The Pensions Act 2007 became law on 26 July 2007.
The main provisions are as follows:
Changes in State Pension provision
Parents and carers - people reaching State Pension age on or after 6 April 2010 will be able to build up entitlement to Basic State Pension and State Second Pension (S2P) through new weekly N.I. credit arrangements. Those eligible for the new credits are:
- people caring for children up to the age of 12;
- approved foster carers; and
- people caring for at least 20 hours per week for severely disabled people (together Carers).
Changes to the Basic State Pension include:
- reducing the number of qualifying years needed for a full Basic State Pension to 30 for people who will reach State Pension age on or after 6 April 2010;
- any number of qualifying years will give entitlement to at least some Basic State Pension, achieved either through paid or "credited" N.I. contributions;
- replacing the system of Home Responsibilities Protection (HRP) with a new weekly N.I. credit for Carers;
- converting past years of HRP into years of credits;
- linking Basic State Pension increases to earnings rather than prices (from 2012 at the earliest).
Changes to S2P include:
- allowing people to combine contributions from earnings with N.I. credits to gain qualifying years of S2P;
- allowing Carers to build up entitlement; and
- changing the method of accrual so that S2P provides a flat-rate top-up to the Basic State Pension, with entitlement accruing on a completely flat-rate basis by around 2030.
From 2012 (at the earliest), contracting-out of S2P into a private pension scheme on a DC basis will no longer be permitted.
Under current legislation (Pensions Act 1995), State Pension age for women will increase to 65 and will be the same for men and women by 2020. This change will be phased in from 2010.
The Pensions Act 2007 provides for the State Pension age for both men and women to rise from 65 to 68 between 2024 and 2046.
The Pensions Act 2007 creates the Personal Accounts Delivery Authority to advise on the Government's Personal Accounts proposals.
From 2012 all eligible workers will be automatically enrolled into either an existing suitable work-based pension scheme or into a Personal Account. Eligible workers can choose to opt out of Personal Accounts or their employer's occupational scheme.
Personal Accounts will be aimed at what the DWP describes as "median and low income workers" who will contribute 4% of their gross income (on a band of earnings between approximately £5,000 and £33,500) a year. These contributions will be matched by a minimum 3% employer contribution and a 1% contribution from the Government in the form of tax relief. The Government intends to set out the detailed framework for Personal Accounts in a further Pensions Bill.
Guaranteed Minimum Pensions (GMPs)
There are also amendments to the Pension Schemes Act 1993 to permit the conversion of GMPs to other benefits, provided that certain conditions are met. These are:
- the post-conversion benefits must be actuarially at least equivalent to the pre-conversion benefits;
- where the earner was entitled immediately before the conversion date to the payment of a pension under the scheme, the pension payable under the converted scheme is not reduced;
- post-conversion benefits must not include money purchase benefits except where these were part of the earner's benefits pre-conversion - i.e. no substitution of equal value money purchase benefits;
- the converted scheme must provide survivors' benefits based on the earner's service from 1988; and
- before the conversion is effected, the agreement of the sponsoring employer must be obtained. Members and survivors must be notified of the conversion before, or as soon as reasonably practicable after, its occurrence. HMRC must also be notified of the conversion either on or before the conversion date.
The Pensions Regulator will have the power to enforce these conditions.
Financial Assistance Scheme (FAS)
The FAS was set up to assist those who had lost or who stood to lose significant amounts of their pension benefits as a result of their scheme winding up underfunded with an insolvent employer. Section 18 sets out the relevant amendments to be inserted into section 286 of the Pensions Act 2004.
The majority of the Financial Assistance Scheme Regulations 2005 (S.I. 2005/1986) (the FAS Regulations) came into force on 1 September 2005. To qualify for assistance under FAS, schemes must have started to wind-up between 1 January 1997 and 5 April 2005.
Currently, members of qualifying schemes within 15 years of Normal Retirement Age (NRA) on or before 14 May 2004 may qualify for tapering assistance payments, depending on the proximity to NRA. Survivors of qualifying deceased members may also qualify for (lower level) payments regardless of age. FAS payments top up any pensions being paid by the scheme during its winding-up or at the end of that process to a specified proportion of members' "expected pensions" as defined in the FAS Regulations. Payments are subject to a cap (£12K p.a.) and a de minimis amount (£520 p.a.). In general, payments made whilst pension schemes are winding up ("initial payments") are paid at a lower rate than final payments ("annual payments"), at up to 60% of expected pensions.
An extension to FAS was announced by Gordon Brown (then Chancellor of the Exchequer) in this year's budget speech. The Pensions Act 2007 amendments to section 286 of the Pensions Act 2004 provide part of that extension, with the rest to be implemented by regulations. The amendments will remove tapered assistance by requiring that the level of annual payments is set at no less than 80% of members' expected pensions, subject to any cap provided for in the regulations. This level of assistance will be received by all members, regardless of age.
The Pensions Act 2007 also requires regulations to be made "as soon as reasonably practicable" prohibiting schemes eligible for the FAS from purchasing annuities from an insurer for a period of 9 months after the introduction of the regulations, unless they have either entered into a binding commitment with the insurer or have permission from the FAS.
Section 273 of the Pensions Act 2004, which substitutes new sections 50 to 50B for section 50 of the Pension Act 1995, is amended to change the provisions relating to dispute resolution arrangements.
Currently, trustees or managers of occupational pension schemes are required to have in place a dispute resolution procedure requiring a 2-stage process, with someone nominated by the trustees giving a decision at the first stage and the matter being referred to the trustees at the second stage where the applicant remains unsatisfied.
Section 16 of the Pensions Act 2007 will make it possible to replace the 2-stage internal dispute resolution procedure with a single-stage arrangement where all decisions would be taken by trustees or managers. However, schemes may retain the 2-stage process if they wish.