The Pensions Bill had its Second Reading in the House of Commons on 20 June. As noted extensively in the press, there were hours of debate on the acceleration of the increase in the state pension age to 66 by 2018, but the Government remains firm that there will be no U-turn on this. It did, however, make a concession on the most controversial aspect: it will consider transitional arrangements for those most affected, i.e. women born between December 1953 and October 1954, who will experience a delay of 18 months to two years with very little time to prepare for their income loss.
Similarly, the Government confirmed its commitment to the proposed changes to automatic enrolment; in particular the three-month waiting period before auto-enrolment and the increase in the earnings threshold (to align it to the amount of the income tax personal allowance).
Whilst no amendments were made at Second Reading, the Bill will now proceed to Committee Stage in the House of Commons, where it may be further amended. Committee Stage will conclude on Tuesday 19 July, the day before the summer recess. The remaining stages are expected to follow in the autumn.
This issue was not debated but the Government has separately published the response to the December 2010 consultation on the impact of using CPI as the measure of price increases on private sector occupational pension schemes. Generally, the proposals will go ahead as planned. In particular, there will be no statutory override to impose CPI as the measure of increase in prices; and no statutory modification power is considered necessary to make it easier for schemes to adopt CPI. However, a couple of issues require some refinement:
No CPI underpin – but possible amendments to Pensions Bill
The Government confirms that there will be no CPI underpin for pension increases, but now realises it may be necessary to extend this principle to revaluation as well. As it is possible (if unlikely) that in a given year CPI could be higher than RPI, if this change is not made, schemes with rules that require RPI revaluation would have to go to the expense of performing two calculations to see which was higher – one based on the scheme rules and one using the statutory revaluation order. A separate issue is that the current provision in the Bill could result in a CPI underpin applying where there has been a rule amendment or a bulk transfer after 1 January 2011, so another amendment is being considered to fix this.
Note, however, that a CPI underpin will be a possibility for schemes which have separate indexation rules for GMPs and non-GMP benefits. This is because the Government does not intend to amend the legislation on GMP indexation, given the rarity of these schemes (as confirmed by most consultation respondents).
Employer consultation: listed change
The Government confirms that a change to scheme rules on indexation and revaluation will be a listed change; however, two drafting changes are being considered, so that employers will have to consult on a proposed amendment which:
- “Might”, not “would”, be less generous, as it may not always be clear whether a rule amendment would be less generous or not (e.g. CPI could be higher than RPI); or
- Changes the index to be used rather than the rate of indexation or revaluation (reference to the “rate” could have been ambiguous).