2.2.12 Pensions Act 1995

• This Act received Royal Assent on 19th July 1995.

• It is only a framework document, and much of the substance, as well as the fine detail, has been left to formal Regulations, included in Statutory Instruments. Most of the changes brought about by the Act were implemented from 6th April 1997.

• The main provisions include:

1. The Occupational Pensions Board (OPB) had jurisdiction up to April 1997. The new Occupational Pensions Regulatory Authority (OPRA) was set up to supervise the protection introduced by the Act for all scheme members.

2. Scheme members have the right to choose at least one third of the trustees. There will be at least two such trustees, except in schemes with less than 100 members, when there will be at least one. Schemes can continue with existing arrangements or make alternative arrangements if this is acceptable to the members. Members nominated as trustees must be allowed sufficient leave from their normal duties to receive training as a trustee and to perform their trustee duties.

3. The Act specifies responsibilities and procedures with which the trustees must comply. These include:
   

   Ensure proper investment of scheme assets by taking advice or appointing an investment manager where appropriate. Prepare a written statement of investment principles. Ensure that the scheme is adequately funded to comply with the new minimum funding requirements for defined benefit schemes. Ensure that members have the opportunity to see all scheme documents, including Rules and annual reports.

   
   

4. Defined Benefit (i.e. Final Salary) Schemes have to meet a minimum funding requirement. Schemes will have one year to bring the value of assets up to 90% of their total liabilities and 5 years to reach the 100% level.

5. Actuarial valuations must be carried out at least every three years.

6. A schedule of contributions must be maintained, and if contributions are not paid in accordance with this schedule, the trustees must inform OPRA. Any unpaid contributions will stand as a debt against the employer.

7. Trustees have the responsibility for appointing actuaries, auditors, investment managers and legal advisers where required to do so by the Act. Actuaries and auditors will have a statutory duty to report breaches by trustees, employers and advisers to OPRA. Other professional advisers and scheme administrators are also expected to report any breaches to OPRA.

8. From 6th April 1997, pensions in payment, accruing from service after that date, must be increased automatically by Limited Price Indexation (LPI). This is at the rate of the lesser of RPI and 5% p.a. The same requirements apply to benefits under defined contribution schemes in respect of contributions made on or after 6th April 1997. Pensions secured by AVCs, FSAVCs and Protected Rights from Personal Pensions are exempt.

9. Arrangements to contract out of SERPS will be revised:
   

   Guaranteed Minimum Pensions were replaced (for future accrual only) after April 1997 by a "requisite benefit" test. A minimum accrual rate will apply to the scheme as a whole, rather than have to cope with the complications of GMPs. For those contracted out through a money purchase scheme, or an appropriate personal pension, age related rebates were introduced from 6th April 1997. These are independent of sex and marital status. The existing 1% incentive, for those over age 30 who are contracted out through a personal pension, was abolished from 6th April 1997. The Contributions Agency of the DWP is now responsible for issuing contracted out certificates from 6th April 1997 instead of the Occupational Pensions Board. From 6th April 1997 those who have contracted out through a personal pension plan will be able to draw their protected rights benefits from age 60. This brings them into line with those contracted out through money purchase schemes. Scheme members who left employment before 1st January 1986 had no statutory right to a transfer. The Pensions Act extends the right to a transfer to this group.

   
   

10. The Pensions Compensation Board was appointed. Compensation payments will be made on schemes, subject to certain conditions, where the scheme assets have been reduced due to fraud or theft. This will be limited to 90% of the shortfall, calculated on the minimum funding requirement basis at the application date.

11. On divorce, Courts can order that pension scheme benefits form part of a settlement made after 6th April 1996 in respect of benefits payable after 6th April 1997.

12. Schemes must establish a complaints procedure, nominating a person to arbitrate on any complaint from a member. If the complaint cannot be resolved, the trustees will investigate, and, if necessary, refer the complaint to OPAS or to the Pensions Ombudsman.