Pension Personal Accounts – Second DWP consultation document publishedMonday, May 11th, 2009
The Department for Work and Pensions (DWP) has published the second of three consultation documents on the rules and procedures that will apply to the provision by employers of Pension Personal Accounts from 2012.
From an expected commencement date of April 2012, employers will be required to enrol eligible jobholders automatically into qualifying workplace pension schemes, with minimum employer contributions.
This second consultation is aimed at those with an interest in the legal framework for pension personal accounts, in particular the pensions industry, employers and organisations representing employers’ interests, and potential members of the scheme and organisations representing their interests.
The Pensions Act 2008 requires pension personal accounts to be established through secondary legislation. In common with many other occupational pension schemes, the scheme is being treated as if established under a trust. The terms of the scheme will be set out in the Scheme Order and in non-legislative scheme rules. One statutory provision of pension schemes that will not apply to pension personal accounts is the facility to transfer funds out, other than at minimum pension age or in the event of incapacity, and this restriction will be achieved by means of “disapplication” regulations. Accordingly, this document seeks views on
- the draft Pension Scheme Order 2009 which will establish the scheme,
- the draft non-statutory Scheme Rules, and
- the draft Transfer Values (Disapplication) Regulations 2009
The draft legislation has been prepared by the DWP and the Personal Accounts Delivery Authority (PADA). The PADA is a non-departmental public body and was set up under 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 2008 Act 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, after which the trustee corporation will manage the scheme on an on-going basis. The trustee corporation will also be a non-department public body, sponsored by the DWP, and will have 9 to 15 members. A member’s panel will be directly involved in the selection of trustees and an employer’s panel will ensure that the trustees take the views of employers into consideration in the running of the scheme.
It is estimated that the scheme will have between 2 and 8 million members and hundreds of thousands of participating employers, who will not be associated in any way other than their use of the scheme for their workers. It is estimated that this may result in around £100–300 billion of funds under management in the scheme by 2050 in 2007/08 earnings terms. The intention is that the scheme will operate as much as possible like any other trust-based, multi-employer, occupational pension scheme. For example, it will be regulated by Pensions Regulator. The scheme will provide benefits on retirement, death, the onset of ill-health or serious ill-health.
There will, however, be differences, in particular:
- 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. 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, other than in a limited number of circumstances.
- A members’ panel and employers’ panel will be established to allow the trustee to engage effectively with the diverse, large membership and employer population.
- Employers using the scheme to discharge their duties under the 2008 Act will not be able to postpone the automatic enrolment provisions (as discussed in the first consultation document).
- It is intended that the scheme will become self-financing from member charges.
The closing date for responses to this consultation exercise is 20 July 2009.
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, including information to be passed to the Pensions Regulator, sanctions and penalties.
Pensions – Consultation on draft scheme order and rules
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