The Pensions Act 2007, which received Royal Assent on 26 July 2007, heralds a significant increase in Basic State Pension entitlement from 2010, for many women in particular. At the moment, many women and carers are currently denied a full pension entitlement because their family and caring responsibilities mean they are not in work long enough to qualify. The number of years' contributions required to achieve a full BSP will be reduced to 30 for women and men from April 6, 2010. The current requirement is 39 years for women and 44 for men.
Under the Act, people caring for children or people with a severe disability will be able to build up a state pension entitlement through weekly carer's credits. These credits will be more flexible than Home Responsibilities Protection (HRP), which requires people to build up a full 'qualifying year' to protect their state pension entitlement. At the moment, because a minimum of between nine and eleven qualifying years are required to get any pension at all, some get nothing.
As well as providing a boost for women and carers, the Act re-links the BSP with earnings from 2012, or by the end of the next Parliament, and provides for a simpler flat rate State Second Pension. The Act also will gradually increase State Pension Age to 68 by 2046 for men and women, to reflect increasing longevity.
These provisions of the Act are already in force, having commenced immediately along with the other main innovation, the legislation establishing the Personal Accounts Delivery Authority (further legislation setting out a framework for Personal Accounts and automatic enrolment will be in a second Pensions Bill, announced by the Government on 11 July 2007 as part of its draft legislative programme). A provision to raise the level of initial 'top up' payments under the Financial Assistance Scheme (FAS) for all members of qualifying pension schemes (ie irrespective of date of reaching NRA) to 80% of their expected "core pensions" also takes effect from the date of Royal Assent.
Most of the remaining provisions of the Act come into force on 26 September 2007. The principal exceptions, which are left to the Secretary of State to decide if and when to bring into force, cover
A pdf version of the Act is also available to download.
The Financial Assistance Scheme (FAS)
Most of the hoo-ha during passage of the Bill through Parliament centred on the Government's plans to extend the FAS. These were widely held to reflect a Government being dragged inexorably, but kicking and screaming all the way, towards parity of treatment with members of pension schemes admitted to the Pension Protection Fund.
The House of Lords didn't think the Bill went far enough to help the scheme members affected and passed an amendment to set up a lifeboat scheme and use an emergency loan to ensure victims received increased payouts in a shorter time period. This was defeated in the House of Commons, but the Lords initially insisted. To kill this opposition the Government was forced to invoke the Parliament Act 1911, which states that the Commons has primacy where the issue involves a Government spending commitment.
On 16 July 2007, just ten days before Royal Assent, the DWP published an interim report of the Young Review of the FAS. The report concentrated on identifying the value of assets in FAS schemes, their ownership and stewardship; potential uses of these assets and whether there are options to increase the value; other non-tax sources of funding; and the key issues relating to solvent employers.
A key conclusion is that the £1.7bn of assets in occupational pension schemes that qualify for help from the FAS could be used more effectively. In particular, it suggests economies could be made if instead of each scheme purchasing annuities separately for their own members, they were to pool their assets so that scheme members get the benefits of greater scale. The Government has pledged to match any additional funds identified by the Assets Review and hopes that will be enough to increase the FAS to 90% - although there is an element of smoke and mirrors there as the rules of the FAS and the PPF (ie defining what 90% actually means) are not otherwise congruent.
The Review, which is advised by a panel of external experts, is still collecting data and consulting interested parties over the summer. Its final report has been promised before the end of the year.