ASSEMBLY MEMBERS' PENSIONS BILL

EXPLANATORY AND FINANCIAL MEMORANDUM

INTRODUCTION

1. This Explanatory and Financial Memorandum has been prepared by the Department of Finance and Personnel, in order to assist the reader of the Bill and to help inform debate on it. It does not form part of the Bill and has not been endorsed by the Assembly.
2. The Memorandum needs to be read in conjunction with the Bill. It is not, and is not meant to be, a comprehensive description of the Bill. Where a clause or part of a clause, article or schedule does not seem to require any explanation or comment, none is given.

PURPOSE

3. The purpose of this Bill is to make provision for the payment of pensions and gratuities to, or in respect of, persons who have been Members of the Northern Ireland Assembly.

BACKGROUND

4. The Assembly has already decided in principle, on the basis of the recommendations contained in the Commission's first report (NNIA8, 22 February 1999), that, in the matter of salaries, allowances and pensions for Members, it should follow the recommendations of the Senior Salaries Review Board (SSRB). The SSRB subsequently recommended that, in proportion to a Member's salary and service, a pension scheme for Members of the Assembly should be established to provide the same categories, and substantially the same levels, of benefit as are available to Members of Parliament under the Parliamentary Contributory Pension Scheme (PCPS). The SSRB also recommended that:

• contribution rates should be 6% of salary;

• the Scheme should incorporate arrangements for incoming and outgoing transfers in line with practice in the PCPS;

• provision should be made for Members of the Assembly, the Westminster Parliament and the European Parliament to transfer benefits between the relevant pension schemes on a "past service reserve" basis to allow the value of transferred benefits to be equivalent to the value of benefits had the member remained in their original scheme;

• contributions paid by those members who hold more than one mandate, and benefits paid from the Scheme, be based on the abated salary (one third of the normal salary payable);

• supplementary pension schemes be established for paid office holders of the Assembly to enable them to make additional pension contributions, at 6%, based on their office holder's salary and the determination of final pension payable should be comparable to that for ministers and office holders in the Westminster Parliament;

• provision should be made for members to make retrospective contributions in relation to their earnings in the shadow phase and to be entitled to scheme benefits in respect of those contributions; and

• for the purpose of calculating any entitlement to benefits, the determination of "continuous service" should include any period of service in the shadow phase of the Assembly.

5. The Bill as presented complies with the SSRB's recommendations.

COMMENTARY ON CLAUSES

6. The Bill comprises four clauses with the Scheme set out in the Schedule.

Clause 1: The Assembly Members' Pension Scheme

This brings the Scheme, as set out in the Schedule, into effect from the date the Bill comes into operation.

Clause 2: Power to amend scheme

This gives the Assembly Commission the power, with the consent of the Minister of Finance and Personnel and the approval of the Assembly, to amend the Scheme by order after consulting the Trustees. It provides for protection of the accrued rights of members of the Scheme in the event of amendments to the Scheme being made. In order to be able to make orders amending the Scheme the Assembly Commission is included in the list of rule making authorities for the purposes of the Statutory Rules (Northern Ireland) Order 1979.

Clause 3: Increase of pensions under the scheme

This ensures that either deferred pensions or pensions in payment are increased in line with inflation.

Clause 4: Short title

This gives the short title of the Bill.

COMMENTARY ON THE SCHEDULE (THE PENSION SCHEME)

Part A: Preliminary

Article A4 applies the Scheme retrospectively to Members' service from the day they took their seats, which in most cases is 1 July 1998, until the date the Bill comes into operation. This is necessary because Members have no pension cover at present for this period. Members who do not wish to have this service covered for pension purposes must write to the Trustees within three months. Those who do wish to have this previous service count must pay to the Trustees an amount equivalent to the contributions which they would have paid for the period had the Scheme been in operation from the date they took their seats. Where Members do not make a specific arrangement with the Trustees for payment of these retrospective contributions, they will be recovered automatically by a deduction of 9% from salary (in addition to the normal deduction of 6% for their contribution to the Scheme). Provision is also made for the Scheme to apply retrospectively to any Member who dies before it comes into operation.

Part B and schedule 1: The Fund and the Trustees

Part B and schedule 1 provide for the pension Fund to be administered by five Trustees appointed by the Assembly and sets out the Trustees general powers and their responsibilities, in particular, for the maintenance of proper accounts. The Comptroller and Auditor General for Northern Ireland is appointed as the Scheme's Auditor. An indemnity is provided for any liability incurred by the Trustees in the exercise of their duties.

Part C: Membership

Under Part C all Members and office holders of the Assembly are automatically participants in the Scheme. There are provisions for opting out of the Scheme and for opting back in again subject to certain conditions.

Part D: Contributions

Part D provides for participants, subject to certain limits, to pay 6% of their salaries into the Fund. It is for the Actuary, appointed by the Trustees, to determine what contribution should be made to the Fund each year by the Assembly (the "employer's" contribution).

Part E: Reckonable Service

Part E provides definitions of the service which qualifies for pension purposes for both members and office holders.

Part F and schedule 2: Pension Entitlement

Part F provides for a normal age of retirement under the Scheme of 65. Subject to certain limits, including those set out in schedule 2, the pension payable in respect of a member's ordinary service in the Assembly is based on a fiftieth of the final salary times the number of years' service. Where a member is also an MP or MEP this is reduced by two thirds for any period of dual mandate. Supplementary pensions are also payable in respect of any time during which a member held an office holder's post.

Part G and schedule 3: Commutation

Subject to certain limits, including those set out in schedule 3, Part G provides that before a pension comes into payment, part of it may be commuted into (surrendered for) a lump sum payment. The lump sum resulting from such commutation is to be calculated by the Actuary.

Part H and schedule 4: Early Retirement and early abated pensions

Part H provides for former Members of the Assembly who have not reached age 65, but are at least 50 and have a minimum of 15 years service in the Assembly, to draw their pensions early. In such circumstances the pension is abated for early payment in accordance with the table set out in schedule 4.

Part J: Ill-Health Pensions

Part J provides for pensions to be paid immediately to members or former members who have not reached age 65, where the Trustees are satisfied that ill-health prevents them from performing adequately the duties of a Member of the Assembly. The ill-health pensions payable are not abated because of early payment and, in the case of serving Members, their service, in respect of the non-office holder element of their pension, is enhanced by the period between retirement and age 65. Such pensions are normally payable until death, but the Trustees have a power to review and to stop ill-health pensions where the pensioner has not reached age 65 and they feel that he or she has recovered to such an extent that if they were to apply for an ill-health pension currently it would not be granted.

Part K: Surviving Spouses and Children

Under Part K a pension will be payable to a spouse on the death of the Scheme member. Where the death occurs before retirement the spouse will receive a pension equal to the member's salary for a period of three months, then at the rate of 5/8ths of the pension which would have been payable to the member at age 65. Where death occurs after retirement, the spouse will receive a pension equal to the member's pension for three months, then at a rate of 5/8ths of the member's uncommuted pension. Pensions are also payable to dependant children.

Part L: Death Gratuities

Under Part L, where a Scheme member dies in service, a gratuity of three times salary will be payable to a nominated person or persons.

Part M: Five Year Guarantee

Part M provides that if a Scheme member dies within five years of retirement, the spouse's pension is payable at the rate of the member's pension for the remainder of those five years and thereafter at the rate of 5/8ths of the member's uncommuted pension.

Part N: Refunds

Under Part N contributions may be refunded where a person leaves the Scheme after less than two years' service.

Part P: Transfers

Scheme members will be able to transfer service to and from the Scheme under Part P.

Parts Q and R and schedules 5 and 6

Where a Scheme member will not be able to attain maximum pension before age 65, he or she will be able to increase benefits by either buying added years under Part Q and schedule 5 or paying additional voluntary contributions under Part R and schedule 6.

Part S: ActuTahoma Valuations

Part S provides for the appointment of an Actuary to carry out three yearly valuations of the Scheme and to recommend the Assembly's annual contribution.

Part T: Miscellaneous and Supplemental

Part T deals with a number of miscellaneous and supplementary issues.

FINANCIAL EFFECTS ON THE BILL

7. It is estimated that, on the basis of the proposed salaries of Members and Office Holders, the annual cost to the Assembly of the proposed Scheme will be approximately £0.9m per annum excluding Member's contributions.

LEGISLATIVE COMPETENCE

8. The member in charge of the Bill, the Reverend Robert Coulter, has made the following statement under Standing Order 28 of the Northern Ireland Assembly:

"In my view the Assembly Members' Pensions Bill would be within the legislative competence of the Northern Ireland Assembly"