New amendments to the Pensions Bill 2007/2008

The views below are Punter Southall's. This bulletin looks at major issues facing the pensions' industry over the past month including: More guidance from the Pensions Regulator, Department for Work and Pensions consults on risk-sharing and the Pensions Bill 2007/08.

Over the last few months, the Pensions Bill 2007/08 has been working its way through parliament. This is the Bill that will put the flesh on the personal accounts regime (expected to come into force in 2012), as well as making a number of miscellaneous changes to pensions legislation. During its passage through parliament, a number of government amendments have been made to the Bill.

One important amendment is to introduce sanctions against employers who attempt to induce employees to opt out of active membership of either personal accounts or a scheme that meets the relevant exemption criteria. Whilst this appears a sensible measure to encourage active membership of pension schemes, there have been concerns that this could hit employers who attempt to outline to employees that personal accounts may not be appropriate for everyone (for example, personal accounts may simply replace means-tested benefits for lower paid employees).

Another of the key changes has been to the treatment of Group Personal Pensions (GPPs). Under the new regime, employers will be required to provide access to personal accounts for their employees unless they enrol them automatically into their own scheme of at least broadly equivalent quality. It had been feared that GPPs would fail to exempt employers from personal accounts, because EU legislation might prevent personal pension schemes using automatic enrolment. The EU has now confirmed that automatic enrolment is possible into GPPs, and so the Pensions Bill has been amended accordingly.

Another area where an amendment is expected is in the sphere of 'qualifying earnings'. Contributions into personal accounts will be made at the rate of 8% of qualifying earnings (defined initially as £5,035 to £33,540 indexed to earnings). Under the initial proposals in the Bill, existing schemes would have had to provide at least broadly equivalent benefits based on the same earnings definition in order to exempt their employers from personal accounts. In practice, most pension schemes do not use this earnings definition. Following considerable lobbying, the government has now indicated that "employers will be able to use their existing arrangements to calculate qualifying earnings where that will produce at least as good, or a better, pension outcome than would come from personal accounts". It is not yet clear how this will work in practice.

Aside from personal accounts, the Pensions Bill also contains a number of amendments relating to other pensions issues. Amongst those laid recently is a clause that will enable the rules on contribution notices and financial support directions to be amended by regulations so that the Pensions Regulator (TPR) will have enhanced powers to intervene. The Secretary of State may make such regulations only where there is either a material risk of adverse effects on members' benefits or where there is a material risk of PPF compensation becoming payable. Our May Technical Bulletin discussed these proposals in more detail.

An amendment has also been made which will remove the last remaining restriction on protected rights. At present, an annuity purchased from a protected rights fund must provide a spouse's pension where the member is married. It is now intended that this requirement will be removed from 2012, which will mean that pension schemes will no longer be required to make any special provision in relation to protected rights. Whilst this change is very welcome, the fact that schemes will have to wait until 2012 for the change to come into force is not.

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