Pension Reforms: Occupational & Personal Pensions
In May 2006, the Government issued a White Paper, summarising proposals for improved security in retirement for this, and future, generations. This paper was released in response to a report published in 2005 by the Pensions Commission, headed by Lord Turner.
In November 2006, following consultation on the White Paper, the Government published the Pensions Bill. The Pensions Bill laid out the framework for the legislative changes required to implement the White Paper proposals, as accepted by the Government.
In July 2007, the resulting Pensions Act 2007 received royal assent, paving the way for the changes to be implemented.
The following is a summary of the changes included in the Pensions Act 2007, affecting occupational and personal pensions. Effective dates for the changes are, where known, included in the summaries.
Conversion of Guaranteed Minimum Pensions (GMPs)
Trustees of occupational pension schemes will be able to convert members' GMP benefits into ordinary scheme benefits, calculated under the scheme's own rules. This will be subject to certain safeguards to protect the members' interests. Each member's post conversion benefit would be required to be at least as actuarially valuable as their rights immediately prior to conversion. This is likely to be effective from April 2009.
Abolition of contracting out for defined contribution schemes
Contracting out for money purchase occupational schemes and personal pension schemes (including stakeholder pensions) will be abolished. Contracting-out certificates for these schemes will be automatically cancelled. The result will be that from the date of cancellation, members of money purchase schemes will be automatically contracted back into the S2P. This is likely to become effective from 2012.
Dispute resolution arrangements for occupational pension schemes
Trustees of occupational pension scheme must have in place a two-stage dispute procedure, known as the Internal Dispute Resolution Procedure (IDRP).
It will be possible to replace the two-stage procedure with a single stage arrangement where all decisions would be taken by the trustees or managers. This would not be compulsory, however, and schemes will be able to retain the present two-stage arrangements if they wish. This is likely to be effective from April 2008.
