Legislative Consent Memorandum
Pensions Bill
Legislative Consent Motion
1. The motion to be put to the Parliament is:
"That the Parliament agrees that the relevant provisions of the UK Pensions Bill, introduced in the House of Commons on 5 December 2007, which legislate in devolved areas in respect of pension compensation on divorce or dissolution of a marriage or civil partnership should be considered by the UK Parliament."
Background
2. This memorandum has been lodged by Kenny MacAskill, Cabinet Secretary for Justice, under rule 9B.3.1(c) of the Parliament's standing orders. The UK Pensions Bill was introduced in the UK Parliament in the House of Commons on 5 December 2007. The Bill can be found at:
http://services.parliament.uk/bills/2007-08/pensions.html
3. The main purpose of the Pensions Bill is to legislate for the second part of the reform of the UK pension system as set out in the UK Government's White Paper Personal accounts: a new way to save, published in December 2006. The main proposals in the Bill relate to reserved matters, including:
- Automatic enrolment: all eligible workers, who are not already in a good quality workplace pension, will be automatically enrolled into either a qualifying pension scheme or into the personal account pension scheme;
- Minimum employer contribution: all qualifying employers will be required to contribute a minimum of 3% (on a band of earnings) to an employee's workplace pension scheme; and
- Personal accounts scheme: an extension of the functions of the Personal Accounts Delivery Authority, established in the Pensions Act 2007, enhancing its powers from advising on to overseeing the establishment of the infrastructure and processes relating to any scheme created under the Bill.
Provisions which relate to Scotland
4. The majority of the Pensions Bill concerns matters reserved to the UK Parliament. Provisions relating to pension compensation sharing orders have been lodged as amendments to the Bill by the UK Government. They include matters that are largely devolved as they concern the orders or decisions a Scottish court can make on divorce or dissolution of a marriage or civil partnership.
Overview
5. The Pensions Act 2004 (c.35) established the Pension Protection Fund (PPF). The purpose of the PPF is to pay compensation to members of eligible defined benefit pension schemes where the employer becomes insolvent, a scheme rescue is unlikely and the pension scheme is left under funded. The PPF is funded through the assets of schemes that enter the fund and a levy on solvent schemes to top this up to the necessary level.
6. However, because PPF compensation is not a pension, a pension sharing order cannot be made by a court on divorce or dissolution of a civil partnership. While the court is required to take the value of PPF compensation into account when considering appropriate financial settlement on divorce or dissolution, there is currently no mechanism to allow sharing of this compensation in the way that the value of a pension is shareable.
7. This means that in a small number of cases where PPF compensation is the only significant matrimonial asset, it may not be possible to achieve a fair settlement solely because a pension scheme has been taken into the PPF. Even if the court decides to make a financial order for maintenance, the spouse or civil partner would be dependent upon the other party to make the payments; with all the consequent difficulties of enforcement if that proved necessary. The law as it stands may not enable former spouses or civil partners to achieve a "clean break" settlement which is a key element of Scottish family law.
8. The policy intention behind the relevant amendments to the Pensions Bill is to ensure that couples in Scotland can agree a financial settlement and share compensation on divorce or dissolution in a similar way as they would if a scheme had not entered the PPF. This will ensure that the relevant Scots law is consistent with changes to pensions legislation across the UK.
9. It is expected that the provisions relating to pension compensation orders will be fully implemented in 2010.
Scottish amendments
10. The amendments lodged are detailed and technical in their effect. The amendments and explanatory notes are attached separately and information in respect of the devolved regulation making power can be found in annex A. For information, the amendments that are consequential on the amendment to clause 84 relate to reserved issues but are included for illustrative purposes and completeness. The amendments relevant to the legislative consent motion are amendments 6, 17,18 and 19.
11. Part 3 Chapter 1 of the Bill deals with Pension Compensation on divorce and the amendments to this part ensure that pension compensation sharing orders will apply in Scotland. It also takes into account that qualifying agreements are used in Scotland.
12. Further, an amendment inserts a new schedule into the Bill which on commencement will make a number of changes to the Family Law (Scotland) Act 1985 as amended (the '1985 Act'). The new Schedule:
- Creates a new 'pension compensation sharing order' which either party to the marriage or either partner in a civil partnership may apply for and the court can make;
- Sets out the scenarios where the court cannot make a pension compensation sharing order in relation to rights to PPF compensation, including where a pension sharing order or capital sum order has previously been made, or a pension compensation sharing order or a pension compensation capital sum order has previously been made;
- Ensures that if a qualifying agreement relating to pension compensation is in place then the court cannot make any order unless that agreement is set aside;
- Allows the court to apportion any charge made by the PPF Board relating to pension compensation sharing costs between the parties;
- Allows the Scottish Ministers to make appropriate regulations in relation to the verification or apportionment of benefits under PPF compensation (more detail in annex A);
- Allows the court to make an order in relation to payment of a capital sum which requires the PPF Board to pay either the whole or part of that payment to the other party. This is an equivalent provision to section 12A of the 1985 Act; and
- Makes the appropriate changes to qualifying agreements to take account of pension compensation sharing.
Advantages of utilising this Bill
13. Using the UK Bill as the legislative vehicle ensures that the relevant Scots law keeps pace with changes to pensions legislation across the UK. Further, it allows for appropriate consultation on the regulations to be undertaken in advance of implementation in 2010.
Impact assessment
14. The UK Government has undertaken a full impact assessment which can be found at: http://www.dwp.gov.uk/pensionsreform/
15. The UK Government estimates that the number of pension compensation sharing orders in England and Wales would be small at around 20 per year by 2008-2009. However, this estimate is based on data from a number of sources and it could vary significantly dependent on the type and number of schemes entering the PPF. Consequently, we would expect the number of pension compensation sharing orders in Scotland to be small.
Annex A
Delegated Powers
1. The Parliament will note that the amendments include a delegated power in relation to pension compensation sharing on divorce or dissolution.
Purpose of power
2. The new Schedule amends Section 10 of the Family Law (Scotland) Act 1985 as amended to provide the Scottish Ministers with the power to make provision with respect to the calculation, verification and apportionment of PPF compensation. This regulation would be subject to negative resolution within the Scottish Parliament. The intention is that the power would be used in a similar way to The Divorce etc. (Pensions)(Scotland) Regulations 2000 which made provision with respect to the calculation and verification of benefits under a pension arrangement in relation to actions for divorce or actions for declarator of nullity of marriage.
Reason for Delegation
3. Delegated powers are appropriate because of the highly technical nature of these matters and to ensure consistency with the UK approach.
4. It is anticipated that the provisions in relation to pension compensation on divorce will be implemented in 2010. In relation to any regulations that are required we will ensure that the appropriate consultation will take place before then.