The Personal Accounts Delivery Authority* and the DWP have jointly published an 82-page consultation on first drafts of

• The [ ] Pension Scheme Order 2009,
• The Transfer Values (Disapplication) Regulations 2009 and
• Rules of the [ ] Pension Scheme.

(The square brackets above are deliberate and appear in the drafts: it has not yet been decided what the Scheme is to be called. In this article it is referred to simply as 'the scheme'.)

*PADA is a non-Departmental Public Body (NDPB) and was set up under section 20 of the Pensions Act 2007. Its functions include advising and assisting the Secretary of State on the establishment and operation of the scheme. Its powers were extended under the Pensions Act 2008 and PADA is now responsible for designing and procuring the administration elements of the scheme. PADA will cease to be operational once the scheme has been effectively handed over to the trustee corporation (see below).

Under s.67 of the 2008 Act, this scheme has to be established through secondary legislation. It will be an occupational pension scheme and in common with many other occupational schemes, the scheme is being treated as if established under a trust. The Scheme Order and Rules together constitute the personal accounts equivalent to the Trust Deed. A new trustee corporation with between nine and fifteen members will be established to be the trustee of the scheme and to be responsible for its governance and administration.

To enable the views of members and participating employers to be taken into account, PA 2008 s.69 requires the trustee to consult with scheme members and participating employers through a members' panel and an employers’ panel. The members' panel in particular will also act as a sounding board for ideas and suggestions proposed by the trustee. This is important because unlike most other occupational schemes, there are to be no member-nominated trustees or directors: the Government feels that would be "a costly and ineffective mechanism for representing members' views."

Also on grounds of cost (dealing with a likely large volume of relatively small funds), death benefits will not be payable under trustee discretion. Instead, unless the member has completed a nomination form, death benefits will be paid directly to the deceased member's estate (except where death occurs after age 75, in which case the trustee will purchase one or more dependant's annuities or if this is not possible, pay a charity LSDB). This is a significant departure from normal occupational pension scheme practice.

Although the intention is that the scheme will operate as much as possible like any other trust-based, multi-employer occupational pension scheme, regulated by TPR and providing retirement and death benefits, "as a result of its unique scale and design" there will be some other differences as well:

• As noted above, the scheme will be established in legislation and will be sponsored by the Secretary of State for Work and Pensions, rather than set up and sponsored by one employer or a number of employers.
• The scheme will have a public service obligation to accept any employer that wishes to use the scheme to fulfil their employer duties.
• Once an employer is participating in the scheme, the scheme will accept any worker enrolled by that employer.
• There will be no differentiation between contributing and non-contributing members (ie the concept of a deferred member as distinct from an active member will not exist). All members of the scheme will be able to remain active members and can choose to continue to contribute to the scheme until they access their savings at retirement.
• Members who have left the employment of a participating employer will be able to continue to make contributions irrespective of whether they are in employment or not.
• Self employed people will be able to join the scheme directly and make contributions.
• There will be an annual contribution limit of £3,600 (in 2005 earnings terms), adjusted in accordance with changes in average earnings.
• There will be a ban on the transfer of accrued benefits into and out of the scheme, apart from in a limited number of circumstances (this remains one of the more controversial proposals). However, trustees will be allowed to accept a Cash Transfer Sum (the alternative to a refund of member contributions which must be offered to early leavers with between 3 months and two years membership of an occupational pension scheme), in respect of an individual who is already a member of the scheme. The ban on transfers out is to be effected via the Transfer Values (Disapplication) Regs.
• Employers using the scheme to discharge their duties under the 2008 Act will not be able to postpone automatic enrolment under s.4 of the 2008 Act (a facility it is proposed should available to employers using another qualifying scheme).
• It is intended that the scheme will become self-financing from member charges.
• Unlike most other occupational pension schemes, the scheme will administer tax relief on members' contributions using a relief at source arrangement. This involves the member paying contributions after tax and the scheme administrator recovering the tax from HMRC and crediting the member's account.

The consultation period began on 28 April and runs until 20 July 2009.

This document is the second in a series of three DWP consultation documents seeking views on the proposed regulations to be made in exercise of powers contained in the 2008 Act. The first, on The Pensions (Automatic Enrolment) Regulations 2009 and The Pensions Regulator (Delegation of Powers) Regulations 2009, is still open until 3 June 2009. This condoc concerns:

• the practical arrangements by which employers will be required to enrol workers into a workplace pension scheme, including the circumstances and arrangements for postponement of automatic enrolment, where appropriate;
• the information which employers are required to provide to their workers and to pension schemes; and
• the arrangements by which individuals can opt out of pension saving following automatic enrolment.

A further DWP consultation is planned in Autumn 2009 on the remaining elements of the employer duty (including re-enrolment and opt ins, staging, phasing, qualifying schemes criteria and certification) and employment safeguards and elements of the compliance regime.

In addition, the present condoc is the third in a series of four PADA consultations on aspects of the personal accounts scheme.

Other PADA consultations have been on:-

• charges structures, to which PADA responded in July 2008; and
• securing a retirement income: PADA is currently considering the responses submitted.

A fourth PADA consultation on investment is due in May 2009.

(Update: this discussion paper was published on 7 May.)

State Pensions Reform – briefing pack for advisers