Explanatory note

These Regulations amend the Parliamentary Pensions (Consolidation and Amendment) Regulations 1993 (S.I. 1993/3253) (“the Contributory Fund Regulations”) and the Parliamentary Pensions (Additional Voluntary Contributions) Regulations 1993 (S.I. 1993/3252) (“the AVC Regulations”), both of which were made under the Parliamentary and other Pensions Act 1987 (c. 45) and set out pension schemes applying to Members of 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”).

Regulation 1 provides for citation, commencement and interpretation. Most of the Regulations come into force on 6th April 2006. But regulation 6 comes into force on 5th April 2006 and has effect from 4th March 2006 to enable existing 75 year olds to become entitled to commuted lump sums in respect of their pensions before Part 4 comes into force; regulation 17, which is linked to the repeal made by paragraph 29 of Schedule 6 to the Mental Capacity Act 2005 (c. 9), will come into force with that paragraph; and regulation 13 (which relates to the extension of the provisions of the Contributory Fund Regulations relating to the Chairman of Select Committees to all Chairmen of such Committees and all Chairmen of Standing Committees) has effect from 13th July 2005 (the date on which the House of Commons resolution relating to that extension was passed). Section 2(4)(b)(i) of the Parliamentary and other Pensions Act 1987 authorises the making of provision taking effect from a day before the regulations are made.

Regulations 2 to 20 amend the Contributory Fund Regulations.

Regulation 2 amends regulation A2 of, and Schedule 2 to, those Regulations 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of “permitted maximum” independent of the section 590C of the Income and Corporation Taxes Act 1988 (which is repealed by the Finance Act 2004) without changing its meaning.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.

Regulation 3 amends Schedule 6 to those Regulations so that the total contributions to buy added years, whether periodical or by way of lump sum, must not exceed 10% of the Member’s salary in the tax year.

Regulation 4 amends regulation F8 of those Regulations 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 Member of the House of Commons, rather than becoming non-payable which is not permitted under the pension rules in section 165 of the Finance Act 2004.

Regulation 5 amends regulation G1 of those Regulations 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 members 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.

Regulation 6 amends those Regulations by inserting a new regulation C5A which provides a special option for members reaching 75 before 6th April 2006 to opt to cease to be participants and to become entitled to commute their pensions for a lump sum despite continuing in office as Members of the House of Commons or office holders.

Regulations 7 to 9 make provision relating to death benefits under those Regulations. Regulation 7 restricts the amount of pensions payable under Part K 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. Regulation 8 amends regulation L1 to comply with the Part 4 requirements so that death in service lump sums can only be paid to members who have reached 75 if they are pensioners on 6th April 2006, and removes the discretion to pay lump sums on the death of pensioner Members. Regulation 9 replaces most of Part M so that in most cases where a lump sum was payable because a pensioner member had died before he had received five years' pension, instead one or more pensions are payable to the pensioner’s dependants for the remainder of the five year period that are equal to the member’s own pension. (In such cases the dependants' pensions under Part K are suspended.) The new regulation M5A enables a special 10 year pension guarantee to be given to the nominees of those exercising the new regulation C5A option. The right to a lump sum only continues under the new regulations M4 and M5 where the member had no dependants and, unless he was a pensioner member on 5th April 2006, he had not reached 75.

Regulation 10 amends Part J of those Regulations (ill-health pensions) so as to mirror requirements imposed by Part 4 about cessation of occupation and medical evidence about incapacity.

Regulation 11 amends regulation H1 of those Regulations to enable persons who are participants on or after 2nd April 1991 (rather than on or after 4th November 2004) to take early retirement despite having less than 15 years' reckonable service.

Regulation 12 amends paragraph 10 of Schedule 1 to those Regulations (which relates to statements of investment principles) so as to refer to the latest Regulations imposing general obligations about such statements.

Regulation 13 makes various amendments of those Regulations so as to extend the provisions relating to the Chairman of Select Committees to all Chairmen of such Committees who are eligible for additional salary as such and all Chairmen of Standing Committees.

Regulation 14 inserts two new regulations (R2A and R2B) into those Regulations 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 regulation (R2C) 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.

Regulation 15 substitutes a new Part for Part P of those Regulations (which is set out in Schedule 1 to these Regulations) 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 and to update certain references in consequence of Part 4 of the Finance Act 2004. It also restricts the time within which certain transfers from other pension schemes can be accepted.

Regulation 16 makes amendments of Part N of those Regulations 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.

Regulation 17 repeals regulation R1(2) of those Regulations (which relates to payments made in respect of persons who lack mental capacity and is no longer required following the repeal of section 142 of the Mental Health Act 1983 (c. 20)), subject to a saving for cases where payments under it have already been made.

Regulation 18 amends those Regulations to introduce a new Part T which relates 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.

Regulation 19 amends those Regulations so as to introduce a new Part U which enables 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.

Regulation 20 amends Schedule 15 to those Regulations (pension sharing) so as to extend the provisions to cases where civil partnerships are dissolved and to prevent payments being made in cases where the ex-spouse or civil partner dies before liability in respect of pension credit is discharged but after reaching 75.

Regulations 21 to 27 amend the AVC Regulations.

Regulation 21 amends those Regulations 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 regulation 5.

Regulation 22 amends regulation 4(1) so as to prevent participants in the principal scheme who are over 75 from joining the AVC scheme.

Regulation 23 amends regulations 7 to 9 of the AVC Regulations, 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 member’s 75th birthday, subject to the limits imposed by Part 4. 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 regulation 5 (subject to the effect of any pension debit).

Regulation 24 amends regulation 10 of those Regulations (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.

Regulation 25 substitutes a new regulation 14 in those Regulations providing for the Trustees to pay the lifetime allowance charge in some circumstances, and for the contributor’s fund to be reduced where they have done so.

Regulation 26 amends Schedule 3 to those Regulations (pension sharing) so as to extend the provisions to cases where civil partnerships are dissolved and to prevent payments being made in cases where the ex-spouse or civil partner dies before liability in respect of pension credit is discharged but after reaching 75.

Regulation 27 makes various further minor amendments of those Regulations that are consequential on Part 4 and the changes made by these Regulations.

Regulation 28 introduces Schedule 2 which contains revocations that are consequential on these Regulations.

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