This week the DWP launched a consultation on The Pension Sharing (Pension Credit Benefit) (Amendment) Regulations 2008. The aim is to bring the rules for the payment of pension credit benefit (PCB) arising from a pension share on divorce into line with the rules that apply to private and occupational pensions generally under the FA 2004 tax regime and the preservation legislation. This will enable PCB members to have the same choices as other occupational pension scheme members on when and how to draw their pension. It is proposed that these regulations will come into force on 1 October 2008.

The Finance Act 2004 aligned the payment rules for occupational and personal pension schemes from 6 April 2006. Such pensions can be taken at age 50 (55 from April 2010), with part commuted as a pension commencement lump sum (PCLS). At present, the PCB regs (SI 2000/1054, as amended) do not permit PCB held in occupational pension schemes to be paid before normal benefit age (ie age 60), except in restricted circumstances. No such constraints apply to personal pension schemes: the legislation is silent on the earliest age at which PCB (other than safeguarded rights) can be paid under a PP.

The draft regs would enable PCB held in an occupational pension scheme to be paid from age 50 (55 from 2010), or earlier where ill health permanently prevents a pension credit member from following his/her occupation. They also enable PCB to be paid as a lump sum at any age where the tax rules would allow it. A similar derestriction is to apply to PCB which is part of an insurance policy or annuity contract.

There is a caveat, namely the restriction on commutation of any safeguarded rights element: this will continue to apply until legislation to abolish safeguarded rights in the Pensions Bill 2008 comes into force. The Pension Sharing (Safeguarded Rights) Regulations 2000 (SI 2000/1055) will then be revoked.

The consultation period runs until 21 July 2008.

PPF Entry Rules to be amended

The DWP also launched another, more urgent, consultation this week, to deal with an anomaly in the PPF entry rules. There have been instances where the sponsoring employer of a pension scheme eligible for the PPF has been dissolved during a PPF assessment period. The effect of the Pensions Act 2004, in particular sections 126, 160 and 161, is that technically*, those schemes cannot be transferred into the PPF even if in all other circumstances they are ready to transfer into the PPF.

* The DWP says members in schemes whose employer has dissolved during a PPF assessment period are nevertheless currently receiving benefits at PPF levels as normal. The Board of the PPF intends that the members will continue to receive those benefits until these regulations come into force, providing the other relevant criteria are satisfied. These members will also receive PPF levels of benefits as normal should their scheme transfer into the PPF.

The draft Pension Protection Fund (Miscellaneous Amendments) (No.2) Regulations 2008 amend regulation 3(1) of the Pension Protection Fund (Entry Rules) Regulations 2005 (SI 2005/590) to change this position. This will allow the schemes whose sponsoring employer has been dissolved during the PPF assessment period to transfer into the PPF without any further delay.

The details

Reg 3 provides that where, after the beginning of an assessment period an eligible scheme ceases to be an eligible scheme in prescribed circumstances, the scheme shall, for the purposes of Part 2 of the Pensions Act 2004, be treated as remaining an eligible scheme.

Where the sponsoring employer, the last sponsoring employer in a non-segregated multi-employer scheme or the employer or last remaining employer in relation to a section of a segregated scheme, is dissolved or liquidated during an assessment period, the scheme ceases to be eligible.

The draft Regulations amend regulation 3(1) to allow such schemes or sections to remain eligible. This means that, if such schemes or sections meet the prescribed requirements, they can enter the PPF.

The title of the draft includes the words "(No.2)", because the DWP consulted on the Pension Protection Fund (Miscellaneous Amendments) Regulations 2008 between 19 December 2007 and 12 February 2008. The idea is to fold this latest change into those earlier regs.

The consultation period closes next Thursday, 5 June 2008. (Apparently the condoc should have been published on 22 May, but it only went up on the DWP website on 28 May).

PPF announces 2008/09 levy scaling factor

Today the PPF announced the scaling factor which enables eligible UK pension schemes to work out their pension protection levies for 2008/09. This figure has been set at 3.77 and was calculated using data supplied by pension schemes by 31 March on their employers, funding levels and the direct action they have taken to reduce their risk.

For comparison, the factor for 2007/08 was 2.47 and for the previous year, 0.53. The "indicative figure" for 2008/09 published by the Board of the PPF on 29 November 2007 was just 1.6 (see Aries article). The huge increase presumably arises from vigorous and successful efforts by some schemes to reduce their risk, beyond the ability of the Board to accurately predict.

42% of schemes are expected to pay a higher risk-based levy, as a percentage of their assets, in 2008/09 than in 2007/08. Just 9% of schemes are expected to pay no risk-based levy at all during 2008/09.