The Occupational Pension Schemes (Transfer Values) (Amendment) Regulations (Northern Ireland) 2008

Manner of calculation and verification of cash equivalents3

1

Cash equivalents are to be calculated and verified by calculating the initial cash equivalent in accordance with this regulation and then making any increases or reductions in accordance with regulation 4.

2

The initial cash equivalent is the realisable value of any benefits to which the member is entitled.

3

The trustees must calculate that realisable value—

a

in accordance with the scheme rules, and

b

in a manner which is—

i

approved by the trustees, and

ii

consistent with Chapter IV of Part IV.

4

The realisable value must include any increases to the benefits resulting from a payment of interest made in accordance with the scheme rules.

Increases and reductions of cash equivalents4

1

Initial cash equivalents may or, as the case may be, must be increased or reduced in accordance with this regulation.

2

If the whole or any part of the benefits referred to in section 90(1)(b)40 (right to cash equivalent) is or has been surrendered, commuted or forfeited before the trustees of the personal pension scheme do what is needed to comply with what the member requires, the initial cash equivalent must be reduced in proportion to the reduction in the total value of the benefits.

3

If the trustees of a personal pension scheme fail without reasonable excuse to do what is needed to carry out what a member of the scheme requires within 6 months of the relevant date, that member’s initial cash equivalent must be increased by—

a

the interest on that initial cash equivalent, calculated on a daily basis over the period from the relevant date to the date on which the trustees carry out what the member requires, at the same rate as that payable for the time being on judgment debts by virtue of Order 42, Rule 9(2) of the Rules of the Supreme Court (Northern Ireland) 198041, or, if it is greater,

b

the amount, if any, by which that initial cash equivalent falls short of what it would have been if the relevant date had been the date on which the trustees carry out what the member requires.

4

In a case where both paragraphs (2) and (3) fall to be applied to a calculation, paragraph (2) must be applied first.

Manner of calculation and verification of protected rights2

1

For the purposes of section 23(3) (identification and valuation of protected rights), the trustees must calculate and verify the value of a member’s protected rights in accordance with regulation 7C of the Occupational Pension Schemes (Transfer Values) Regulations (Northern Ireland) 199645.

2

In calculating the rights under paragraph (1), the trustees must treat the references to “initial cash equivalent” in that regulation as if they were references to “protected rights”.

3

The trustees must adopt methods and assumptions which are consistent with sections 5(3) and (5)46, 647 and 22 to 2848.

Manner of calculation and verification of cash equivalents: occupational pension schemes4

1

Subject to this regulation, cash equivalents for members of occupational pension schemes are to be calculated and verified in accordance with regulations 7 to 7E of the Transfer Values Regulations.

2

Reductions to initial cash equivalents can only be made in accordance with regulation 7D of, and paragraphs 1 to 6 and 12 to 14 of Schedule 1A to, the Transfer Values Regulations.

3

The reduction referred to in paragraph 2 of Schedule 1A to the Transfer Values Regulations must not be applied to a case where liability in respect of a pension credit is to be discharged in accordance with—

a

paragraph 1(2) of Schedule 5 to the 1999 Order (pension credits: mode of discharge — funded pension schemes), or

b

paragraph 1(3) of that Schedule, in a case where regulation 7(2) of the Pension Sharing (Implementation and Discharge of Liability) Regulations (Northern Ireland) 200059 (funded pension schemes) applies.

4

When calculating and verifying the cash equivalent, the Transfer Values Regulations are to be read as if—

a

in regulation 1(2) (interpretation)—

i

after the definition of “member” there were inserted—

• “normal pension age” has the meaning given by section 175;

ii

after the definition of “the Taxes Act” there were inserted—

• “transfer day” has the meaning given by Article 26(8) of the Welfare Reform and Pensions (Northern Ireland) Order 1999;

iii

after the definition of “trustees” there were added—

• “valuation day” has the meaning given by Article 26(7) of the Welfare Reform and Pensions (Northern Ireland) Order 1999,

b

in regulation 7(1) (manner of calculation and verification of cash equivalents – general provisions) for “paragraph (5)” there were substituted “paragraphs (5) to (9)”;

c

after regulation 7(5) there were added—

6

Where the person with pension rights is a deferred member of an occupational pension scheme on the transfer day, the value of the benefits which he has accrued under that scheme must be taken to be—

a

in the case of an occupational pension scheme other than a salary related scheme, the cash equivalent to which he acquired a right under section 90(1)(a) (right to cash equivalent) on the termination of his pensionable service, calculated and verified on the assumption that he has made an application under section 91(1)60 (ways of taking right to cash equivalent); or

b

in the case of a salary related occupational pension scheme, the guaranteed cash equivalent to which he would have acquired a right under section 90(1)(aa) if he had made an application under section 91(1).

7

Where the person with pension rights is an active member of an occupational pension scheme on the transfer day, the value of the benefits which he has accrued under that scheme must be calculated and verified on the assumption that the member had made a request for an estimate of the cash equivalent that would be available to him were his pensionable service to terminate on the transfer day.

8

Where the person with pension rights is a pensioner member of an occupational pension scheme on the transfer day, the value of his pension must be calculated and verified in accordance with this regulation and regulations 7A to 7C and 7E(1) to (3) as appropriate.

9

Where the person with pension rights attains, or is over, normal pension age and is not in receipt of a pension—

a

the pension must be calculated and verified in accordance with this regulation and regulations 7A to 7C and 7E(1) to (3) as appropriate; and

b

the trustees must assume that the member’s pension comes into payment on the transfer day.

d

in regulation 7A(2) (manner of calculation and verification of cash equivalents for salary related benefits) the reference to “guarantee date” were a reference to “valuation day”, and

e

in paragraph 12 of Schedule 1A (reductions in initial cash equivalents) the reference to “guarantee date” were a reference to “valuation day”.

Manner of calculation and verification of cash equivalents: other relevant arrangements5

1

Subject to this regulation, cash equivalents for members of a relevant arrangement other than an occupational pension scheme are to be calculated and verified in accordance with regulations 7 to 7E of the Transfer Values Regulations.

2

When calculating and verifying the cash equivalent, the Transfer Values Regulations are to be read as if—

a

in regulation 1(2)—

i

after the definition of “the Taxes Act” there were inserted—

• “transfer day” has the meaning given by Article 26(8) of the Welfare Reform and Pensions (Northern Ireland) Order 1999;

ii

for the definition of “trustees” there were substituted—

• “trustees” means the person responsible for the relevant arrangement;

b

in regulation 7(1) for “paragraph (5)” there were substituted “paragraphs (5) and (6)”, and

c

after regulation 7(5) there were added—

6

Where the person with pension rights is a member of a personal pension scheme, or those rights are contained in a retirement annuity contract, the value of the benefits which he has accrued under that scheme or contract on the transfer day must be taken to be the cash equivalent to which he would have acquired a right under section 90(1)(b) (right to cash equivalent), if he had made an application under section 91(1) (ways of taking right to cash equivalent) on the date on which the request for the valuation was received.

3

In relation to a personal pension scheme which is comprised in a retirement annuity contract made before 4th January 1988, this regulation applies as if such a scheme were not excluded from the scope of Chapter IV of Part IV of the Pension Schemes Act by section 89(1)(b)61 (scope of Chapter IV).

Calculation of the value of appropriate rights10

The value of rights conferred on a person entitled to a pension credit are to be calculated in a manner which is consistent with the methods adopted and assumptions made when transfers of other pension rights are received by the person responsible for the pension arrangement.

2

Reductions may be made to a pension credit in accordance with paragraphs 2 to 6 of Schedule 1A to the Transfer Values Regulations (reductions in initial cash equivalents) modified as if—

a

in paragraph 2 for “initial cash equivalent” there were substituted “pension credit”;

b

in paragraph 3(b) for “in respect of which the member’s cash equivalent is being calculated” there were substituted “to which the pension credit relates”;

c

in paragraph 4 for “member’s initial cash equivalent which is payable in respect of” there were substituted “pension credit which relates to”, and

d

in paragraph 5 for “a member’s initial cash equivalent” there were substituted “the pension credit”.

Manner of calculation and verification of cash equivalents24

1

Subject to paragraph (2), cash equivalents are to be calculated and verified in accordance with regulations 7 to 7E of the Transfer Values Regulations as appropriate.

2

When calculating and verifying the cash equivalent, the Transfer Values Regulations are to be read as if—

a

in regulation 1(2) (interpretation)—

i

after the definition of “effective date” there were inserted—

• “eligible member” has the meaning given by section 97P(1)75;

ii

after the definition of “trustees” there were added—

• “valuation date” has the meaning given by section 97J(7);

b

in regulation 7(1) (manner of calculation and verification of cash equivalents – general provisions) for “paragraph (5)” there were substituted “paragraphs (5) and (6)”;

c

in regulations 7A to 7C and Schedule 1A references to “member” were references to “eligible member”;

d

after regulation 7(5) there were inserted—

6

Cash equivalents are to be calculated and verified in relation to the valuation date.

e

in regulation 7A(2) (manner of calculation and verification of cash equivalents for salary related benefits) the reference to “guarantee date” were a reference to “valuation date”;

f

paragraphs 7 and 9 of Schedule 1A (reductions in initial cash equivalents) were omitted, and

g

in paragraph 12 of Schedule 1A the words “a cash equivalent mentioned in section 89A, before the guarantee date” were “a cash equivalent such as is mentioned in section 97H, before the valuation date”.

Manner of calculation and verification of cash transfer sums - general provisions2

1

Subject to paragraph (5), cash transfer sums are to be calculated and verified—

a

by calculating the initial cash transfer sum—

i

for salary related benefits, in accordance with regulations 2A and 2B, or

ii

for money purchase benefits, in accordance with regulation 2C,

and then making any reductions in accordance with regulation 4, or

b

in accordance with regulation 2D.

2

The trustees or managers must decide whether to calculate and verify the cash transfer sum in accordance with paragraph (1)(a) or (b), but they can only choose paragraph (1)(b) if they have had regard to any requirement for consent to paying a cash transfer sum which is higher than the amount calculated and verified in accordance with paragraph (1)(a).

3

The trustees or managers are responsible for the calculation and verification of cash transfer sums and initial cash transfer sums.

4

Paragraph (5) applies where the cash transfer sum is calculated and verified in accordance with paragraph (1)(a).

5

Where a portion of the cash transfer sum relates to a salary related benefit and a portion relates to a money purchase benefit, the initial cash transfer sum is to be calculated—

a

for the salary related benefit portion, in accordance with regulations 2A and 2B, and

b

for the money purchase benefit portion, in accordance with regulation 2C.

Manner of calculation of initial cash transfer sums for salary related benefits2A

1

For salary related benefits, the initial cash transfer sum is to be calculated—

a

on an actuarial basis, and

b

in accordance with paragraph (2) and regulation 2B.

2

The initial cash transfer sum is the amount which is required to make provision within the scheme for a member’s accrued benefits, options and discretionary benefits mentioned in section 97AA(4)(b)83.

3

For the purposes of paragraph (2), the trustees or managers must determine the extent—

a

of any options the member has which would increase the value of his benefits under the scheme;

b

of any adjustments they decide to make to reflect the proportion of members likely to exercise those options, and

c

to which any discretionary benefits should be taken into account, having regard to any established custom for awarding them and any requirement for consent before they are awarded.

Initial cash transfer sum for salary related benefits: assumptions2B

1

The trustees or managers must use the assumptions determined under this regulation in calculating the initial cash transfer sum for salary related benefits.

2

Having taken the advice of the actuary, the trustees or managers must determine the economic, financial and demographic assumptions.

3

In determining the demographic assumptions, the trustees or managers must have regard to—

a

the main characteristics of the members of the scheme, or

b

where the members of the scheme do not form a large enough group to allow demographic assumptions to be made, the characteristics of a wider population sharing similar characteristics to the members.

4

The trustees or managers must have regard to the scheme’s investment strategy when deciding what assumptions will be included in calculating the discount rates in respect of the member.

5

The trustees or managers must determine the assumptions under this regulation with the aim that, taken as a whole, they should lead to the best estimate of the initial cash transfer sum.

Manner of calculation of initial cash transfer sums for money purchase benefits2C

1

For money purchase benefits, the initial cash transfer sum is to be calculated in accordance with this regulation.

2

The initial cash transfer sum is the realisable value of any benefits to which the member is entitled.

3

The trustees or managers must calculate that realisable value—

a

in accordance with the scheme rules, and

b

in a manner which is—

i

approved by the trustees or managers, and

ii

consistent with Chapter IV of Part IV of the Act.

4

The realisable value must include any increases to the benefits resulting from a payment of interest made in accordance with the scheme rules.

Alternative manner of calculating and verifying cash transfer values2D

1

This regulation applies where the trustees or managers have decided to calculate and verify the cash transfer value in accordance with regulation 2(1)(b).

2

The cash transfer value is to be calculated and verified in such manner as may be approved by the trustees or managers.

3

The cash transfer value must be higher than it would be if it were calculated and verified in accordance with regulation 2(1)(a).

4

For the purposes of calculating and verifying the cash transfer value, the trustees or managers may request an insufficiency report from the actuary in accordance with Schedule 1B to the Transfer Values Regulations.

5

The trustees or managers may treat the actuary’s last relevant GN1184 report as an insufficiency report.

Reduction of cash transfer sums and contribution refunds4

1

In the case of a scheme to which Part IV86 of the 2005 Order (scheme funding) applies, the member’s initial cash transfer sum may be reduced by the trustees or managers if the insufficiency conditions are met.

2

The insufficiency conditions are that the last insufficiency report shows that at the effective date of the report—

a

the scheme had assets that were insufficient to match the insufficiency report liabilities in respect of all the members, and

b

the assets were insufficient to cover in full any category of insufficiency report liabilities that is an equivalent category of liabilities for benefits in respect of which the member’s cash transfer sum is being calculated.

3

If the insufficiency conditions are met the trustees or managers may reduce, by a percentage not exceeding the deficiency percentage, any part of the member’s initial cash transfer sum that is payable in respect of such an equivalent category of liabilities as are mentioned in paragraph (2)(b).

4

The deficiency percentage for any such part of a member’s initial cash transfer sum is the percentage by which the insufficiency report shows that the assets were insufficient to cover that category of liabilities.

5

If, by virtue of regulations made under Article 211 of the 2005 Order (power to modify provisions of Part IV), Part IV of that Order applies to a section of a scheme as if that section were a separate scheme, paragraphs (1) and (2) apply as if that section were a separate scheme and as if the reference to a scheme were accordingly a reference to that section.

6

In a case where a contributions equivalent premium has been paid in respect of a member in accordance with section 5187 (payment of state scheme premiums on termination of certified status), the initial cash transfer sum must be reduced (to nil if need be) to the extent that it represents the member’s rights to a cash transfer sum under section 97AB (right to cash transfer sum and contribution refund) which have been extinguished by virtue of section 5688 (effect of payment of premiums on rights) by payment of that premium.

7

Where a scheme begins to wind up after the member’s pensionable service terminates but before the trustees or managers have discharged the cash transfer sum or paid the contribution refund to the member, the initial cash transfer sum or contribution refund may be reduced to the extent necessary for the scheme to comply with the winding up provisions (as defined in Article 73B(10)(a) of the 1995 Order89) and regulations made under those provisions.

8

If, by virtue of regulations made under Article 73B(4)(b)(i) of the 1995 Order by virtue of Article 73B(5) of that Order, the winding up provisions (as so defined) apply to a section of a scheme as if that section were a separate scheme, paragraph (7) applies as if that section were a separate scheme and as if the references to a scheme were accordingly references to that section.

9

A member’s initial cash transfer sum or contribution refund under the scheme may be reduced if the member has incurred some monetary obligation due to the employer or to the scheme and arising out of a criminal, negligent or fraudulent act or omission by that member.

10

A member’s initial cash transfer sum or contribution refund under the scheme may be reduced by reason of paragraph (9) to the extent only that the reduction does not exceed the amount of the monetary obligation in question.

11

A reduction under paragraph (9) must not take effect where there is a dispute as to the amount of the monetary obligation in question, unless the obligation has become enforceable under an order of a competent court or in consequence of an award of an arbitrator.

12

The trustees or managers may reduce an initial cash transfer sum to reflect any reasonable administration costs were the member to leave the scheme and must offset against these costs any reasonable administrative savings.

13

In a case where two or more paragraphs of this regulation fall to be applied to a cash transfer sum or paragraph (7) or (9) falls to be applied to a contribution refund, they are to be applied in the order in which they occur in this regulation.