The Pensions Bill is in the final stages of the Parliamentary process and is scheduled to have its Third Reading in the House of Lords on 19 November, before returning to the Commons. Depending on the extent of any 'ping-pong' (the official term for last-minute argy-bargy between the two Houses over disputed legislation), currently pencilled in for 25 November, the Bill could gain Royal Assent before the end of this month.

The Bill was republished on 30 October, after amendment on Report. True to form the Government tabled further amendments during that late stage, in particular one (now Clause 132) designed to allow more people, particularly women, to retire with a full basic state pension.

Currently, this requires 39 years' of National Insurance Contributions (NICs) for women and 44 years for men. The Pensions Act 2007 (section 1) reduced the threshold to 30 years for both sexes from 2010 onwards. Even then, however, many will not qualify for a full pension unless they pay voluntary Class 3 NICs to buy missing years. At the moment they can only make up the last six years. The Bill offers a limited extension to allow those retiring between April 2008 and 2015 to buy back a further six years worth of missing contribution years going back to 1975-76. Typically, this is hedged about with conditions; notably a requirement to have already paid NICs (or been credited with Home Responsibilities Protection) in at least 20 years. Extra years presently cost £400 a year, but the Government may increase this figure.

A more significant amendment, to be debated this week in the Lords, provides for regulations to allow employers to 'self-certify' that their scheme meet the requirements of a qualifying scheme. This was announced on 6 November by the new Pensions Minister, Rosie Winterton, who indicated the Government had at last recognised the threat that the reforms would replace rather than complement good existing pensions. Profound concerns have been widely expressed about the potential impact of the qualifying earnings clause in the Bill. (The recent PPI Briefing Note 48 "What should qualify as earnings for auto-enrolment?" provides useful background reading.)

Taken in conjunction with an earlier amendment (see previous Aries article) allowing the quality test to be done annually, rather than every time each individual worker was paid, this latest amendment to the Bill will reduce the need for changes to the way calculations are made. What counts is the overall value of the contributions and the estimated amount for the year ahead, rather than the precise way they are calculated and checked every pay day. This should relieve the worry that employers would abandon existing, better quality, pension provision in favour of the minimum standard of 8% of qualifying earnings.

In her speech the Minister also announced that for 2009/2010 the Government will freeze the current rates for the general levy and the PPF administration levy that fund the running costs of the Regulator and the PPF along with the Pensions Ombudsman and the Pensions Advisory Service. This is a modest contribution to keeping a lid on costs that have risen dramatically for DB schemes this year, with the hike in the PPF risk-based levy (see Aries article).

Other News from the DWP

Consultation on s.75 (debt on employer)

In a speech to the CBI this week (reported in the press, but not so far on the DWP website) the Pensions Minister announced an informal, four-week review of the s.75 rules governing the application of a debt on the employer, in particular as they apply in the case of multi-employer schemes (s.75A PA 1995 and numerous regulations).

The law as it stands is widely viewed as a considerable impediment to corporate restructuring, and a growing and unnecessary additional burden on businesses trying to adapt to the recent economic downturn. An employer leaving a multi-employer scheme which is in deficit has to pay at least part of the buyout cost in relation to their share of the liabilities. This applies even where companies are part of the same group, so that restructuring for good business reasons could trigger a requirement to pay more money into the pension scheme than would otherwise have been paid. It is immaterial that the employer covenant might be unchanged or even stronger afterwards.

The law was brought in originally to prevent solvent employers walking away from their pension scheme, prompted by the notorious case of the Danish shipping company Maersk in 2002 (although a year later the company did eventually agree to do the right thing). The Minister made it clear that any relaxation of the law would only apply where there is no lessening of commitment to the scheme, ie a restructuring does not weaken the sponsoring employers' covenants. It is generally agreed that it will be difficult to achieve a meaningful relaxation without creating loopholes for the unscrupulous.

CETV basis to be retained for pension sharing on divorce

The DWP has confirmed that following a review, the cash equivalent transfer value method is still the most appropriate method for valuing pension rights for transfers and divorce purposes. Therefore there will be no change to existing policy. Schemes should continue to use the same CETV basis for valuing a member's pension rights for divorce purposes as they do when valuing pension rights on transfer to another scheme.

In their letter, the DWP also confirmed that trustees should remain free to choose whether or not to offer scheme membership to former spouses in respect of their pension share, ie an internal transfer of their pension credit.

More new FAS Regulations