C1C2C5Part I Occupational pensions
Pt. I applied (with modifications) (6.4.1997) by The Personal and Occupational Pension Schemes (Miscellaneous Amendments) Regulations 1997 (S.I. 1997/786), reg. 2
Pt. I: Pensions Act 2004 (c.35), Pt. 3 construed as one with Pt. I of this Act (4.12.2005 for specified purposes, 30.12.2005 in so far as not already in force) by Pensions Act 2004 (c. 35), ss. 233, 322(1) (with s. 313); S.I. 2005/3331, art. 2(1)(a)(b), Sch. Pt. 1
Indexation
I1I3C4C3C651 Annual increase in rate of pension.
1
Subject to F19subsections (6) and (7) this section applies to a pension under an occupational pension scheme if—
a
the scheme—
F14i
is a registered pension scheme under section 153 of the Finance Act 2004, and
ii
is not a public service pension scheme, and
F8iii
in the case where the pension becomes a pension in payment on or after the commencement day, is not a money purchase scheme, and
F7b
the whole, or any part of, the pension is attributable—
i
to pensionable service on or after F246 April 1997, or
ii
in the case of money purchase benefits where the pension is in payment before the commencement day, to payments in respect of employment carried on on or after F246 April 1997, and
c
apart from this section—
i
the annual rate of the pension, or
ii
if only part of the pension is attributable as described in paragraph (b), so much of the annual rate as is attributable to that part,
would not be increased each year by at least the appropriate percentage of that rate.
F271A
Where a pension scheme is divided into sections, each section that is a collective money purchase scheme for the purposes of Part 1 of the Pension Schemes Act 2021 (see section 1(2)(b) of that Act) is to be treated for the purposes of this section as a separate occupational pension scheme which is a money purchase scheme.
2
F2Subject to sections 51A and 52, where a pension to which this section applies, or any part of it, is attributable to pensionable service on or after F246 April 1997 or, in the case of money purchase benefits F9where the pension is in payment before the commencement day, to payments in respect of employment carried on on or after F246 April 1997—
a
the annual rate of the pension, or
b
if only part of the pension is attributable to pensionable service or, as the case may be, to payments in respect of employment carried on on or after F246 April 1997, so much of the annual rate as is attributable to that part,
must be increased annually by at least the appropriate percentage.
F203
Subsection (2) does not apply to the annual rate of a pension under an occupational pension scheme, or to a part of that rate, if under the rules of the scheme the rate or part is for the time being being increased at intervals of not more than twelve months by at least the relevant percentage.
4
For the purposes of subsection (3) the relevant percentage is—
a
the percentage increase in the consumer prices index for the reference period, being a period determined, in relation to each periodic increase, under the rules, or
b
if lower, the default percentage for that period.
4ZA
Subsection (2) does not apply to the annual rate of a pension under an occupational pension scheme, or to a part of that rate, if subsection (4ZB) applies to the rate or part.
4ZB
Subject to subsection (4ZD), this subsection applies to the rate or part if, under the rules of the scheme, the rate or part is for the time being being increased, and since the relevant time has always been increased, at intervals of not more than twelve months by at least—
a
the percentage increase in the retail prices index for the reference period, being a period determined, in relation to each periodic increase, under the rules, or
b
if lower, the default percentage for that period.
4ZC
In subsection (4ZB) “the relevant time” means—
a
the beginning of 2011 or, if later, the time when the pension became a pension in payment, or
b
if the pension was transferred to the scheme from another occupational pension scheme as a pension in payment after the beginning of 2011, the time of the transfer.
4ZD
If the pension was transferred to the scheme as mentioned in subsection (4ZC)(b), subsection (4ZB) does not apply to the rate or part unless, immediately before the transfer, subsection (4ZB) (read with this subsection if relevant) applied to the rate or part by reference to the scheme from which the pension was transferred (or would have applied had subsection (4ZB) been in force immediately before the transfer).
4ZE
If only part of the pension is attributable to pensionable service or, as the case may be, to payments in respect of employment carried on on or after F246 April 1997, in subsections (3) to (4ZD) references to the annual rate of the pension are references to so much of that rate as is attributable to that part.
4ZF
For the purposes of subsections (4) and (4ZB) the default percentage for a period is the percentage for that period which corresponds to—
a
in the case of a category X pension, 5% per annum, and
b
in the case of a category Y pension, 2.5% per annum.
4ZG
In subsections (4) and (4ZB)—
“consumer prices index” means—
- a
the general index of consumer prices (for all items) published by the Statistics Board, or
- b
where that index is not published for a month, any substituted index or figures published by the Board;
- a
“retail prices index” means—
- a
the general index of retail prices (for all items) published by the Statistics Board, or
- b
where that index is not published for a month, any substituted index or figures published by the Board.
- a
F54A
For the purposes of this section, a pension is a category X pension if it is—
a
a pension which became a pension in payment before the commencement day, or
b
a pension—
i
which becomes a pension in payment on or after the commencement day, and
ii
the whole of which is attributable to pensionable service before that day.
4B
For the purposes of this section, a pension is a category Y pension if it is a pension—
a
which becomes a pension in payment on or after the commencement day, and
b
the whole of which is attributable to pensionable service on or after the commencement day.
4C
For the purposes of applying this section in the case of a pension—
a
which becomes a pension in payment on or after the commencement day,
b
part of which is attributable to pensionable service before the commencement day, and
c
part of which is attributable to pensionable service on or after that day,
each of those parts of the pension is to be treated as if it were a separate pension.
5
Regulations may provide that F10any of the provisions of this section apply in relation to a pension as if so much of it as would not otherwise be attributable to pensionable service or to payments in respect of employment were attributable to pensionable service or, as the case may be, payments in respect of employment—
b
on or after that day, or
c
partly before and partly on or after that day.
6
This section does not apply to any pension or part of a pension F3which is attributable (directly or indirectly) to a pension credit or which, in the opinion of the trustees or managers, is derived from the payment by any member of the scheme of voluntary contributions.
F217
This section does not apply to any pension (or part of a pension) under a relevant occupational pension scheme which—
a
is a cash balance benefit (see section 51ZB), and
b
first comes into payment on or after the day on which section 21 of the Pensions Act 2011 comes into force.
F258
An occupational pension scheme is a “relevant occupational pension scheme” if—
a
it has not, at any time on or after 6 April 1997, been a salary related contracted-out scheme (see section 7B of the Pension Schemes Act 1993), or
b
it has, at any time on or after 6 April 1997, been a salary related contracted-out scheme but no person is entitled to receive, or has accrued rights to, benefits under the scheme attributable to a period on or after that day when it was such a scheme.
C4C451ZAF6Meaning of “the appropriate percentage”
1
For the purposes of section 51(1)(c) and (2), “the appropriate percentage” in relation to an increase in the whole or part of the annual rate of a pension—
a
in the case of a category X pension, means the F15higher revaluation percentage for the latest revaluation period specified in the order under paragraph 2 of Schedule 3 to the Pension Schemes Act 1993 (revaluation of accrued pension benefits) which is in force at the time of the increase, and
F16b
in the case of a category Y pension, means the lower revaluation percentage for that period.
2
In this section F17“the higher revaluation percentage”, “the lower revaluation percentage” and “the revaluation period” have the same meaning as in paragraph 2 of Schedule 3 to the Pension Schemes Act 1993.
C451ZBF18Meaning of “cash balance benefit”
1
For the purposes of section 51(7)(a), a pension provided to or in respect of a member of an occupational pension scheme is a “cash balance benefit” if conditions 1 and 2 are met.
2
Condition 1 is that the rate of the pension is calculated by reference to a sum of money (“the available sum”) which is available under the scheme for the provision of benefits to or in respect of the member.
3
Condition 2 is that under the scheme—
a
there is a promise about the amount of the available sum, but
b
there is no promise about the rate or amount of the benefits to be provided.
4
The promise mentioned in subsection (3)(a) includes in particular a promise about the change in the value of, or the return from, payments made under the scheme by the member or by any other person in respect of the member.
5
The promise mentioned in subsection (3)(b) includes a promise that—
a
the amount of the available sum will be sufficient to provide benefits of a particular rate or amount;
b
the rate or amount of a benefit will represent a particular proportion of the available sum.
6
But a pension is not prevented from being a cash balance benefit merely because under the scheme there is a promise that—
a
the rate or amount of a benefit payable in respect of a deceased member will be a particular proportion of the rate or amount of a benefit which was (or would have been) payable to the member;
b
the amount of a lump sum payable to a member, or in respect of a deceased member, will represent a particular proportion of the available sum.
C451AF1Restriction on increase where annuity tied to investments.
1
No increase under section 51 is required to be made, at any time on or after the relevant date, of so much of any pension under a money purchase scheme as—
a
is payable by way of an annuity the amount of which for any year after the first year of payment is determined (whether under the terms of the scheme or under the terms of the annuity contract in pursuance of which it is payable) by reference to fluctuations in the value of, or the return from, particular investments; F22and
F23b
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
c
satisfies such other conditions (if any) as may be prescribed.
2
For the purposes of this section it shall be immaterial whether the annuity in question is payable out of the funds of the scheme in question or under an annuity contract entered into for the purposes of the scheme.
3
In this section “the relevant date” means the date appointed for the coming into force of section 51 of the Child Support, Pensions and Social Security Act 2000.
I4C452 Restriction on increase where member is under 55.
1
Subject to subsection (2), no increase under section 51 is required to be paid to or for a member of a scheme whose pension is in payment but who has not attained the age of 55 at the time when the increase takes effect.
2
Subsection (1) does not apply if the member—
a
is permanently incapacitated by mental or physical infirmity from engaging in regular full-time employment, or
b
has retired on account of mental or physical infirmity from the employment in respect of which, or on retirement from which, the pension is payable.
3
The rules of a scheme may provide that if, in a case where a pension has been paid to or for a member under the age of 55 at an increased rate in consequence of subsection (2), the member—
a
ceases to suffer from the infirmity in question before he attains the age of 55, but
b
continues to be entitled to the pension,
any increases subsequently taking effect under section 51 in the annual rate of the pension shall not be paid or shall not be paid in full.
4
In any case where—
a
by virtue only of subsection (1) or (3), increases are not paid to or for a member or are not paid in full, but
b
the member attains the age of 55 or, in a case falling within subsection (3), again satisfies the condition set out in subsection (2)(a) or (b),
his pension shall then become payable at the annual rate at which it would have been payable apart from subsection (1) or (3).
I5C453 Effect of increases above the statutory requirement.
1
Where in any tax year the trustees or managers of an occupational pension scheme make an increase in a person’s pension, not being an increase required by section 109 of the M1Pension Schemes Act 1993 or section 51 of this Act, they may deduct the amount of the increase from any increase which, but for this subsection, they would be required to make under either of those sections in the next tax year.
2
Where in any tax year the trustees or managers of such a scheme make an increase in a person’s pension and part of the increase is not required by section 109 of the Pension Schemes Act 1993 or section 51 of this Act, they may deduct that part of the increase from any increase which, but for this subsection, they would be required to make under either of those sections in the next tax year.
3
Where by virtue of subsection (1) or (2) any pensions are not required to be increased in pursuance of section 109 of the Pension Schemes Act 1993 or section 51 of this Act, or not by the full amount that they otherwise would be, their amount shall be calculated for any purpose as if they had been increased in pursuance of the section in question or, as the case may be, by that full amount.
F43A
In subsections (1) and (2), the references to a person’s pension do not include any pension which is attributable (directly or indirectly) to a pension credit.
4
In section 110 of the M2Pension Schemes Act 1993 (resources for annual increase of guaranteed minimum pension)—
a
subsections (2) to (4) are omitted, and
b
in subsection (1), for “subsection (2) or (3)” there is substituted “
section 53 of the Pensions Act 1995
”
.
I6C454 Sections 51 to 53: supplementary.
1
The first increase required by section 51 in the rate of a pension must take effect not later than the first anniversary of the date on which the pension is first paid; and subsequent increases must take effect at intervals of not more than twelve months.
2
Where the first such increase is to take effect on a date when the pension has been in payment for a period of less than twelve months, the increase must be of an amount at least equal to one twelfth of the amount of the increase so required (apart from this subsection) for each complete month in that period.
3
In sections 51 to 53 and this section—
“annual rate”, in relation to a pension, means the annual rate of the pension, as previously increased under the rules of the scheme or under section 51,
F26. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F13. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F12“the commencement day” means the day appointed for the coming into force of section 278 of the Pensions Act 2004 (amendments to section 51),
“pension”, in relation to a scheme, means any pension in payment under the scheme and includes an annuity.
I255 Section 51: end of annual increase in GMP.
In section 109 of the M3Pension Schemes Act 1993 (annual increase of guaranteed minimum pensions)—
a
in subsection (2) (increase in rate of that part of guaranteed minimum pension attributable to earnings factors for tax year 1988-89 and subsequent tax years) for “the tax year 1988-89 and subsequent tax years” there is substituted “
the tax years in the relevant period
”
, and
b
after subsection (3) there is inserted—
3A
The relevant period is the period—
a
beginning with the tax year 1988-89, and
b
ending with the last tax year that begins before the principal appointed day for the purposes of Part III of the Pensions Act 1995
Pt. I modified (6.4.1997) by The Personal and Occupational Pension Schemes (Miscellaneous Amendments) Regulations 1997 (S.I. 1997/786), regs. 1, 2