The Pensions Act 2007 & the Pensions Bill 2007
by Roderick Ramage, solicitor, www.law-office.co.uk
first published (by distribution to professional contacts) on 31 December 2007
This article is not advice to any person and may not be taken as a definitive statement of the law in general or in any particular case. The author does not accept any responsibility for anything that any person does or does not do as a result of reading it.
Pensions Act 2007
Royal assent 26 July 2007
The qualifying years of contributions for a full basic state is to be 30 years from 6 April 2010 for both women and men, reduced from 39 years for women and 44 years for men. The state pension age is to be raised, from 65 to 68 by 2046. If at the time affordable, the link between the basic state pension and earnings will be restored from 2012. The state second pension (S2P) will be simplified and will eventually become a flat rate pension.
Occupational and Personal Pension Schemes
Guaranteed Minimum Pensions will be convertible into normal scheme benefits from a date to be appointed. Contracting out of S2P by money purchase (defined contribution) schemes will be abolished from 2012.
Trustees of occupational pension schemes may replace the two stage internal dispute resolution procedure (IDRP) with a single stage procedure from 26 September 2007.
The Financial Assistance Scheme, where the winding up started between 1.1.97 and 5.4.2005, is to provide 80% of benefits capped at a pension of £26,000 pa.
Personal Accounts Delivery Service
The Personal Accounts Delivery Authority whose initial function is prepare for the implementation of personal accounts from 2012. A personal account is defined as a “national low-cost portable pensions savings scheme”. It is proposed that it will be a trust based occupational pension scheme, into which employees will be enrolled compulsorily unless exempted by a workplace pension, but with a right to opt-out. The compulsory contributions are on earnings between £5,000 and £33,500 pa are 8% (employer 3%, member 4% and State 1%) and total contributions are to be capped at £3,600.
Pensions Bill 2007
(expected to be the Pensions Act 2008 to come into force in April 2012) For an update see Pensions Act 2008, pensions article 28.
All employers will be required to enrol jobholders automatically on the first day of employment into a pension scheme or a personal account scheme, may be compelled to do so by a compliance notice by the Pensions Regulator and may face claims in an employment tribunal if an employee is dismissed or suffers a detriment as a result of taking any step to enforce his or her rights under these provisions.
A jobholder is an employee or worker working in Great Britain under a contract, aged at least 16 and under 75 with qualifying earnings, ie gross annual earnings of more than £5,035, and not more than £33,540. Auto-enrolment applies only to jobholders aged at least 22 who have not reached pensionable age. Jobholders will have the right to opt out.
The scheme into which jobholders must be enrolled, an automatic enrolment scheme, must be an occupational pension scheme which:
- if money purchase (DC) requires contributions of at least the same level as personal accounts, ie a total of at least 8% of qualifying earning consisting of not less than 3% by the employer, members’ contributions of 4% and 1% through tax relief; or
- if salary related (DB) is either a contracted-out scheme or one in which a pension accruing at 1/120ths up to a maximum of 40 years starts at age 65 and is payable for life.
The employer will be exempt if it provides a qualifying scheme, which may be occupational or personal, which requires either the same DC contribution as are payable to an automatic enrolment scheme or are broadly equivalent to the DB alternative.
Personal Accounts Delivery Service
The bill continues the process started in the Pensions Act 2007 for the introduction on personal accounts in 2012. A Personal Accounts Delivery Authority will design this scheme (at arm’s length from Government) and the Pensions Regulator will be the compliance body.
The Additional State Pension will be simplified by consolidating the rights under the Graduated Retirement Benefit, SERPs and State Second Pensions into a single amount.
occupational pension schemes – revaluation
The cap on the annual revaluation of deferred pensions will be reduced from 5% to 2½% for future accruals.
stakeholder pension schemes
Employers will cease to be under an obligation to designate a pension scheme from 2012.
pension sharing on divorce etc
Safeguarded rights (ie the part of the ex-spouse’s pension credit derived from the member’s contracted out rights) are to be abolished. The ex-spouse will be entitled tp a share of a members compensation from the Pension Protection Fund.
copyright Roderick Ramage
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