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PENSIONS BILL

EXPLANATORY AND FINANCIAL MEMORANDUM

INTRODUCTION

  1. This Explanatory and Financial Memorandum relates to the Pensions Bill. It has been prepared by the Department for Social Development in order to assist the reader in understanding 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 does not, and is not meant to be, a comprehensive description of the Bill. So where a clause or part of a clause (or Schedule) does not seem to require any explanation or comment, none is given.

BACKGROUND AND POLICY OBJECTIVES

  1. The Bill makes provision for Northern Ireland corresponding to provision contained in the Pensions Act 2007 (c. 22) ("the 2007 Act"). It is part of the ongoing process of pensions reform.
  2. Part 1 of the Bill makes provision for:
  1. Part 2 of the Bill makes provision in relation to non-state pensions. It allows the rights to a guaranteed minimum pension accrued under a defined benefit pension scheme to be converted into ordinary scheme benefits and provides for the abolition of contracting-out for defined contribution pension schemes. It also makes amendments regarding dispute resolution arrangements and the Department’s role in approving actuarial guidance.
  2. Part 3 of the Bill sets out provisions regarding the initial functions of the Personal Accounts Delivery Authority (a body established by section 20 of the 2007 Act) and for the management of that Authority.

CONSULTATION

  1. As part of a UK-wide consultation, the Department issued the White Paper Security in Retirement: towards a new pensions system in May 2006. The Consultation Report was published in October 2006 and the Bill takes forward those proposals.

OPTIONS CONSIDERED

  1. Full details of all of the options considered are detailed in the overall Regulatory Impact Assessment for the Bill (see paragraphs 20 to 26).

OVERVIEW

  1. The Bill contains 22 clauses and 6 Schedules:

Part 1 - State pension

- Entitlement to Category A and B retirement pensions

- National Insurance credits

- Abolition of adult dependency increases

- Up-rating of basic state pension and other benefits

- Additional pension: deemed earnings factors

- Additional pension: simplification of accrual rates

- Increase in state pension age

Part 2 - Occupational and personal pension schemes

- Contracting-out

- Dispute resolution

- Actuarial guidance

Part 3 - Personal Accounts Delivery Authority

Part 4 - General

COMMENTARY ON CLAUSES

PART 1: State pension

Entitlement to Category A and B retirement pensions

Clause 1: Category A and B retirement pensions: single contribution condition

At present, the contribution conditions for basic state pension are set out in paragraph 5 of Schedule 3 to the Contributions and Benefits Act. Clause 1(3) inserts a new paragraph 5A which sets out the new single contribution condition that will apply in certain cases from 6th April 2010.

New paragraph 5A(1) sets out the cases in which the new single contribution condition will apply, as determined by when the contributor concerned reaches state pension age:

Sub-paragraph (2) sets out the new condition which requires that, in order to qualify for a full basic state pension, the contributor concerned must have paid or been credited with Class 1, 2 or 3 national insurance contributions for at least 30 "qualifying years" in their working life. In the case of 1987-88 or a later year, it is also sufficient if the person has been credited with earnings. In addition, for each of those 30 years, the person’s earnings factor must be not less than the qualifying earnings factor for that year.

Sub-paragraph (3) defines how earnings factors are to be calculated for these purposes. The earnings factor will be calculated with regard to Class 1 contributions paid or treated as paid, or earnings credited, up to the upper earnings limit, together with any Class 2 or 3 contributions for the year.

Sub-paragraph (4) enables regulations to be made which modify sub-paragraphs (2) and (3) so as not to prevent people insured under the National Insurance Act (Northern Ireland) 1946 (c. 23) or the National Insurance Act (Northern Ireland) 1966 (c. 6) who reach state pension age from 6th April 2010 qualifying for basic state pension (Category A and/or B) under the new single contribution condition.

Clause 2: Category B retirement pension: removal of restriction on entitlement

Clause 2(2) amends section 48A(2)(a) and (2B)(a) of the Contributions and Benefits Act to remove the restriction which currently prevents a person from becoming entitled to a Category B pension derived from their spouse’s or civil partner’s contributions where their spouse or civil partner has not made a claim for their Category A pension.

The effect of the amendment is to enable, subject to the relevant contribution condition being met, a married person or a person in a civil partnership to become entitled to a Category B pension from the point at which both they and their spouse or civil partner have reached state pension age, regardless of whether the spouse or civil partner has made a claim for their Category A pension.

Subsection (3) omits section 48A(5) of that Act which restricts payability of a Category B pension to periods after the spouse or civil partner’s first payday for their Category A pension.

Subsection (4) introduces the consequential amendments in Part 2 of Schedule 1 and subsection (5) makes provision for this clause and that Part of that Schedule to have effect from 6th April 2010.

Subsection (6) provides that the amendments to section 48A(2) and (2B) of that Act apply to a person who attains state pension age before that date as well as to a person who attains state pension age on or after that date.

Credits for basic state pension etc.

Clause 3: Contributions credits for relevant parents and carers

Clause 3(1) inserts a new section 23A into the Contributions and Benefits Act to replace the existing home responsibilities protection with new crediting arrangements for parents, approved foster parents and carers reaching state pension age on or after 6th April 2010.

New section 23A(1) provides that the new crediting arrangements for parents and carers apply to the following benefits:

Subsection (2) provides for the contributor to be credited with a Class 3 national insurance contribution for each week after 6th April 2010 in which they are a relevant carer as defined in subsection (3).

Subsection (3) defines a person as a relevant carer in respect of a week if they are:

Subsection (4) provides a regulation-making power to make entitlement to credits for foster parents and those engaged in caring to be conditional on the application process being complied with, and on the prescribed information being provided. The information which will be required is information that would confirm that a person is undertaking qualifying care.

Subsections (5) to (7) allow individuals reaching state pension age, or dying, on or after 6th April 2010 to have any complete years of home responsibilities protection, acquired before 6th April 2010, converted to an equivalent number of fully credited years for the purposes of entitlement to basic state pension and bereavement benefits. The number of home responsibilities protection years which may be converted to qualifying years will be subject to upper limits broadly along the lines of the existing rules. In the case of a Category A or B pension the limit is 22 years. In the case of widowed parent’s allowance or bereavement allowance the limit is half the requisite number of years in the contributor’s working life.

Subsection (8) provides that in circumstances where a week straddles two tax years, a credit for that week would be attributed to the tax year in which the week begins.

Subsection (9) enacts both definitions and regulation-making powers for the purposes of new section 23A. In particular, it enables "foster parent" to be defined in regulations. The intention is to mirror the definition in regulation 1(2) of the Social Security Pensions (Home Responsibilities) Regulations (Northern Ireland) 1994 (S.R. 1994 No. 89) as inserted by regulation 2(2) of S.R. 2003 No. 486.

Abolition of adult dependency increases

Clause 4: Category A and C retirement pensions: abolition of adult dependency increases

Clause 4(1) and (2) provides that sections 83, 84 and 85 of the Contributions and Benefits Act are to cease to apply from 6th April 2010. The Contributions and Benefits Act allows for the weekly rate of Category A or C pension to be increased in respect of a pensioner’s wife (section 83), civil partner (section 83A), husband (section 84) or person having care of his or her child (section 85). Section 83A, which was intended, by virtue of paragraph 2 of Schedule 2 to the 1995 Order, to provide for increases in respect of spouses and civil partners to be on an equal footing from 6th April 2010, is omitted.

Subsections (5) to (7) provide that the repeal of sections 83, 84 and 85, and consequential amendments, are not to apply in certain cases before 6th April 2020. This saving will apply in relation to a person who has claimed an increase of pension under those provisions before 6th April 2010 and who immediately before that date is either:

unless the person otherwise ceases to be entitled to the increase (other than as a result of a fluctuation in the dependant’s earnings) or, in the case of an increase paid in respect of a wife, the wife reaches state pension age and becomes eligible for a Category B pension.

Up-rating of basic state pension and other benefits

Clause 5: Up-rating of basic pension etc. and standard minimum guarantee by reference to earnings

Clause 5 inserts a new section 132A into the Administration Act to provide that, where the Secretary of State for Work and Pensions makes an order under section 150A of the Social Security Administration Act 1992 (c.5), the Department may make a corresponding order for Northern Ireland. This will allow the basic state pension and the standard minimum guarantee in state pension credit to be uprated annually in line with earnings.

Clause 5(3) provides that an order made under new section 132A in relation to state pension and industrial death benefit will have effect in relation to the tax year designated by the Secretary of State for Work and Pensions under section 5(4) of the 2007 Act and subsequent tax years. Subsection (4) provides that an order made under new section 132A in relation to the standard minimum guarantee in pension credit has effect in the tax year in which this Bill is passed and subsequent tax years.

Clause 6: Preservation of link with prices in case of other benefits

Clause 6(1) and (2) amends sections 39 and 39C of the Contributions and Benefits Act respectively. The effect of the amendments is to empower the Department to prescribe by regulations the rate of widowed mother’s allowance, widow’s pension and widowed parent’s allowance. The weekly amount of bereavement allowance will equal the prescribed rate of widowed parent’s allowance. Subsection (3) provides that these amendments will have effect in relation to the tax year designated by the Secretary of State for Work and Pensions under section 5(4) of the 2007 Act and subsequent tax years.

Clause 6(4) will ensure that those regulation-making powers are used to provide that the rate of widowed mother’s allowance, widow’s pension, widowed parent’s allowance and bereavement allowance will equal the amount of the basic state pension up to the point at which the basic state pension is uprated in line with earnings.

Additional pension: deemed earnings factors

Clause 7: Deemed earnings factors for purposes of additional pension

Clause 7(1) inserts new sections 44B and 44C into the Contributions and Benefits Act.

New section 44B(1) ensures that deemed earnings factors can only be accrued under the new provisions for tax years from 2010-11 onwards. This means that the new provisions only apply to those who have not yet reached state pension age at that time (a person cannot continue to build up entitlement to state second pension once they have reached state pension age).

Subsection (2) provides that an individual who satisfies any of the new Conditions A, B and C set out in subsections (3), (4) and (5) would be deemed to be earning at the low earnings threshold. Those Conditions are:

Subsection (6) ensures that from the first year in which the flat rate of accrual is introduced for the additional pension ("flat rate introduction year"), the effect of section 44B will simply be to provide deemed earnings factors above the qualifying earnings factor but below the low earnings threshold, as that will be sufficient to enable them to accrue state second pension at the new weekly flat rate (£1.40, subject to up-rating). Condition A will not operate at that stage, since the persons to whom it applies will already have actual earnings over the qualifying earnings factor.

Subsection (7)(a) defines "the applicable limit", which is the upper earnings limit until the flat rate introduction year. At that point, the applicable limit becomes the upper accrual point (see clause 10(1)(b) and (2)(b)).

Subsection (7)(b) defines the low earnings threshold by reference to the definition in section 44A of the Contributions and Benefits Act.

Subsection (7)(c) makes it clear that the earnings factors described in Conditions A and B are derived from primary Class 1 employed earnings below the applicable limit.

New section 44C of the Contributions and Benefits Act applies for the purposes of Conditions B and C specified in section 44B(4) and (5) for tax years from 2010-11 onwards (subsection (1)).

Subsection (2) provides that an individual may enhance their earning factors in any tax year if, for any week in that year, the person is eligible (as specified by subsection (3)). For each week in which the person is eligible, they are entitled to an earnings factor credit equal to 1/52 of the qualifying earnings factor for that year (i.e. the lower earnings limit).

Subsection (3) specifies the persons who are eligible for earnings enhancement. They are:

Subsection (5) ensures that an individual who has some earnings from paid contributions is only entitled to the number of earnings factor credits required to bring that person up to the qualifying earnings factor.

Subsection (6) provides that earnings factor credits which fall within a week straddling a change in tax years are attributed to the tax year in which the week begins.

Subsection (7) defines terms used in this section and in section 44B. In particular, it has the effect that one earnings factor credit is equal to 1/52 of the qualifying earnings factor (see subsection (2)).

Additional pension: simplification of accrual rates

Clause 8: Additional pension: removal of accrual band from 2010-11

Clause 8 amends Schedule 4A to the Contributions and Benefits Act, which contains the rules for the calculation of additional state pension. As the first step towards introducing a flat rate additional pension the Bill provides for the Band 3 accrual rate (which is 20%) on earnings factors between the upper earnings threshold and the upper earnings limit currently used in calculating state second pension to be removed, starting from the 2010-11 tax year.

Subsection (2)(a) restricts the existing 3-band structure to accruals for tax years up to and including 2009-10. Subsection (2)(b) introduces the new two accrual band formulation for the calculation of an individual’s annual surplus earnings factor from 2010-11. A surplus earnings factor for earnings between the lower earnings limit and the low earnings threshold will continue to be based on 40% of relevant earnings. However, surplus earnings factors for any subsequent earnings between the low earnings threshold and the "annual upper earnings limit" will be based on 10% of relevant earnings.

Subsections (3) and (4) replicate the provisions of subsection (2) in respect of the calculation of "contracted-out" state second pension entitlement and the amount available by way of top-up for members of an appropriate personal pension scheme (i.e. a contracted-out personal scheme) respectively.

Clause 9: Additional pension: simplified accrual rates as from flat rate introduction year

Clause 9(2) and (3) amends section 45 of the Contributions and Benefits Act to provide for the second stage in the calculation of the reformed state second pension, using the flat rate, which is set out in the new Schedule 4B to that Act.

Subsection (4) amends section 121 of that Act to define "the flat rate introduction year" - the year from which the reformed state second pension calculation will commence. It will be the tax year which is designated as such by the Department by order.

Clause 10: Additional pension: upper accrual point

Clause 10(1) amends section 22 of the Contributions and Benefits Act to replace the reference to "the upper earnings limit", which represents the current end point for additional pension accruals, with reference to "the applicable limit". Prior to the flat rate introduction year, the applicable limit will remain as the upper earnings limit. From the flat rate introduction year, however, the applicable limit will be the new "upper accrual point".

Subsection (2) amends section 44 of that Act in line with the provisions of subsection (1) to replace the upper earnings limit with the upper accrual point as the cap for earnings factors as from the beginning of the flat rate introduction year.

Subsection (3) amends section 121 of that Act to define the "upper accrual point". This will be an amount equivalent to the upper earnings limit multiplied by 52 for the flat rate introduction year, except that there is power for the Department to specify by order a different amount should the forecast earnings growth not result in the low earnings threshold and the upper accrual point converging before 2030.

Subsections (5) and (6) allow the Department to make a corresponding order for Northern Ireland where the Secretary of State for Work and Pensions makes an order under section 12 of the 2007 Act. This order would abolish both the low earnings threshold and the upper accrual point when the two converge (expected around 2030).

Increase in state pension age

Clause 11: Increase in pensionable age for men and women

Clause 11 introduces changes being made to Article 123 of, and Part I of Schedule 2 to, the 1995 Order relating to the increase of pensionable age for men and women with effect from 6th April 2024.

Part 2: Occupational and personal pension schemes

Contracting-out

Clause 12: Conversion of guaranteed minimum pensions

Section 9(1) of the Pension Schemes Act requires a contracted-out scheme to make provision to pay a pension to a member from pensionable age of an amount no less than his guaranteed minimum, as specified under sections 10 to 12 of that Act. Section 13(1) of that Act contains a requirement for the payment of a guaranteed minimum pension to a widow, widower or surviving civil partner.

Clause 12(1) allows a scheme to omit provision for a guaranteed minimum pension, as required under section 9(1) of that Act, where certain conditions are satisfied.

Subsection (2) similarly allows a scheme to omit provision for a survivor’s guaranteed minimum pension under section 13(1) of that Act, where the specified conditions are met.

Subsection (3) inserts new sections 20A to 20H into the Pension Schemes Act which set out the conditions which a scheme must meet in order to be relieved of the liability to pay guaranteed minimum pensions (as well as the rules applying to transfers, scheme amendments and enforcement).

Section 20A sets out definitions of terms used in sections 20A to 20H.

Section 20B specifies the conditions which a converting scheme must satisfy: actuarial equivalence of the value of members’ conversion benefits with those they possessed pre-conversion; no reduction of pensions in payment; conversion benefits not to include money purchase benefits; survivors’ benefits to be provided (see section 20D), and specified procedural requirements to be met (see section 20E).

Section 20C provides a power for regulations to be made concerning how actuarial equivalence is to be determined.

Section 20D sets out the detailed requirement for the scheme to provide conversion benefits which include provision for pension to be paid to a widow, widower or surviving civil partner following the death of the member.

Section 20E sets out requirements in relation to obtaining the agreement of the scheme’s sponsoring employer, and providing information to members and survivors and to the Commissioners for Her Majesty’s Revenue and Customs about the guaranteed minimum pension conversion.

Section 20F provides a power for regulations to be made concerning conditions for transfers of pension rights out of a guaranteed minimum pension-converted scheme and provides that the trustees of a scheme which is not guaranteed minimum pension-converted are allowed, for the purpose of transferring a member’s rights out of the scheme, to adjust the member’s guaranteed cash equivalent to reflect rights that would have accrued on guaranteed minimum pension conversion, providing the member consents.

Section 20G provides powers for trustees to amend schemes to facilitate guaranteed minimum pension conversion and makes it clear that trustees may adjust rights under a scheme which is being wound up in order to reflect what would have happened on guaranteed minimum pension conversion.

Section 20H provides powers for the Pensions Regulator in respect of enforcing the conditions for guaranteed minimum pension conversion, and provides for the power under Article 10 of the 1995 Order (civil penalties) to apply to trustees undertaking a guaranteed minimum pension conversion.

Subsection (5) amends section 43 of the Pension Schemes Act in order to make clear that a person who has had his guaranteed minimum pension converted shall continue to be treated as entitled to that guaranteed minimum pension for the purpose of calculating entitlement to additional state pension (the "contracted-out deduction").

Subsections (8) and (9) ensure the continuation of the partial protection against inflation of guaranteed minimum pension increases included in the payments of state retirement pension where a person has their guaranteed minimum pension converted.

Subsection (10) concerns the situation where a person with an increase to his guaranteed minimum pension such as is mentioned in subsection (8) has his guaranteed minimum pension converted prior to his death. This subsection ensures that his widow, widower or surviving civil partner will continue to have entitlement to certain guaranteed minimum pension additions awarded with the survivor’s state retirement pension, and that these additions will be protected against inflation.

Subsection (12) provides that regulations made under the new section 20B(5) are subject to the confirmatory resolution procedure in the Assembly.

Clause 13: Abolition of contracting-out for defined contribution pension schemes

Clause 13(1) provides that contracting-out certificates for money purchase occupational pension schemes and appropriate scheme certificates (i.e. contracting-out certificates for personal pension schemes) will be cancelled from the date that this subsection is brought into operation ("the abolition date").

Subsections (4) to (9) contain provision regarding regulations which may be made under this clause. Regulations which amend or repeal any relevant statutory provision (as defined in subsection (13)) are subject to the confirmatory procedure in the Assembly. Other regulations are subject to the negative resolution procedure unless they are made together with regulations subject to confirmatory procedure (subsections (9) and (10)).

Dispute resolution

Clause 14: Dispute resolution arrangements

Clause 14 amends Article 250 of the 2005 Order which substitutes Articles 50 to 50B of the 1995 Order for Article 50 of that Order. Article 250 has not yet been brought into operation.

Subsection (4) inserts paragraph (4A) into the new Article 50 to provide trustees or managers of an occupational pension scheme with the option of adopting two-stage dispute resolution arrangements. Schemes must provide for disputes to be considered by the trustees or managers, but the trustees or managers can choose for disputes to be considered by another person first. Any decision by the trustees or managers will confirm or replace any first-stage decision.

Subsection (5) inserts paragraph (5A) into the new Article 50 to ensure that the requirements of new Article 50(5) apply equally to any first-stage arrangements. This means any decision on an application made under a discretionary first stage must be made and notified to the applicant within a reasonable period.

Subsections (6) and (7) make minor amendments to make clear that the requirements of Article 50B relating to the dispute resolution procedure apply only to applications to the trustees or managers, and not any discretionary first-stage process.

Subsection (8) substitutes a new version of Article 50B(3) which replaces references to a fixed six-month time limit for applications to the trustees or managers for certain applicants with reference to a reasonable period. This will give the trustees or managers the flexibility to adopt time limits to suit either one or two-stage arrangements.

Subsection (10) inserts a new paragraph (4A) into Article 50B to make clear that a decision by the trustees or managers can be made by one or more of the trustees on behalf of the whole board.

Actuarial Guidance

Clause 15: Removal of Department’s role in approving actuarial guidance

Clause 15 introduces amendments detailed in Schedule 5 relating to the removal of powers conferred on the Department to approve actuarial guidance.

Part 3: Personal Accounts Delivery Authority

Clause 16: Initial function of the Personal Accounts Delivery Authority

The Personal Accounts Delivery Authority ("the Authority") is a body established by section 20 of the 2007 Act. It may do what it thinks appropriate to prepare for the implementation of, or for advising on the modification of, any relevant proposals about personal accounts.

In this clause the phrase "advising on the modification of any relevant proposals about personal accounts" relates to the Authority’s advisory role in helping to understand the commercial and operational implications on implementation of policy proposals. This could amount to suggesting additions, omissions or variations in the proposals to reflect, for example, industry best practice.

Subsection (2) defines the meaning of "relevant proposals" as being any proposals made by the Department or Secretary of State for Work and Pensions connected with the establishment of a national low-cost portable pensions savings scheme, and any additional proposals that relate to this subject matter, or relate to matters that are incidental or supplemental to the proposals or to consequential or transitional matters. Proposals are to be considered relevant whether or not the Assembly or Parliament has given the approval on which their implementation would depend. However, by virtue of subsection (4) the Authority will not be able to implement any proposals requiring the approval of the Assembly or Parliament in advance of approval being given.

Subsection (3) provides the Authority with incidental powers in connection with the discharge of its main function.

Clause 17: Management of the Authority

Clause 17 places the Authority under a duty, when managing its affairs, to have regard to such guidance concerning the management of public bodies as it considers appropriate and, subject to such guidance and insofar as it is applicable to the Authority, to generally accepted principles of good corporate governance.

Guidance on the running of public bodies includes that provided by the Cabinet Office, for example the Guidance on Codes of Practice for Board Members of Public Bodies (October 2004). Principles of good corporate governance are currently set out in the Combined Code published by the Financial Reporting Council in June 2006.

Part 4: General

Clause 18: Review of operation of Act

Clause 18 places a statutory obligation on the Department to report to the Assembly on the operation of the Act. This creates a formal mechanism by which the Department may be held to account for the way in which the Act’s provisions have been implemented or, in the case of those not yet in force by the latest date for the report (end of 2014), for the preparations for implementation. Subsection (2) allows the Department to make further such reports and subsection (3) provides that any report must be laid before the Assembly.

Clause 19: Consequential etc. provision, repeals and revocations

Clause 19(1) provides the Department with the power to make provision for the purpose of giving full effect to the Act. Subsections (2) to (6) detail when the repeals and revocations in Schedule 6 come into effect. Subsection (8) amends Article 17 of the Deregulation and Contracting Out (Northern Ireland) Order 1996 to add the Act to the list of enactments covered by that provision.

Clause 20: Interpretation

Clause 20 lists definitions used throughout the Act.

Clause 21: Commencement

Clause 21 provides that certain provisions in the Act shall come into operation on a day appointed by the Department.

SCHEDULES

Schedule 1 - State Pension: Consequential and Related Amendments

Part 1 - Category A and B retirement pensions: single contribution condition

Paragraphs 1 to 3 amend sections 44, 48A and 48B of the Contributions and Benefits Act to ensure that:

Paragraph 4 amends section 60 of that Act to exclude cases where the single condition applies from the scope of that section because of the insertion of new section 60A.

Paragraph 5 inserts a new section 60A into that Act which applies to those cases where only the single contribution condition needs to be satisfied as set out in paragraph 5A of Schedule 3 to that Act.

New section 60A(1) provides that the section applies where a person does not satisfy the single contribution condition in order to be entitled to a Category A or B pension.

Subsection (2) provides a regulation-making power to allow a person who would have been entitled to benefit by virtue of paragraph 5A of Schedule 3 to that Act but for the fact that the contributor has not acquired the full 30 qualifying years nevertheless to be entitled to a prescribed proportion of a full basic state pension for each qualifying year the contributor has built up. The calculation for determining the pro-rata amount of basic state pension entitlement in these cases will be set out in regulations. This means that the 25% de minimis rule (see regulation 6(1) of the Social Security (Widow’s Benefit and Retirement Pensions) Regulations (Northern Ireland) 1979 (S.R.1979 No. 243)), which applies to benefits calculated under paragraph 5 of Schedule 3 to that Act will not apply to the benefits to which this section applies.

Subsection (5) would allow the widow, widower or surviving civil partner of an employed earner who dies on or after 6th April 2010 as a result of an industrial injury or a prescribed disease or injury to inherit a Category B pension, even if the contribution condition set out at paragraph 5A of Schedule 3 to that Act is not satisfied by the deceased employed earner.

Subsection (6) provides that the reference to the single contribution condition in subsections (1) to (3) includes a reference to that condition as modified by regulations under paragraph 5A(4) of Schedule 3 to that Act (i.e. regulations modifying the condition for the purposes of persons who were insured under the National Insurance Act (Northern Ireland) 1948 or the National Insurance Act (Northern Ireland) 1966).

Part 2 - Category B retirement pension: removal of restriction on entitlement

Paragraph 6 omits section 54(3) of the Contributions and Benefits Act which currently prevents a spouse or civil partner from electing to cancel their Category A pension where this is already in payment without the consent of the other party to the marriage or civil partnership and paragraph 8 omits paragraph 8(3) of Schedule 5 to that Act. These provisions become redundant by virtue of the amendments made to section 48A to that Act by clause 2.

Paragraph 7 amends section 55(3) of that Act so that a person’s entitlement to their Category B pension is no longer deemed to be deferred where the person’s spouse or civil partner has not made a claim for their Category A pension.

Part 3 - Contributions credits for relevant parents and carers

Paragraph 9 inserts new subsection (5A) into section 22 of the Contributions and Benefits Act to make reference to the new arrangements in section 23A (see clause 3(1)) which provide for the crediting of Class 3 contributions.

Paragraph 10 amends section 172 of that Act to provide that the first regulations made under section 23A(3)(c) will be subject to the confirmatory resolution procedure in the Assembly.

Paragraph 11 makes a consequential amendment to Part 1 of Schedule 1 to the Welfare Reform Act (Northern Ireland) 2007 so that the definition of "benefit" extends to contributions credits for relevant carers under section 23A of the Contributions and Benefits Act.

Part 4 - Category A and Category C retirement pensions: abolition of adult dependency increases

Paragraphs 12 to 16 remove references to adult dependency increases in sections 30B(3), 78(4), 88, 89(1) and (1A) and 114(4) of the Contributions and Benefits Act which are redundant following the abolition of those increases.

Paragraph 17 removes the redundant references to section 83(2) and (3) in section 145(3) of that Act which deals with circumstances in which a person is treated as being entitled to an adult dependency increase for the purposes of establishing entitlement to a Christmas bonus.

Paragraph 18 amends paragraphs 5 and 6 of Part 4 of Schedule 4 to that Act to remove redundant references to the rates at which adult dependency increases of Category A and C pensions are payable.

Part 5 - Up-rating of basic pension etc. and standard minimum guarantee by reference to earnings

Part 5 amends the Contributions and Benefits Act and the Administration Act consequential on the insertion of new section 132A into the Administration Act (see clause 5).

Part 6 - Deemed earnings factors for purposes of additional pension

Part 6 contains consequential amendments relating to deemed earnings factors to ensure that the current provisions set out in section 22 of the Contributions and Benefits Act do not affect the new provisions inserted by clause 7; that the current deemed earnings factors provisions in section 44A(1) to (4) apply only to tax years prior to 2010-11; and that the labour market attachment test will not apply to those on long-term incapacity benefit reaching state pension age on or after 6th April 2010.

Part 7 - Additional pension: simplified accrual rates

Paragraph 32 makes consequential amendments to section 172 of the Contributions and Benefits Act so that any order setting the upper accrual point will be subject to the confirmatory resolution procedure in the Assembly, and an order designating the flat rate introduction year will not be subject to any Assembly procedure (this is also the case for normal commencement orders).

Paragraphs 33 to 36 make consequential amendments to the Pension Schemes Act in connection with contracting-out arrangements for defined benefit pension schemes to cater for the introduction of the upper accrual point.

Part 8 - Increase in pensionable age for men and women

Paragraphs 37 to 40 amend the Contributions and Benefits Act consequential on the increase in pensionable age for men and women. The amendments take effect from 6th April 2024 (see clause 11(3)).

Paragraph 37 will allow the upper age limit for widow’s pension, which is currently 65, to align with rising state pension age. Widow’s pension is only payable to women who were widowed before 9th April 2001, and was replaced by bereavement benefit for men and women bereaved after that date.

Paragraphs 38 and 39 relate to, respectively, the minimum age for entitlement to attendance allowance and the upper age limit for claiming disability living allowance (both 65). The amendments will align the present age thresholds with rising state pension age.

Paragraph 40 relates to the qualifying conditions for the Christmas bonus. Where entitlement to the payment is by virtue of entitlement to a war disablement pension, the person is additionally required to have reached the age of 65. The amendment will align the qualifying age with rising state pension age in these cases.

Paragraph 41, which amends the State Pension Credit Act (Northern Ireland) 2002 (c. 14), aligns the qualifying age for entitlement to the savings credit element (currently 65) with rising state pension age.

Schedule 2 - Additional pension: simplified accrual rates

Part 1 - New Schedule 4B to the Contributions and Benefits Act

Paragraph 1 inserts new Schedule 4B into the Contributions and Benefits Act to provide for the new method of calculation of additional state pension.

Paragraph 1 of new Schedule 4B provides that the amount of additional state pension accrued for the years from the flat rate introduction year onwards is to be the aggregate of the appropriate amounts in respect of each year in which the pensioner was in contracted-in employment, calculated in accordance with Part 2 of that Schedule and the appropriate amounts in respect of each year in which the pensioner was in contracted-out employment, calculated in accordance with Part 3 of that Schedule.

Part 2 (paragraphs 2 to 5) sets out the calculation for the amount of additional state pension in respect of years of contracted-in employment.

Paragraph 2 provides that Part 2 applies to a tax year if the contracted-out condition is not satisfied for any tax week in the year.

Paragraph 3 provides that the appropriate amount for the year is to be either the flat rate amount where a person’s total earnings factor does not exceed the low earnings threshold or, where there is a surplus earnings factor exceeding the low earnings threshold, the aggregate of the flat rate and earnings-related amounts.

Paragraph 4 provides that the "flat rate amount" of additional state pension will be the flat rate accrual amount ("FRAA") - £72.80 initially and then as uprated annually by an order made under section 130AA of the Administration Act.

Paragraph 5 provides that the "earnings-related amount" is calculated by:

Part 3 (paragraphs 6 to 10) sets out the calculation for the amount of additional state pension in respect of years of contracted-out employment.

Paragraph 6 provides that Part 3 applies to a tax year if the contracted-out condition is satisfied for each tax week in the year.

Paragraph 7 prescribes that the appropriate amount for the year is to be calculated by subtracting amount B from amount A.

Paragraph 8 provides that amount A is the "flat rate amount" of additional state pension, as uprated annually under section 130AA of the Administration Act, where there is no surplus above the low earnings threshold.

Paragraph 9 provides that where there is a surplus exceeding the low earnings threshold, amount A is to be calculated by:

Paragraph 10(1) provides that amount B is to be calculated by:

Paragraph 10(2) provides that section 44B of the Contributions and Benefits Act is to be ignored in applying section 44(6) for the purposes of calculating amount B. This ensures that a person’s actual earnings factors are used in the calculation thereby producing an amount by way of a top-up to the benefits provided by their private pension scheme.

Paragraph 11 allows the Department to make regulations so as to vary any of the calculations described above in circumstances where a person has a combination of contracted-in and contracted-out employment within a tax year, or where a contracted-out pension scheme makes arrangements to buy back the state scheme rights of its members.

Part 2 - Revaluation of flat rate accrual amount

Paragraph 2 inserts a new section 130AA into the Administration Act to provide that the Department may make a corresponding order for Northern Ireland where the Secretary of State for Work and Pensions makes an order under section 148AA of the Social Security Administration Act 1992. This will allow the flat-rate accrual amount to be uprated in line with earnings.

Part 3 - Consequential amendments

Part 3 makes consequential amendments to the Contributions and Benefits Act.

Paragraph 3 amends section 39 to remove redundant references to Schedule 4A (which has no effect in the context of the benefits under section 39) and to omit subsection (3) of that section (which no longer has any legal effect).

Paragraph 5 inserts the necessary references into section 44 to refer to the new state second pension accrual regime introduced by the new Schedule 4B. The effect is that from the flat rate introduction year, those accruing state second pension for the purpose of their entitlement to a Category A pension will do so under the new rules.

Paragraph 6 inserts a new subsection (4) into section 46 to provide that the component of widowed parent’s allowance relating to state second pension will continue to be calculated under the existing regime set out in section 45 (and Schedule 4A) after the flat rate introduction year rather than under the new regime introduced by clause 9 (and the new Schedule 4B).

Paragraphs 7 to 10 amend respectively sections 48A, 48B, 48BB and 48C to insert the necessary references to the new state second pension accrual regime introduced by the new Schedule 4B so that, from the flat rate introduction year, people bereaved after reaching state pension age will have their inherited state second pension entitlement in their Category B pension calculated under the new rules. The same will apply in respect of the state second pension component payable to bereavement allowance recipients.

Schedule 3 - Increase for pensionable age for men and women

This Schedule amends the provisions of the 1995 Order which specify the dates on which men and women reach state pension age (referred to as "pensionable age").

Paragraphs 3 and 4 amend Schedule 2 to provide how and when state pension age is to be increased from age 65 to 68 and make consequential amendments. In the amended Schedule 2:

Schedule 4 - Abolition of contracting-out for defined contribution pension schemes

Part 1

The amendments in this Part of the Schedule will take effect from the date on which money purchase occupational pension schemes and appropriate scheme certificates (i.e. contracting-out certificates for personal pension schemes) are cancelled by virtue of clause 13(1) ("the abolition date").

The Pension Schemes Act

Paragraph 2 amends section 3. As a result of the amendment of subsection (1) Her Majesty’s Revenue and Customs (HMRC) can no longer issue certificates stating that personal pension schemes are appropriate schemes. In addition, when read with the amendments to section 5, the effect is that HMRC can no longer issue a contracting-out certificate in respect of a money purchase occupational pension scheme. Subsections (4) to (6) are omitted to reflect the fact that appropriate scheme certificates can no longer be issued.

Paragraph 3 amends the definition of "contracted-out employment" in section 4(1) to reflect the fact that from the abolition date a money purchase occupational pension scheme can no longer be contracted-out in relation to an earner’s employment.

Paragraph 3(3) inserts a new subsection (1A) into section 4 which includes an amended definition of contracted-out employment by reference to a money purchase scheme and will only relate to periods of "contracted-out employment" before the abolition date. This definition is required because, although after the abolition date it will no longer be possible for an earner to be in contracted-out employment by reference to COMPS, such periods will continue to be relevant for the calculation of a person’s additional pension. The definition will also be needed during the period immediately after the abolition date for dealing with matters relating to periods before that date which are still outstanding at the date of abolition e.g. contracted-out rebates.

Paragraph 3(4) amends section 4(2) to reflect the fact that section 38A is being repealed.

Paragraph 4 omits section 5(3) and (5) and makes consequential amendments.

Paragraph 5 amends section 6(3)(a) to reflect the fact that the definition of "minimum contributions" is being repealed.

Paragraph 6 omits section 8 to reflect the fact that it will no longer be necessary for certificates to state whether a scheme is contracted-out by virtue of section 5(2) or (3), since it will only be possible for schemes to contract out by virtue of section 5(2).

Paragraph 9 inserts a new section 21A which applies to money purchase occupational pension schemes which ceased to be contracted-out as a result of clause 13(1), as well as to personal pension schemes which cease to be appropriate schemes as a result of the same provision. For as long as people have protected rights under such schemes, or are entitled to any benefit giving effect to such rights, section 21A(3) requires such schemes to continue to comply with sections 22 to 28 (which such schemes would currently be required to comply with in order to be contracted-out) and prescribed requirements (i.e. the requirements which are currently imposed in relation to COMPS and APPS under section 5(3)). It also ensures that the new limited requirements relating to giving effect to protected rights apply to any pension scheme to which protected rights have been transferred.

Paragraph 10 inserts a new section 23A to retain the rule which requires provision to be made from protected rights for a surviving spouse or civil partner and re-enacts (with some modifications) regulation-making powers under section 24 to make provision in relation to survivors’ benefits.

Paragraph 11 omits sections 24 to 25 to remove the existing rules applying to protected rights which will be replaced by the provisions of the new section 23A.

Paragraph 12 inserts a new section 28A to ensure that where the protected rights are being given effect to by an insurance policy, the policy must make the same provision as would a scheme to which sections 21A and 23A apply.

Paragraph 13 amends section 29 to include references to new section 21A.

Paragraph 14 amends section 29A so that it applies to personal pension schemes which cease to be contracted-out as a result of clause 13(1).

Paragraph 15 amends section 30 so that after the abolition date it will only apply to schemes contracted-out by virtue of satisfying section 5(2).

Paragraph 16 amends section 34 so that, rather than applying to appropriate schemes, it applies to personal pension schemes that were appropriate schemes. The prohibition on rule changes continues to apply for as long as there are people who have protected rights under the personal pension scheme or who are entitled to any benefit giving effect to such rights under the scheme.

Paragraph 17 adds a new subsection (9) to section 38A which defines "appropriate flat-rate percentage" and "appropriate age-related percentage" in view of the fact that sections 38B and 41A are being repealed. Section 38A, which provides for the calculation of reduced rates of national insurance contributions, and rebates, for earners in COMPS, is retained during the period immediately after the abolition date so that HMRC can continue to deal with any matters in connection with reduced rates of national insurance contributions, and rebates, which are outstanding at the date of abolition.

Paragraph 18 omits section 38B which provides that an order made by the Secretary of State for Work and Pensions under section 42B of the Pension Schemes Act 1993 (c. 48) may make corresponding provision for Northern Ireland specifying percentages for the purposes of section 38A.

Paragraph 19 adds a new subsection (8) to section 39 to define "the earner’s chosen scheme". This is necessary because the current definition is contained in section 40 which is being repealed.

Paragraph 20 omits section 40 which provides a mechanism for an earner to choose that contracted-out rebates (minimum contributions) must be made by HMRC to the earner’s chosen APPS and is no longer needed after abolition date.

Paragraph 21 adds a new subsection (5) to section 41 to define "appropriate age-related percentage". This is necessary because the current definition is contained in section 41A which is being repealed.

Paragraph 22 omits section 41A which provides that an order made by the Secretary of State for Work and Pensions under section 45A of the Pension Schemes Act 1993 (c. 48) may make corresponding provision for Northern Ireland altering the rates of minimum contributions under section 41.

Paragraph 23 amends section 44A to reflect the fact that from the abolition date no further:

Paragraph 24 amends section 46 to extend HMRC’s powers to schemes which cease to be COMPS or APPS as a result of clause 13(1) and also makes various consequential amendments to reflect the fact that there will be no COMPS after the abolition date.

Paragraph 25 amends section 48 which provides for the continued supervision by HMRC of occupational pension schemes which used to be contracted-out and personal pension schemes which used to be APPS. The effect of the amendments is that the supervision requirements also apply to schemes which cease to be COMPS and APPS as a result of clause 13(1).

Paragraph 26 amends section 51(2)(a) to reflect the fact that after the abolition date COMPS cease to exist.

Paragraph 27 amends section 64A(5) by substituting a reference to a "money purchase contracted-out scheme" consequential upon the omission of section 5(3). The references in this subsection to rights under, or derived from, a COMPS or APPS are retained because safeguarded rights which arose pre-abolition and which are attributable to COMPS or APPS service will continue to include COMPS or APPS rights.

Paragraph 28 amends section 83(1) to restate the present position that the section only applies to occupational pension schemes contracted-out by virtue of satisfying section 5(2) but without doing so by referring to COMPS, which will not exist after the abolition date.

Paragraph 29 amends section 92(2) to reflect the fact that appropriate schemes will cease to exist from the abolition date. The effect of the amendment is that, where a transfer is made to a personal pension scheme which is unable or unwilling to accept a transfer payment for guaranteed minimum pensions or protected rights, the member will have a right to the balance of the cash equivalent after deduction of liabilities for guaranteed minimum pensions and/or protected rights.

Paragraph 30 amends section 152 to allow the Department or HMRC to give information to a former APPS for the purposes of Part 3.

Paragraph 31 amends section 159(2) to remove a reference to APPs that becomes redundant after the abolition date.

Paragraphs 32 and 33 amend sections 160 and 172 respectively to update references and to remove references to provisions which are being repealed.

Paragraph 34 amends section 176(1) to provide various new and amended definitions. Section 176(4) is amended to reflect the fact that section 40 is being repealed.

Paragraph 35 inserts a new section 176A which deals with the interpretation of references to money purchase contracted-out schemes or appropriate schemes after the abolition date. The definitions apply in respect of periods before the abolition date, and mirror the existing definitions of the same expressions in the Act. These definitions are required because, although COMPS and APPS will cease to exist from the abolition date, the definitions used in this section will continue to be relevant for the calculation of a person’s additional pension, and, during the period immediately after the abolition date, for dealing with matters relating to periods before abolition which are still outstanding at the date of abolition (for example contracted-out rebates).

The 1995 Order

Paragraph 36 amends Article 146 to provide that schemes which provide both pensions capable of being contracted out by virtue of section 5(2) of the Pension Schemes Act and pensions satisfying the requirements mentioned in new section 21A(3) of that Act are to be treated as two separate schemes for the purposes of Part 3 of that Act.

The 1999 Order

Paragraph 37 omits Article 3(10) to remove the current condition that a stakeholder pension scheme which is a personal pension scheme must be an appropriate scheme and makes a consequential amendment. Paragraph 38 makes a further consequential amendment.

Paragraph 39 amends the definition of "contracted-out rights" in paragraph 7(6) of Schedule 5 to remove a reference to a provision which is being repealed and to insert a new paragraph (ab).

The 2005 Order

Paragraph 40 omits Article 234(7) which is no longer needed after the abolition date.

Part 2

The intention is that the amendments in this Part are to be brought into operation at a date later than the abolition date to ensure that the existing statutory mechanisms for HMRC to deal with administrative matters concerning the contracted-out rebate and certification of schemes etc. can remain in place until any matters outstanding at the date of abolition of COMPS and APPS have been dealt with before the amendments are brought into operation.

The Contributions and Benefits Act

Paragraphs 41 and 44 amend section 4C and Schedule 1 respectively to reflect the abolition of COMPS and APPS.

Paragraphs 42 and 43 amend sections 8 and 9 respectively to remove references to section 38A of the Pension Schemes Act which is being repealed.

The Pension Schemes Act

Paragraph 46 omits section 4(3) which allows for regulations to be made in relation to the manner in which minimum payments are to be made etc. Minimum payments derive from the contracted-out rebate and are paid to a COMPS in respect of earners in contracted-out employment.

Paragraph 47 amends section 16(3) to omit a reference to sections that are being repealed.

Paragraph 48 omits section 27 which currently provides for the investment and resources of schemes.

Paragraph 49 omits section 36(b), which currently provides for contributions to be paid by HMRC in respect of earners who are members of COMPS and APPS.

Paragraph 50 omits section 38A, which provides for the calculation of national insurance rebates in respect of contracted-out employment in a COMP.

Paragraph 51 omits section 39, which provides for HMRC to make minimum contributions to an APP which is an earner’s chosen scheme.

Paragraph 52 omits section 41, which provides for the calculation of minimum contributions.

Paragraph 53 omits section 41B, which provides a power to make regulations dealing with the verification of ages for the purpose of determining "appropriate age-related percentages", and provides a power to disclose information in connection with contracted-out rebates.

Paragraphs 54, 55 and 56 amend sections 46, 160 and 172 respectively to reflect the repeal of sections 38A, 39 and 41.

Paragraph 57 omits the definition of "minimum contributions" in section 176(1) and a reference to section 39 in section 176(4). Minimum contributions are made to APPS, and will therefore no longer be required.

Paragraph 59 amends Schedule 3 to reflect the fact that COMPS will no longer exist.

Part 3 - Savings

This Part allows HMRC to continue to:

Schedule 5 - Removal of Department's role in approving actuarial guidance

This Schedule amends provisions which require actuarial guidance to have been approved by the Department.

Paragraphs 1 and 2 amend Articles 315C and 315F of the Insolvency (Northern Ireland) Order 1989 (NI 19) respectively to remove the requirement that guidance prepared by a prescribed person to calculate certain values relating to a pension scheme is to have been approved by the Department.

Paragraphs 3 and 4 amend the Pension Schemes Act. Section 8A is amended to remove the requirement for the Department’s approval in the case of prescribed guidance to determine whether a pension scheme which has applied to contract out under section 5(2B) meets the statutory standard, and section 109 is amended to remove the requirement for the Department’s approval in the case of prescribed guidance on the information to be given about schemes to members.

Paragraphs 5 and 6 amend the 1995 Order. Article 67D is amended to remove the power to make regulations to require prescribed guidance on calculating the actuarial value of an affected member’s subsisting rights to have been approved by the Department. Article 116 is amended to remove the power to make regulations to require the prescribed guidance on valuing a scheme’s assets and liabilities to have been so approved.

Paragraph 7 amends Article 209 of the 2005 Order to remove the power to make regulations to require the Department’s approval in the case of prescribed actuarial guidance.

FINANCIAL EFFECTS OF THE BILL

State pension reform

  1. By 2020, the total annual additional spend on pensioner benefits due to the reform package is estimated to be around £600 million.
  2. It is estimated that the administrative costs of the state pension reform will be in the region of £7.7million up to 2022. This figure includes both the costs of implementation and ongoing operational costs. This represents a current best estimate and will be refined as these reforms are taken forward and more detailed planning is undertaken within each area of reform.
  3. There may also be an increase in the cost of paying working age benefits as the pension age increases.
  4. The changes to the age thresholds for national insurance contributions as a consequence of the increase in state pension age may result in additional costs for employers who will have to adapt payroll systems.

Private pension simplification

  1. There may be small one-off administration costs to contracted-out defined contribution schemes and those schemes that choose to convert guaranteed minimum pensions as result of private pension simplification.

    2. Initial functions of the Personal Accounts Delivery Authority

  2. The Personal Accounts Delivery Authority will be set up on a United Kingdom-wide basis by the 2007 Act and set-up costs will be borne by the Department for Work and Pensions.

HUMAN RIGHTS ISSUES

  1. The provisions of the Bill are compatible with the provisions of the Human Rights Act 1998.

Equality Impact assessment

  1. In accordance with its duty under section 75 of the Northern Ireland Act 1998, the Department has conducted an Equality Impact Assessment. The consultation period ran from 4th August 2007 until 28th September 2007.
  2. Copies of this Assessment have been laid in the Northern Ireland Assembly Business Office and placed in the Library of the Northern Ireland Assembly and can be accessed at www.dsdni.gov.uk/index/consultations.
  3. The proposals make provision corresponding to provision contained in the 2007 Act and are in line with the long-standing principle of parity between Great Britain and Northern Ireland in pensions and social security matters.

SUMMARY OF THE REGULATORY IMPACT ASSESSMENT

Costs of state pension reform

  1. The estimated benefits costs are as detailed below:

Total expenditure on pensioner benefits without reform (£billion)

Year
 2010 2020 2030 2040 2050
Cost
2.7 4.0 6.7 10.4 16.2

Total expenditure on pensioner benefits following reform (£billion)

Year
2010
2020
2030
2040
2050
Cost
2.8 4.6 8.3 14.3 23.1
  1. In addition to benefit expenditure it is estimated that the administration costs arising from state pension reform will be £7.7 million up to 2022 as detailed below:

Estimated administration costs (£million)

Year
2007-08
2008-09
2009-10
2010-11
2011-12
2012-22
Cost
0.5 1.2 1.9 1.2 0.6 2.2
  1. There may also be an increase in the cost of paying working age benefits as the pension age increases.
  2. The changes to the age thresholds for national insurance contributions as a consequence of the increase in state pension age may result in additional costs for employers who will have to adapt payroll systems.

Costs of private pension simplification

  1. There will be one-off administration costs to contracted-out defined contribution schemes and to schemes that choose to convert guaranteed minimum pensions.
  2. There are no costs to the Department as a result of these reforms.

Initial functions of the Personal Accounts Delivery Authority

  1. The Personal Accounts Delivery Authority will be set up on a United Kingdom-wide basis by the 2007 Act. There are no anticipated costs to the Department.

LEGISLATIVE COMPETENCE

  1. The Minister for Social Development has made the following statement under section 9 of the Northern Ireland Act 1998:

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

SECRETARY OF STATE CONSENT

  1. A statement is required under section 10(3)(b) of the Northern Ireland Act 1998, on Secretary of State consent:

"The Secretary of State has consented under section 10(3)(b) of the Northern Ireland Act 1998 to the Assembly considering this Bill."

DEFINITIONS

GLOSSARY

State pensions

Pension categories

There are four categories of state pension provided under the Contributions and Benefits Act:

A Category A pension is contributory. It consists of two parts, either or both of which may be payable:

A Category B pension is also contributory. Like a Category A pension, it can consist of either a basic state pension or an additional state pension, or both. It is payable by virtue of a spouse’s or civil partner’s qualifying years and earnings.

A Category D pension is non-contributory. It is payable when a person:

Earnings Limits

The terms relating to the different earnings limits for the purposes of accruing state pension are explained below:

and is increased annually in line with growth in average earnings.

Occupational and personal pensions

"COMPS" refers to contracted-out defined contribution (also known as money purchase) pension schemes.

"APPS" is contracted-out personal pension schemes referred to as appropriate personal pension schemes.