Protecting early leavers
The introduction of the Social Security Act 1973 (SSA 73), saw a significant improvement in the members retirement benefits within an employers pension scheme. Prior to this Act members had no statutory rights to any benefits accrued in an occupational pension scheme for early leavers. When the Act was introduced on 6 April 1975 it allowed for the preservation of a members pension rights, known as preserved benefits, after 5 years of service and would include both employee and employer contributions. For less than 5 years service the scheme member was entitled to a refund of contributions that they had personally made to the scheme.

This term was reduced in the Social Security Act 1986 to 2 years and a refund of contributions being made with less than 2 years service. However, Tax and a contribution to purchase membership of the state pension scheme will be deducted from the refund before payment. The Finance Act 1981 introduced the first pension transfer product in the form of section 32 policies, allowing the early leaver an opportunity to transfer out of an occupational pension scheme.

Where a final salary pension scheme has contracted out of the state scheme the guaranteed minimum pension (GMP) relates to the earnings component of the state pensions that the member would have earned while in the employer's scheme, had the member not contracted-out. GMPs ceased to accrue after 5 April 1997. For early leavers from January 1985 the Health and Social Security Act 1984 allowed the revaluation of GMP to be separate from that of preserved benefits.

Prior to January 1985 the practice was to absorb GMP into the preserved pension and this was known as franking. As a result, the accrued entitlement to the member increased significantly as this includes the members pension transfer value. From January 1986 the Social Security Act 1985 allowed the member the right to transfer from an occupational pension scheme rather than leave the preserved benefits. This Act also introduced revaluation of preserved benefits other than the already revalued GMP for leavers from 1986 in line with the retail price index (RPI) to a maximum of 5.0% a year up until retirement age.

The Social Security Act 1986 introduced legislation to prevent employers from making membership of their occupational pension scheme compulsory and also approved personal pensions to receive pension transfers. The Social Security Act 1990 extended the revaluation of preserved benefits by allowing early leavers of final salary schemes from January 1991 to have preserved benefits in addition to GMP to rise by RPI with a ceiling of 5.0% per annum up until retirement age.


Pension Schemes Act 1993
Pensions are subject to detailed legislation found in various Acts and brought into force through subordinate legislation called Statutory Instruments laid before Parliament by the Lord Chancellor. The Pension Schemes Act 1993 (PSA 93) had many of its regulations brought into force from 1997 and covers many aspects of an occupational pension scheme and personal pensions.

Part III of the Act is concerned with certification of pension schemes and the effects on a members state scheme rights as well as issues of contracting out. Part IV of the PSA 93 refers to protection for early leavers and the preservation of benefits under occupational pension schemes. Chapter II of Part IV deals with revaluation of deferred pensions whereas Chapter III involves the protection of increases in the guaranteed minimum pension resulting in the banning of anti franking and Section 94 of Chapter IV is concerned specifically with the calculation of the cash equivalent transfer value (CETV).

Part V refers to the annual increases of pension in payment for a final salary pension or GMP and Part VI introduces disclosure of information by the scheme to the scheme member and this part was strengthened later by the Pensions Act 1995. In Part IX the PSA 93 is concerned with the modification and winding up of a scheme and Part X with the investigations made by the Pensions Ombudsman.


Pensions Act 1995
Further to the PSA 93 the Pensions Act 1995 represents a framework whereby much of the detail is left to be implemented through statutory instruments. The Pensions Act 1995 received Royal Assent on 19 July 1995 and most of the contents were implemented from 6 April 1997.

Part I of the Act is concerned with occupational pension schemes. Section 1 outlines the introduction of the regulatory authority the Occupational Pensions Regulatory Authority (OPRA) protecting all scheme members and section 3 to 15 deals with the powers of OPRA. Section 16 to 46 is concerned with the activities of trustees whereas 47 and 48 deal with professional advisers including whistle blowing. Section 51 to 55 relate to indexation and require pensions in payment accrued from 6 April 1997 to be increased by limited price indexation (LPI).

Section 56 to 61 require that all defined benefit schemes such as a final salary pension meet the minimum funding requirement (MFR) and section 62 to 66 deals with equalisation rules for men and women. Section 73 to 77 relates to the winding up of an occupational pension scheme including action to be taken for underfunded or surplus schemes, section 78 to 80 covers the Pensions Compensation Board and section 87 to 90 deals with money purchase schemes.

Part II relates to state pensions and includes section 126 for the equalisation of the state pension age as well as revising the arrangements to contract out of the state earnings related pension scheme (SERPS).Part III relates to the certification of pension schemes and the effect on a members' state scheme rights including protected rights. Part IV covers section section 156 to 160 dealing with the Pensions Ombudsman and including section 166 to 167 for pensions on divorce.


WRPA 1999
Continuing the evolution of pensions, the Welfare Reform and Pensions Act 1999 (WRPA) introduced a number of important developments in pensions. Part I of the WRPA made provision for stakeholder pensions which came into force from 6 April 2001.

Part II deals with pensions and bankruptcy and is important as section 11 of the WRPA provides statutory protection for an approved scheme, whether being an occupational pension scheme, personal pension or retirement annuity policies (RAPs) by excluding members pension rights from their estate on bankruptcy. Part III and IV relates to the introduction of pension sharing.

Pension law and divorce
For divorce cases prior to the Pensions Act 1995, the pension scheme member would be directed to pay to their spouse a greater share of the matrimonial property (other than pensions) compared to a case where no members pension rights existed. In practice, the members pension rights could not be divided so the former spouse would be left with no retirement benefits and instead offsetting would be used against other matrimonial property, such as the family home.

The courts generally had no power to order payments to the former spouse from retirement benefits. Section 166 of the Pensions Act 1995 inserted sections 25B to 25D in the Matrimonial Causes Act 1973 (MCA 73) that gave the courts the power of pension earmarking, which has applied to all divorces petitioned since 1 July 1996 where couples in divorce were unable to reach an out-of-court settlement. The Pensions Act 1995 permits earmarking of the death in service benefit, tax free lump sum at retirement, death benefits post retirement and pensions in payment.

However, there is no provision for earmarking of the spouses pension rights as this potentially could be paid to someone else on the death of the pension scheme member. The Pensions Act 1995 provides a statutory method for calculating a value of the retirement benefits in today's terms in the form of a cash equivalent transfer value. This was contrary to the preferred method of family solicitors in Scotland of using the past service reserve.

The WRPA 99 received Royal Assent on 11 November 1999 and introduced pension sharing, applying to a divorce petition and nullity of marriage from 1 December 2000. The WRPA amended earmarking legislation that was introduced by section 166 of the Pensions Act 1995 by requiring the court to apply the earmarking order as a percentage to the retirement benefits. Part III contains the new pension sharing framework that amends existing family law, specifically section 19 amends the Matrimonial Causes Act 1973 (MCA 73) and allows the court in England and Wales to make a pension sharing order.

Section 21 amends the MCA 73 section 25B to 25D to allow a pension sharing order attachment of a specified pension arrangement or state scheme rights. Part IV deals with how pension sharing is effected and the result in relation to the pension arrangement and state earnings related pension scheme (SERPS). The WRPA also repealed section 16 of the FLA 96 that introduced the concept of pension splitting.


Exceptional pension laws
The Armed Forces Pension Scheme is a final salary, contracted out, unfunded occupational pension scheme and its rules are set out in prerogative instruments. These documents are not subject to approval, annulment or amendment by parliament, they derive their authority directly from the Queen.

Under the Naval and Marine Pay and Pensions Act 1865, the prerogative instruments for the Royal Navy and Royal Marines is by an Order of Council, for the Army it is the Pensions Warrant 1977 and for the RAF it is the Queen's Regulations for the Royal Air Force