Schedule 5: Removal of Secretary of State’s role in approving actuarial guidance Section 18: Financial assistance scheme: increased levels of payments
351.Section 18 amends section 286 of the PA2004 which provides for a financial assistance scheme for members of certain pension schemes. The section also makes freestanding provision relating to initial payments made under that financial assistance scheme.
352.Subsection (2) inserts two subsections, (1A) and (1B), into section 286 of the PA2004. Subsection (1A) provides that regulations made under section 286(1) of that Act must ensure that the level of any final assistance payment made to a member (known as an “annual payment”) is set at no less than 80% of that member’s expected pension (as that term is defined in the regulations), taking account of any actual pension (as defined in the regulations, which is, broadly, the actual amount of pension that a member is determined to be receiving based on the assets allocated to them by their scheme). This is subject to certain restrictions set out in the regulations (described in subsection (1B)). Subsection (1A) also requires the regulations to ensure that that level of assistance will be received by all qualifying members, regardless of age.
353.Subsection (1B) sets out the restrictions that can apply to the amount of an annual payment. The specified proportion of the member’s expected pension may be subject to any cap set out in the regulations and regulations may provide that an annual payment is not payable where the member’s actual pension exceeds a specified amount. The current caps are set at £12,000.
354.Subsection (3) inserts new definitions into section 286(2), which are defined by reference to regulations made under section 286(1). Currently the relevant regulations are the Financial Assistance Scheme Regulations 2005 (S.I. 2005/1886, as amended).
355.Subsections (4) to (11) relate to initial payments (which are paid on account of annual payments while pension schemes are winding up) that have been or that will be made under the financial assistance scheme to qualifying members or to their survivors. Initial payments are provided for in regulations made under section 286(1) of the PA2004. These new provisions override those regulations to the extent that they are inconsistent (subsection (8)). Subsection (5) sets initial payments at a level of 80% of the expected pension for a qualifying member less any interim pension the member is receiving from their scheme. Subsection (5) also provides, however, that initial payments are subject to certain restrictions which are set out in the regulations made under section 286(1) (and which are modified by subsection (7)). The cumulative effect is that a cap (currently £12,000) is applied to the product of the calculation of 80% of the member’s expected pension and an initial payment is not payable where a member’s interim pension exceeds a specified amount (also currently £12,000).
356.Subsection (6) sets initial payments for eligible survivors of qualifying members at half of the qualifying member’s expected pension proportion less any interim pension payable to the survivor. If 80% of the member’s expected pension was or would have been subject to a cap then subsection (6) provides for the survivor to receive half the capped amount instead.
357.Subsection (9) provides that the level of initial payments set by this section can be amended by regulations (which under subsection (10) will be subject to the affirmative procedure).