The Occupational Pension Schemes (Preservation of Benefit) Regulations 1991

Made: 1st February 1991

Laid before Parliament: 7th February 1991

Coming into force: 28th February 1991

The Secretary of State for Social Security, in exercise of the powers conferred by sections 51(5) and (10), 64(1A), 96(1) and (2) and 99(1) and (3) of, and paragraphs 5(1), 6(5), 9(1), (2) and (3), 12(2), 13(5), 15(4) and 20 to 26 of Schedule 16 to, the Social Security Act 1973, section 6(4) of the National Insurance Act 1974, sections 166(1) to (3A) and 168(1) of, and Schedule 20 to, the Social Security Act 1975 and sections 52C(5),56P, 62(4) and 66(2) and (3) of, and paragraphs 14(3) and 20 of Schedule 1A to, the Social Security Pensions Act 1975, and of all other powers enabling him in that behalf, after considering the report of the Occupational Pensions Board on the proposals submitted to them, hereby makes the following Regulations:

Citation, commencement and interpretation

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• (1) These Regulations may be cited as the Occupational Pension Schemes (Preservation of Benefit) Regulations 1991.

• (2) These Regulations come into force on 28th February 1991.

• (3) In these Regulations, unless the context otherwise requires—

• “the Act” means the Pension Schemes Act 1993;

• “the 1995 Act” means the Pensions Act 1995;

• ...

• “scheme” means an occupational pension scheme.

• (4) Any information or documents required to be furnished under these Regulations to a person, may be given in accordance with regulations 26 to 28 of the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 (giving information and documents).

Meaning of “employer”

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• (1) This regulation applies for the purposes of Chapter I of Part IV of the Act (occupational pension schemes).

• (2) In relation to an employed earner, “employer” means the secondary contributor in relation to any payment of earnings in respect of the employment concerned.

• (3) In relation to a self-employed earner, “employer” means any other person, government department, public authority or body of persons who has made, or is to make, payments to the scheme in respect of the earner.

• (4) In this regulation, “employed earner” and “self-employed earner” mean the same as in section 2 of the Social Security Act 1975 (categories of earners) and “secondary contributor” means the same as in section 4 of that Act (Class 1 contributions-incidence).

Meaning of “member” and “prospective member”

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• (1) This regulation applies for all the purposes of Chapter I of Part IV of the Act.

• (2) There are to be regarded as members of an occupational pension scheme any persons who—

• (a) are in pensionable service under the scheme;

• (b) have rights under the scheme by virtue of such pensionable service; or

• (c) have rights under the scheme by virtue of having been allowed transfer credits under the scheme.

• (3) There are to be regarded as prospective members of an occupational pension scheme—

• (a) any persons who are able, at their own option, to become members of the scheme, and

• (b) any persons who under the terms of their contracts of service and the scheme rules will become so able, if they continue in the same employment for a sufficiently long period.

Benefits included in supplementary credits

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• (1) For the purposes of section 75(1)(c) of the Act, in the circumstances set out in paragraph (2) below, “supplementary credits” include any increase of benefit or additional benefit that is of an amount, or at a rate, unrelated to length of pensionable service or to the number or amount of contributions paid by or for the member.

• (2) The circumstances referred to in paragraph (1) are that the member becomes entitled to the increase of benefit or additional benefit in consequence of a provision made by or under the scheme after he becomes a member of it and before his pensionable service terminates.

Short service benefit in lump sum form

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For the purposes of section 71(6) of the Act (basic principle as to short service benefit), the circumstances in which the trustees or managers of a scheme may provide for payment of short service benefit in the form of a lump sum before normal pension age are that the payment of a lump sum—

• (a) to the member is permitted in accordance with paragraph (a), (b), (ba), (e), (f) or (g) of the lump sum rule in section 166(1) of the Finance Act 2004 (lump sum rule); or

• (b) is—

• (i) made by a registered pension scheme (within the meaning given in section 150(2) of the Finance Act 2004 (meaning of “pension scheme”));

• (ii) a payment that is described in Part 2 of the Registered Pension Schemes (Authorised Payments) Regulations 2009; and

• (iii) made to or in respect of a member.

Means of assuring short service benefit

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• (1) For the purposes of section 73(1) of the Act, short service benefit that is not payable directly out of the resources of the scheme may be assured to the member by means of a transaction to which section 19 of the Act (extinguishment of liability of scheme for pensions secured by insurance policies or annuity contracts) applies, and which satisfies the requirements of paragraph (2) of this regulation ....

• (2) A transaction satisfies the requirements of this paragraph if—

• (a) it results in the member’s short service benefit being secured by one or more policies of insurance or annuity contracts that are appropriate for the purposes of section 19 of the Act; and

• (b) the member will be able to assign or surrender the insurance policies or annuity contracts on the conditions set out in regulation 3 of the Occupational Pension Schemes (Discharge of Liability) Regulations 1997 (conditions on which policies of insurance and annuity contracts may be assigned or surrendered).

• (3) For the purposes of paragraph (2) of this regulation, a policy of insurance or annuity contract which is taken out or entered into with an authorised friendly society, but which otherwise satisfies the conditions for being “appropriate” for the purposes of section 19 of the Act, is to be treated as if it were appropriate for the purposes of that section provided the terms of such policy or contract are not capable of being amended, revoked or rescinded.

• (4) In this regulation—

“friendly society” has the same meaning as in the Friendly Societies Act 1992 (including any society which by virtue of section 96(2) of that Act is to be treated as a registered friendly society within the meaning of that Act);

“authorised friendly society” means a friendly society which is authorised under section 32 of the Friendly Societies Act 1992 to carry on long term business under any of the Classes specified in Head A of Schedule 2 to that Act.

Alternatives to short service benefit

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• (1) For the purposes of section 73(2) of the Act, a scheme may, instead of providing short service benefit, provide any of the alternatives to short service benefit described in regulations 8 to 10 below.

• (2) The alternatives described in regulations 8 to 10 may be provided by way of complete or partial substitute for short service benefit, but (except in the cases specifically referred to) only with the member’s consent.

• (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Early retirement or deferred retirement

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• (1) The scheme may provide benefits that are different from those required to constitute short service benefit as regards amount, recipient and the time at which they are payable. The benefits must, however, include a benefit that is payable to the member.

• (2) The member’s benefit must not be payable before normal pension age except in the circumstances where the member has either—

• (a) met the ill-health condition specified in paragraph 1 of Schedule 28 to the Finance Act 2004 (registered pension schemes – defined benefits and money purchase arrangements – ill health condition) immediately before he became entitled to the benefit under the scheme; or

• (b) attained normal minimum pension age as defined in section 279 of that Act (other definitions).

• (3) Benefits consisting of, or including, a benefit that becomes payable to the member before normal pension age may be provided without the member’s consent where—

• (a) the member’s earning capacity is destroyed or seriously impaired by physical or mental infirmity, and

• (b) in the opinion of the trustees or managers of the scheme, the member is incapable of deciding whether it is in his interests to consent.

• (4) Any scheme rule that allows the alternative described in this regulation must require the trustees or managers of the scheme to be reasonably satisfied that, when the member’s benefit becomes payable, the total value of the benefits to be provided under this regulation is at least equal to the amount described in regulation 11.

Bought out benefits

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• (1) The scheme may provide for benefits different from those required to constitute short service benefit to be appropriately secured by a transaction to which section 19 of the Act applies (extinguishment of liability of scheme for pensions secured by insurance policies or annuity contracts)....

• (2) Any scheme rule that allows the alternative described in this regulation must require the trustees or managers of the scheme to be reasonably satisfied that, except where paragraph (3) below applies, the payment made to the insurance company is at least equal to the amount described in regulation 11.

• (3) The exception to paragraph (2) is where the member is requiring the trustees or managers to provide the alternative by exercising a right to a cash equivalent, as described in Chapter IV of Part IV of the Act (transfer values).

• (4) A scheme may allow the alternative described in this regulation to be provided without the member’s consent where—

• (a) the member will be able to assign or surrender the insurance policy or annuity contract on the conditions set out in regulation 3 of the Occupational Pension Schemes (Discharge of Liability) Regulations 1997 (conditions on which policies of insurance and annuity contracts may be assigned or surrendered); and

• (b) the requirements of paragraph (5) are satisfied.

• (5) The requirements of this paragraph are that—

• (a) the scheme is being wound up; or

• (b) the member has less than “5 years’ qualifying service” (as defined in paragraph 7 of Schedule 16 to the Social Security Act 1973 immediately before the coming into force of section 10 of the Social Security Act 1986 (changes to preservation requirements)) and the requirements of paragraph (6) are satisfied; or

• (c) the trustees or managers of the scheme consider that, in the circumstances, it is reasonable for the scheme to provide the alternative without the member’s consent and the requirements of paragraph (6) are satisfied.

• (6) The requirements of this paragraph are that all the conditions set out in sub-paragraphs (b), (c) and (d) are satisfied, namely—

• (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (b) the insurance policy is taken out or the annuity contract entered into more than 12 months after the member’s pensionable service terminates;

• (c) the trustees or managers of the scheme give the member at least 30 days’ written notice of their intention to take out the insurance policy or enter into the annuity contract unless the member exercises a right to a cash equivalent, as described in Chapter IV of Part IV of the Act (the notice being sent to the member in accordance with regulations 26 to 28 (giving information and documents) of the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 or delivered to the member personally); and

• (d) when the trustees or managers of the scheme agree with the insurance company to take out the insurance policy or enter into the annuity contract, there is no outstanding application by the member for a cash equivalent.

• (7) For the purposes of this regulation, “appropriately secured” means the same as in section 19 of the Act except that a policy of insurance or annuity contract which is taken out or entered into with an “authorised friendly society” (as defined for the purposes of regulation 6), but which otherwise satisfies the conditions for being “appropriate” for the purposes of section 19, is to be treated as if it were appropriate for the purposes of that section.

Money purchase benefits

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• (1) The scheme may provide money purchase benefits instead of all or any of the benefits that constitute short service benefit.

• (2) Any scheme rule that allows this alternative must require the trustees or managers of the scheme to be reasonably satisfied that the amount allocated to provide money purchase benefits in respect of the member is at least equal to the amount described in regulation 11. The scheme rule must also require the trustees or managers of the scheme to calculate -

• (a) the money purchase benefits, when they become payable, in accordance with the terms of an insurance policy or annuity contract in which the amount allocated to provide the benefits is invested; or

• (b) a pension under the scheme derived from the money purchase benefits, on the basis of actuarial advice.

Value of alternatives to short service benefit

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• (1) The amount referred to in regulations 8, 9, and 10 is an amount equal to the value of the benefits (or, where the alternative is provided by way of partial substitute for short service benefit, the relevant part of the benefits) that have accrued to or in respect of the member under the applicable rules.

• (2) For the purposes of this regulation, “the applicable rules” means the same as in section 94(2) of the Act (revaluation of pensions and transfer values).

Transfer of member’s accrued rights without consent

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• (1) Subject to paragraph (3A), for the purposes of section 73(4) of the Act, a scheme may provide for the member’s accrued rights which are not relevant money purchase rights to be transferred to another occupational pension scheme (as described in section 73(2)(a)(i) of the Act) without the member’s consent where—

• (a) the scheme is being wound up and the transfer is to another scheme that applies to employment with the same employer; or

• (b) the conditions set out in paragraphs (2) and (3) of this regulation are satisfied.

• (1A) For the purposes of section 73(4) of the Act, a scheme may provide for a transfer payment to be made to another occupational or personal pension scheme (as described in section 73(2)(a) of the Act) without the member’s consent where the conditions set out in paragraph (6) of this regulation are satisfied.

• (1B) For the purposes of section 73(2)(b) and (4)(b) of the Act, a scheme may provide for the member’s relevant money purchase rights to be transferred to another occupational pension scheme without the member’s consent where the conditions set out in one of paragraphs (7) to (9) are satisfied.

• (2) The condition set out in this paragraph is that the rights of a member are being transferred from the transferring scheme to the receiving scheme and either—

• (a) the transferring scheme and the receiving scheme relate to persons who are or have been in employment with the same employer; or

• (b) the transferring scheme and the receiving scheme relate to persons who are or have been in employment with different employers, the member concerned is one of a group in respect of whom transfers are being made from the transferring scheme to the receiving scheme, and either—

• (i) the transfer is a consequence of a financial transaction between the employers; or

• (ii) the employers are companies or partnerships bearing a relationship to each other in one of the ways described in paragraph (2A).

• (2A) The relationships between the employers referred to in paragraph (2)(b)(ii) are—

• (a) the employers are members of a group of companies consisting of a holding company and one or more subsidiaries within the meaning of section 1159(1) of the Companies Act 2006 (meaning of “subsidiary” etc.);

• (b) the employers are—

• (i) the scheme’s principal employer or controlling employer; and

• (ii) an employer subject to the rules of the scheme; or

• (c) the employers are partnerships having at least half of their partners in common.

• (3) The condition set out in this paragraph is that—

• (a) the relevant actuary gives a certification, by completing the certificate in Schedule 3, in relation to the members’ rights in the receiving scheme;

• (b) the relevant actuary sends that certificate to the trustees or managers of the transferring scheme;

• (c) the transfer takes place within 3 months of the date of the relevant actuary’s signature in the certificate; and

• (d) there are no significant changes to the benefits, data and documents used in making the certificate (see the benefits, data and documents specified in the certificate) by the date on which the transfer takes place.

• (3A) A scheme may not provide for the member’s accrued rights which are not relevant money purchase rights to be transferred to a collective money purchase scheme without the member’s consent.

• (4) For the purposes of making the certification in paragraph 1 of the certificate in Schedule 3, where long service benefit in the transferring scheme is related to a member’s earnings at, or in a specified period before, the time when he attains normal pension age then, in the case of a member in pensionable service at the date of transfer, the value of the rights to be transferred shall be based on pensionable service (including any transfer credits) in the transferring scheme up to that date and projected final pensionable earnings.

• (4A) For the purposes of making the certification in paragraph 2 of the certificate in Schedule 3, the relevant actuary shall, in considering whether there is good cause, have regard to all the circumstances of the case and in particular—

• (a) to any established custom of the receiving scheme with regard to the provision of discretionary benefits or increases in benefits; and

• (b) to any announcements made with regard to the provision of such benefits under the receiving scheme.