In mid-March we reported the Government's decision to 'park' the thorny problem of what to do about existing protected rights once DC contracting-out is abolished: no decision was to be made until after the joint DWP/Treasury review of the working of the Open Market Option for annuities concludes at the end of this year. In the meantime, via an amendment inserted in the Pensions Bill at Second Reading (Clause 15(2)), the Government took a broad power to abolish or vary by regulations some or all of the DWP rules that determine the use of protected rights.

The Pensions Bill is now at the Committee stage in the House of Lords. Opposition and cross-bench amendments are usually withdrawn after a polite debate, although occasionally where the proponent feels particularly strongly a vote is forced, which the Government usually wins*. Very rarely - usually when it becomes obvious that a provision in a Bill will not meet the policy intention - the Government agrees to take away and consider an Opposition amendment (and return with one of its own).

* In a rare exception, this week peers defeated the Government by 181 votes to 126 on a Conservative-Liberal Democrat amendment to create a "lifeboat fund" to help the 125,000 scheme wind-up victims by paying them the same level of benefits under the FAS as the PPF provides. A similar amendment in the House of Commons was defeated by 22 votes. The amendment will now go back to the Commons for the Third Reading.

It has become almost customary for the Government to treat a Bill introduced into Parliament as a piece of 'work in progress'. This Pensions Bill is no exception, and Lord McKenzie, the Minister in charge of the Bill, has put forward a number of further amendments at this Committee stage. Among them, an extension to Clause 14 (Conversion of guaranteed minimum pensions) covers individuals who were in receipt of both a GMP (before conversion to scheme benefits) and a state retirement pension, where one or other had come into payment after state pension age. It provides for increases which would otherwise have been granted to the GMP, had it not been converted to scheme benefits, to be added on to their state retirement pension.

Most striking of all, however, is the withdrawal of the amendment cited above (Clause 15(2)) - which has already been approved by the Commons - and instead of leaving it to later regs, modification here and now in the Bill of the primary legislation governing protected rights.

Clause 15 (Abolition of contracting-out for defined contribution pension schemes) replaces the existing sections 28 to 29 (ways of giving effect to protected rights etc.) of the Pension Schemes Act 1993 with a new section 27A:

"27A Requirements in relation to giving effect to protected rights

(1) The rules of the scheme must provide that if, in the case of a member who is married or who has a civil partner, effect is to be given to the protected rights of the member by—

1. the provision by the scheme of a pension, or

2. the purchase by the scheme of an annuity,

the requirement set out in subsection (2) must be satisfied in relation to the pension or annuity.

(2) The requirement is that, in a case where—

1. the member dies while the pension or annuity is payable to him or her, and

2. the member is survived by a widow, widower or surviving civil partner ("the survivor"),

the pension or annuity is payable to the survivor in prescribed circumstances and for the prescribed period at an annual rate which at any given time is one-half of the rate at which it would have been payable to the member if the member had been living at that time.

(3) The rules of the scheme must provide that, if effect is to be given to a member's protected rights by the provision of a lump sum, the prescribed conditions must be satisfied.

(4) The rules of the scheme must provide that, if—

1. a member has died without effect being given to his or her protected rights, and

2. the member is survived by a widow, widower or surviving civil partner,

effect is to be given to the protected rights in such manner as may be prescribed."

This means the DWP has prematurely abandoned the quest for true simplification of the protected rights legislation, perpetuating the current difficulties for scheme administration. The rule requiring provision of a survivor benefit (which does not apply to non-protected rights) is to be retained. Thus for ever after DC contracting-out is abolished (which won’t be before 2012), it seems, schemes will have to continue to ring-fence protected rights funds and separately identify protected rights on transfer. No serious consideration appears to have been given to the possibility of buying back protected rights into the state scheme.