions will be protected against inflation.
Subsection (12) provides that regulations made under the new section 20B(5) are subject to the confirmatory resolution procedure in the Assembly.