Explanatory note

This Order amends the European Parliamentary (United Kingdom Representatives) Pensions (Consolidation and Amendment) Order 1994 (S.I. 1994/1662) (“the Principal Order”) and the European Parliamentary (United Kingdom Representatives) Pensions (Additional Voluntary Contributions) Order 1995 (S.I. 1995/739) (“the AVC Order”), both of which were made under the European Parliament (Pay and Pensions) Act 1979 (c. 50) and set out pension schemes applying to United Kingdom Representatives to the European Parliament. Many of the amendments reflect changes that are consequential on the replacement on 6th April 2006 of the tax regime applying in respect of pensions under Part 14 of the Income and Corporation Taxes Act 1988 (c. 1) by Part 4 of the Finance Act 2004 (c. 12) (“Part 4”).

Article 1 provides for citation, commencement and interpretation. The Order comes into force on 6th April 2006.

Articles 2 to 15 amend the Principal Order.

Article 2 amends article 2 of, and Schedule 2 to, that Order, so as to update the definition of “the index” and make the definition of “permitted maximum” independent of the section 590C of the Income and Corporation Taxes Act 1988 (which is repealed by the Finance Act 2004) without changing its meaning. (Limits on contributions and benefits are expressed by reference to the permitted maximum.) It also inserts a definition of the pension value of retained benefits which is relevant to the maximum pension that can be paid to participants. It also amends that Schedule so that additional voluntary contributions are not taken into account in determining maximum contributions, and benefits purchased as a result of such contributions are not taken into account in determining maximum benefits.

Article 3 amends Schedule 7 to that Order so that the total contributions to buy added years, whether periodical or by way of lump sum, must not exceed 10 per cent of the participant’s salary in the tax year.

Article 4 amends article 7 of the Principal Order so that pensions are payable despite a person being a candidate in an election and so that pensions are reduced to nil during further service as a Representative, rather than becoming non-payable, which is not permitted under the pension rules in section 165 of the Finance Act 2004.

Article 5 amends article 8 of the Principal Order which enables pensions to be commuted for lump sums, so as to apply the limits imposed by the Finance Act 2004 on pension commencement lump sums. Existing limits for participants who became participants before 6th April 2006 continue to apply as respects service before 6th April 2006 so far as permitted under Schedule 29 to that Act, as modified by the transitional provisions in Schedule 36 to that Act.

Articles 6 to 8 make provision relating to death benefits under the Principal Order. Article 6 restricts the amount of pensions payable under articles 11A to 15A so that they qualify as dependants' scheme pensions for Part 4 and amends the definition of “child” for the purposes of children’s pensions so as to correspond with the Part 4 pension rules. Article 7 amends article 16 to comply with the Part 4 requirements so that death in service lump sums can only be paid to participants who have reached the age of 75 if they are pensioners on 6th April 2006, and removes the discretion to pay lump sums on the death of pensioners. Article 8 replaces Schedule 6 to the Principal Order so that in most cases where a lump sum was payable because a pensioner had died before he had received five years' pension, instead, one or more pensions are payable to the pensioner’s dependants or personal representatives for the reminder of the five year period that are equal to the participant’s own pension. (In such cases the dependants' pensions under articles 11A to 15A are suspended.) The right to a lump sum only continues under the new paragraphs 3 and 4 of Schedule 6 where the participant had no dependants and, unless he was a pensioner on 6th April 2006, he had not reached the age of 75.

Article 9 amends article 11 of the Principal Order (ill-health pensions) so as to mirror requirements imposed by Part 4 about cessation of occupation and medical evidence about incapacity.

Article 10 inserts two new articles (29A and 29B) into that Order providing for the scheme administrator to pay the lifetime allowance charge on behalf of participants in some circumstances, and for benefits to be reduced where the scheme administrator has done so without the participant having made a payment to cover the tax. It also inserts a new article 29C providing for the payment of the short service refund lump sum charge and the special lump sum death benefits charge under sections 205 and 206 of that Act to be deducted from payments liable to those charges.

Article 11 substitutes articles 19 to 24E (which are set out in the Schedule to this Order) to reflect changes in the law relating to transfers out as set out in Chapter 4 of Part 4 of the Pension Schemes Act 1993, to update certain references in consequence of Part 4 of the Finance Act 2004, and to refer to the public sector transfer arrangements. It also restricts the time within which certain transfers from other pension schemes can be accepted.

Article 12 makes amendments to article 25 of the Order relating to refunds of contributions so as to align the requirements with those for short service refund lump sums, which are authorised payments for the purposes of Part 4.

Article 13 amends article 28 of the Principal Order in relation to restrictions on the application of pensions.

Article 14 amends the Principal Order to introduce new articles 31A to 31E which relate to individuals to whom paragraph 12 of Schedule 36 to the Finance Act 2004 applies (enhanced protection). These “protected individuals” are given the right to cease making contributions, to surrender certain rights so as to obtain enhanced protection, or to surrender rights to which they have a prospective entitlement so as to avoid relevant benefit accrual.

Article 15 amends the Principal Order so as to introduce two new articles 31F and 31G, which enable people who become a participant for a second or subsequent time on or after 6th April 2006 to opt for their service when they do so to be treated separately from earlier service. The result of this will often be that the rights in respect of old service will be less valuable than if the service had been aggregated, and accordingly the option may benefit a person whose rights would otherwise breach limits above which tax charges apply under Part 4.

Articles 16 to 21 amend the AVC Order.

Article 16 amends the AVC Order so as to remove restrictions on amounts of contributions and the benefits attributable to them, which do not need to apply once Part 4 is in force, and to restrict the kinds of transfers in that may be accepted by the AVC scheme under article 5.

Article 17 amends article 4(1) so as to prevent participants in the scheme who are over 75 from joining the AVC scheme.

Article 18 amends articles 7 to 9 of the AVC Order, which relate to the provision of benefits under the AVC scheme. The amendments enable any benefits to be paid that are authorised for registered schemes under Part 4. They then amend the existing provisions about the benefits so as to achieve conformity with that Part. They also add a specific provision for lump sums to be taken at retirement or at a later time up to the participant’s 75th birthday, subject to the limits imposed by Part 4 on pension commencement lump sums. In addition, it is made clear that the amounts that can be taken as benefits or transferred out include the realisable value of amounts transferred in under article 5.

Article 19 amends article 10 of that Order (leaving the AVC scheme) so as to enable transfers out to be applied in any way permitted under Chapter 4 of Part 4 of the Pension Schemes Act 1993 and to bring payments by way of return of contributions within the requirements for short service refund lump sums, which are authorised payments for the purposes of Part 4 of the Finance Act 2004.

Article 20 substitutes two new articles for article 14 of that Order providing for the Managers to pay the lifetime allowance charge on behalf of contributors in some circumstances, and for benefits to be reduced where they have done so without the contributor having made a payment to them to cover the tax.

Article 21 makes various further minor amendments of that Order that are consequential on Part 4 and the changes made by that Order.

A full regulatory impact assessment has not been produced for this instrument as it has no impact on the costs of business.