Pensions Act 2007 & the Pensions Bill 2007
Roderick Ramage, solicitor, www.law-office.co.uk
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.
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
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
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)
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
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.
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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