Cessation of Contracted-out Pension Schemes · Preserving the GMP rights within the scheme page 26, para 2.18 Transfers page 26, para 2.22 Purchase of annuities page 27, para 2.26

These notes are for guidance only and should not be treated as a complete

and authorative statement of the law.

Leaflet CA15 from February 2005. Prepared by Inland Revenue

National Insurance Contributions Office, Publications,Newcastle upon Tyne.

Cessation of Contracted-out Pension SchemesManual

National Insurance Contributions SeriesCA15

1

ContentsAbbreviations page 6

Glossary of terms page 8

Chapter 1 Introduction to this manual and the Inland Revenue National Insurance Contributions Office page 14

About this manual page 14, para 1.1Statutory provisions page 15, para 1.4Responsibilities and contacts page 15, para 1.6

Chapter 2 Salary-related schemes (including salary-related overseas schemes) which cease to be contracted-out on or before 5 April 1997 page 24

Ceasing to contract-out page 24, para 2.1What happens to accrued rights built up in the scheme? page 24, para 2.4Time limits page 25, para 2.10Securing the liabilities page 25, para 2.13Approval of arrangements for GMPs page 26, para 2.15Withdrawal of approval page 26, para 2.17Preserving the GMP rights within the scheme page 26, para 2.18Transfers page 26, para 2.22Purchase of annuities page 27, para 2.26Commutation of trivial benefits page 28, para 2.31State Scheme Premiums page 28, para 2.32Option regarding the rate of revaluation of earnings factors used in the calculation of GMPs in the five years preceding the year of cessation page 29, para 2.39Re-assurance page 29, para 2.42Certificate of non-approval of arrangements to secure contracted-out rights page 30, para 2.43Direction to discharge liabilities page 30, para 2.44Initial action by Services to Pensions Industry Scheme Cessation Section to identify scheme members page 30, para 2.48Calculation service for COSR schemes page 31, para 2.49How to secure GMP rights - current members page 31, para 2.54Past early leavers, pensioners and widows or widowers page 36, para 2.82Action when a ‘current member only’ list is received page 40, para 2.103Action when the schedules are completed page 40, para 2.104

Chapter 3 Money purchase schemes (including money purchase overseas schemes) which cease to be contracted-out on or before 5 April 1997 page 41

Ceasing to contract-out page 41, para 3.1What happens to protected rights built up in the scheme? page 41, para 3.4Time limits page 42, para 3.10Securing the liabilities page 42, para 3.13Approval of arrangements for protected rights page 43, para 3.16Withdrawal of approval page 43, para 3.18Preserving the protected rights within the scheme page 43, para 3.19Transfers page 43, para 3.22Purchase of annuities page 44, para 3.25Provision of a pension page 45, para 3.29Appropriate policies of insurance page 45, para 3.32Commutation of trivial benefits page 46, para 3.38Communication on the grounds of serious ill health page 46, para 3.39State Scheme Premiums page 46, para 3.40Re-assurance page 48, para 3.50

3

Certificate of non-approval of arrangements to secure protected rights page 48, para 3.51Direction to discharge liabilities page 48, para 3.52Initial action by Services to Pensions Industry Scheme Cessation Section to identify scheme members page 49, para 3.56Calculation service for COMP schemes page 49, para 3.57How to secure protected rights - current members page 50, para 3.62Past early leavers, pensioners and widows or widowers page 56, para 3.90Early leaver page 56, para 3.96Pensioner schedule page 60, para 3.110Widow or widower pensioner schedule page 63, para 3.122Action when a ‘current member only’ list is received page 66, para 3.132Action when the schedules are completed page 66, para 3.133

Chapter 4 Appropriate Personal Pension (APP) schemes (including overseas schemes) which cease to be appropriate on or before 5 April 1997 page 67

Conditions for an APP scheme ceasing to be appropriate page 67, para 4.1What happens to protected rights built up in the scheme page 67, para 4.4Securing the liabilities page 68, para 4.8Restoring a member’s State Earnings Related Pension Scheme (SERPS) rights page 68, para 4.11Preserving the protected rights within the scheme? page 69, para 4.16Transfers page 69, para 4.18Members consent page 69, para 4.20Purchase of annuities page 69, para 4.21Provision of a pension page 70, para 4.24Income withdrawal page 70, para 4.27Initial action by Services to Pensions Industry to identify scheme members page 70, para 4.30Calculation service for APP schemes page 71, para 4.31Completing re-input schedules for current members page 71, para 4.36Protected Rights Premium (PROP) page 71, para 4.38Protected rights retained in the scheme page 72, para 4.40Transfer to an APP scheme on an APPSHP scheme page 72, para 4.41Transfer to a COMP scheme, a COMPSHP scheme or the COMP part of a COMB scheme page 72, para 4.42Transfer to a COSR scheme or the COSR part of a COMB scheme page 73, para 4.43Transfer to an overseas occupational pension scheme, or an overseas arrangement other than one which is or was contracted-out page 73, para 4.44Provision of a pension page 73, para 4.45Change of RPA to an APPSHP scheme page 73, para 4.46Change of RPA to a COMP scheme, a COMPSHP scheme or the COMP part of a COMB scheme page 73, para 4.47Change of RPA to an COSR scheme or the COSR part of a COMB scheme page 74, para 4.48Completing re-input schedules for post early leavers, pensioners and widow or widowers page 74, para 4.49Pensioners, Widow and Widower Pensioners page 77, para 4.64Action when a current member only list is received page 79, para 4.73Action when the schedules are completed page 79, para 4.74

Chapter 5 Salary-related schemes (including salary-related overseas schemes) which cease to be contracted-out on or after 6 April 1997 page 80

Ceasing to contract-out page 80, para 5.1What happens to accrued rights built up in the scheme? page 80, para 5.4Time limits page 81, para 5.10Securing the liabilities page 81, para 5.13Preserving the rights within the scheme page 82, para 5.15Withdrawal of approval page 82, para 5.16Transfers page 82, para 5.17Purchase of annuities page 83, para 5.21Commutation of trivial benefits page 83, para 5.26Restoration of state scheme rights after 6 April 1997 page 84, para 5.27

2

3

Option regarding the rate of revaluation of earnings factors used in the calculation of GMPs in the five years preceding the year of cessation page 84, para 5.29Re-assurance page 84, para 5.32Certificate of non-approval of arrangements to secure contracted-out rights and written direction to discharge liabilities page 84, para 5.33Initial action by Services to Pensions Industry Scheme Cessation Section to identify scheme members page 85, para 5.37Calculation service for COSR schemes page 85, para 5.39How to secure GMP and Post ’97 COSR Rights - current members page 86, para 5.45Past early leavers, pensioners and widows or widowers page 91, para 5.74Action when a ‘current member only’ list is received page 94, para 5.92Action when the schedules are completed page 94, para 5.93

Chapter 6 Money purchase schemes (including money purchase overseas schemes) which cease to be contracted-out on or after 6 April 1997 page 95

Conditions for a scheme ceasing to contract-out page 95, para 6.1What happens to protected rights built up in the scheme? page 95, para 6.4Time limits page 96, para 6.10Securing the liabilities page 96, para 6.13Preserving the rights within the scheme page 97, para 6.16Withdrawal of approval page 97, para 6.18Transfers page 97, para 6.19Purchase of annuities page 98, para 6.23Provision of a pension page 98, para 6.26Appropriate policies of insurance page 99, para 6.29Commutation of trivial benefits page 99, para 6.35Commutation on the grounds of serious ill health page 99, para 6.36Restoration of state scheme rights after 6 April 1997 page 100, para 6.37Re-assurance page 100, para 6.38Certificate of non-approval of arrangements to secure contracted-out rights and written direction to discharge liabilities page 100, para 6.39Initial action by Services to Pensions Industry Scheme Cessation Section to identify scheme members page 100, para 6.43Calculation service for COMP/COMPSHP schemes page 101, para 6.45How to preserve protected rights - current members page 101, para 6.50Past early leavers, pensioners and widows or widowers page 107, para 6.78Early leaver/pensioner page 108, para 6.83Widow or widower pensioner page 112, para 6.96Action when a current member only list is received page 114, para 6.104Action when the schedules are completed page 114, para 6.105

Chapter 7Personal Pension schemes (including overseas schemes) which cease to be appropriate on or after 6 April 1997 page 115Conditions for an APP scheme ceasing to be appropriate page 115, para 7.1What happens to protected rights built up in the scheme? page 115, para 7.4Securing the liabilities page 116, para 7.8Preserving the protected rights within the scheme page 116, para 7.11Transfers page 116, para 7.13Members consent page 117, para 7.15Purchase of annuities page 117, para 7.16Provision of a pension page 117, para 7.19Income Withdrawal page 117, para 7.22Initial action by Services to Pensions Industry to identify scheme members page 117, para 7.25Calculation services for APP schemes page 118, para 7.27Completing re-input schedules for current members page 119, para 7.32Early Leaver page 123, para 7.49Pensioner, widow or widower pensioners page 126, para 7.61Action when a current member only list is received page 129, para 7.70Action when the schedules are completed page 129, para 7.71

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Chapter 8 Deemed Buyback procedures - Contracted-out Salary Related (COSR) schemes page 130

Background page 130, para 8.1Conditions for Deemed Buyback page 130, para 8.5Restoring state scheme rights page 130, para 8.6Initial action by Services to Pensions Industry Scheme Cessation Section to identify scheme members page 132, para 8.18Calculation service for COSR schemes page 132, para 8.19How to preserve GMP and/or Post ’97 COSR Rights - current members page 133, para 8.25Past early leavers, pensioners and widows or widowers page 138, para 8.52

Action when a ‘current member only’ list is received page 141, para 8.71Action when the schedules are completed page 142, para 8.72

Chapter 9 Deemed Buyback procedures - Contracted-out Money Purchase (COMP) schemes page 142

Background page 142, para 9.1Conditions for Deemed Buyback page 142, para 9.5Restoring state scheme rights page 143, para 9.6Initial action by Services to Pensions Industry Scheme Cessation Section to identify scheme members page 144, para 9.18Calculation service for COMP schemes page 144, para 9.19How to preserve pre and post ’97 protected rights - current members page 145, para 9.25Past early leavers, pensioners and widows or widowers page 150, para 9.51Early leaver page 151, para 9.59Pensioner page 154, para 9.71Widow or widower pensioner page 156, para 9.79Action when a ‘current member only’ list is received page 159, para 9.86Action when the schedules are completed page 159, para 9.87

Chapter 10 Contracted-out Mixed Benefit (COMB) schemes which cease to be contracted-out page 160

Ceasing to contract-out page 160, para 10.1 What happens to rights built up in the scheme? page 160, para 10.5Time limits page 161, para 10.9Securing the liabilities page 161, para 10.11Option regarding the rate of revaluation of earnings factors used in the calculation of GMPs in the five years preceding the year of cessation page 161, para 10.13Deemed Buyback page 161, para 10.14Initial action by Services to Pensions Industry Scheme Cessation Section to identify scheme members page 162, para 10.15Calculation service for COSR schemes and COMP schemes page 162, para 10.19 How to secure GMP, Post ’97 COSR Rights and pre and post-97 protected rights - current members page 162, para 10.23Past early leavers, pensioners and widows or widowers page 163, para 10.28Action when a ‘current member only’ list is received page 163, para 10.31Action when the schedules are completed page 163, para 10.32COMB schemes page 163, para 10.33

Chapter 11 Contracted-out Salary Related (COSR) schemes which switch and become Contracted-out Money Purchase (COMP) schemes at 6 April 1997 under Regulation 76A of the Occupational Pension Schemes (Contracting-out) Amendment Regulations 1996 page 164

Background page 164, para 11.1Requirements for the inactive salary-related part page 164, para 11.2

5

Chapter 12 Pension Sharing on Divorce page 165

Background page 165, para 12.1 Safeguard Rights page 165, para 12.5Calculation Service page 166, para 12.12Pension Sharing on Divorce Notification page 166, para 12.15Contracted-out Deduction page 166, para 12.20Statement of GMP Liability page 166, para 12.21Ceasing to contract-out page 167, para 12.22Securing safeguarded rights - salary related schemes page 167, para 12.29Securing safeguarded rights - money purchase schemes page 168, para 12.31

Appendices page 169Appendix 1

Contracted-out Salary Related (COSR) forms page 169Appendix 2

Contracted-out Money Purchase (COMP) forms page 170Appendix 3

Tables - Contracted-out Salary Related (COSR) page 171Appendix 4

Tables - Contracted-out Money Purchase (COMP) page 196Appendix 5

Examples of calculations for Contracted-out Salary Related (COSR) schemes page 213

Appendix 6Examples of calculations for Contracted-out Money Purchase (COMP) schemes page 222

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AbbreviationsAP Additional Pension

APP Appropriate Personal Pension

APPSHP Appropriate Personal Pension Stakeholder Pension

APSS Audit and Pension Schemes Services

ARP Accrued Rights Premium

ARR Age-Related Rebate

ASCN Appropriate Scheme Number

ATV Actual Transfer Value

CEP Contributions Equivalent Premium

COD Contracted-out Deduction

COMB Contracted-out Mixed Benefit

COMP Contracted-out Money Purchase

COMPSHP Contracted-out Money Purchase Stakeholder Pension

COSR Contracted-out Salary Related

DWP Department for Work and Pensions

ECON Employer’s Contracting-out Number

EYS End of Year Summary

ERI Employer Related Investment

FSTV Fully Solvent Transfer Value

GB Great Britain

GMP Guaranteed Minimum Pension

IFA Institute and Faculty of Actuaries

IR Inland Revenue

LEL Lower Earnings Limit

LPI Limited Price Index

LRP Limited Revaluation Premium

MCs Minimum Contributions

MFR Minimum Funding Requirement

MFRTV Minimum Funding Requirement Transfer Value

7

MLI Market Level Indicator

NI National Insurance

NICs National Insurance contributions

NINO National Insurance number

NIRS National Insurance Recording System

NPA Normal Pension Age

OPRA Occupational Pensions Regulatory Authority

PA 1995 Pensions Act 1995

PAYE Pay As You Earn

PCB Pensions Compensation Board

PROP Protected Rights Premium

PRP Pensioners Rights Premium

PSA 1993 Pension Schemes Act 1993

RPA Responsible Paying Authority

RPI Retail Price Index

SPSS (Nottingham) Savings, Pensions, Share Schemes (Nottingham)

S148 Section 148 of the Social Security Administration Act 1992

SCON Scheme Contracted-out Number

SERPS State Earnings Related Pension Scheme

SMP Statutory Maternity Pay

SofS Secretary of State

SPA State Pension age

SHP Stakeholder Pension

TA Technical Amount

TP Transfer Premium

UEL Upper Earnings Limit

UK United Kingdom

9

Glossary of termsAccrued Rights

An employee’s entitlement to benefit from a Contracted-out Salary Related (COSR) scheme or a COSR part of a Contracted-out Mixed Benefit (COMB) scheme, Guaranteed Minimum Pension (GMP) rights and/ or post ’97 COSR rights, Contracted-out Money Purchase (COMP) scheme or a COMP part of a COMB scheme, or protected rights.

Actual Transfer Value (ATV)

The amount of scheme rights available in respect of the member.

Actuary

The actuary appointed for the scheme under section 47(1) of the Pensions Act 1995, or the actuary otherwise authorised by virtue of the Contracting-out Regulations 1996, to provide certification in accordance with section 12A(6) of the Pension Schemes Act 1993.

Additional Pension (AP)

The Additional Pension (AP), is the earnings related part of the State Pension. It is also known as the State Earnings Related Pension scheme (SERPS) or State Second Pension as from 6 April 2002. It is based on earnings on which National Insurance contributions (NICs) have been paid since April 1978. Employees are automatically in SERPS, or State Second Pension from 6 April 2002 unless they contract-out via an occupational scheme or an Appropriate Personal Pension (APP). Anyone who is, or has been, a member of a contracted-out scheme will have their AP reduced accordingly.

Age-related payment

The Inland Revenue National Insurance Contributions Office makes payments into an APP, COMP or COMP part of a COMB scheme from April 1997. These increase with the age of the member and will reflect the different amounts of rebate needed at different ages to generate the same benefits as the additional State Pension, commonly known as SERPS or State Second Pension.

Annuity

A pension bought-out by a pension scheme from an insurance company, for either immediate or deferred payment.

Appropriate Personal Pension (APP) scheme

The technical name for a personal pension which is taken out in place of State Second Pension, previously known as SERPS and receives contributions from the Inland Revenue National Insurance Contributions Office. The Inland Revenue National Insurance Contributions Office will only contribute to one APP at any one time.

Appropriate Personal Pension Stakeholder Pension (APPSHP) scheme

Appropriate Personal Pension scheme which operates on the same basis as an APP scheme but with Stakeholder status.

Buying back

Restoration of state Additional Pension (AP) entitlement.

8

9

Certificate T

A certificate signed by an actuary certifying that the contracted-out liabilities, together with those of a higher priority in the transitional priority order, are 100% funded in accordance with the valuation method specified for the Minimum Funding Requirement (MFR) (or some other method approved by the Commissioners of Inland Revenue).

Contract-out

To leave state Additional Pension (AP) and join a contracted-out occupational pension scheme and enter employment covered by a contracted-out certificate or take out an APP.

Contracted-out earnings

The earnings which fall between the Lower Earnings Limit (LEL) and the Upper Earnings Limit (UEL).

Contracted-out Mixed Benefit (COMB) scheme

An occupational pension scheme which holds both COMP and COSR rights. COSR rights may be GMPs for service before 6 April 1997 or post ’97 COSR rights after that date.

Contracted-out Money Purchase (COMP) scheme

An occupational pension scheme where the employer pays minimum payments which, along with any other contributions from the employer and/or member, provide the member with a pension based on the value of his or her fund at retirement.

Contracted-out Money Purchase Stakeholder (COMPSHP) scheme

A contracted-out Occupational Pension scheme which operates on the same basis as a COMP scheme but with Stakeholder status.

Contracted-out Rebate

Employers who operate contracted-out pension schemes pay National Insurance contributions at a reduced (contracted-out) rate. The difference between the full non contracted-out rate and the reduced rate is known as ‘contracted-out rebate’.

Contracted-out Salary Related (COSR) scheme

A contracted-out occupational pension scheme which provides members with a pension related to their earnings.

Current member

A member in contracted-out employment, at the date the scheme ceased to contract-out, with the employer(s) participating in the scheme.

Early leaver

A member who has left the scheme before the date of scheme cessation and has a Guaranteed Minimum Pension (GMP) and/or post ’97 COSR rights/protected rights preserved under the Scheme Contracted-out Number (SCON).

Former spouse

A person who may acquire accrued pension rights under a pension share.

1110

Fully Solvent Transfer Value (FSTV)

The amount of scheme rights available to the member, had the scheme wound up 100% funded and the compensatable event not occurred.

Guaranteed Minimum Pension (GMP) rights

The minimum scheme benefit entitlement of a member contracted-out on a salary related basis before 6 April 1997. This broadly equates to what their SERPS would have been if they had not been contracted-out.

Insurance company

An insurance company authorised to carry on long term business, as defined by the Insurance Companies Act 1982.

Limited Price Indexation (LPI)

An annual increase in pension benefits, subject to section 109 of the Pension Schemes Act 1993 and section 51 of the Pensions Act 1995.

Lower Earnings Limit (LEL)

The minimum amount set at the beginning of each tax year, which up until the 1998/99 tax year must be earned in a pay period before National Insurance contributions (NICs) became payable, and approximately the standard rate of basic State Pension. Remains the level of earnings for which SERPS/State Second Pension entitlement is calculated despite NICs not being paid between the LEL and the Earnings Threshold.

Minimum Funding Requirement (MFR)

A requirement that the value of the assets of a scheme are not less than the amount of the liabilities of that scheme, as described in section 56 of the Pensions Act 1995.

Minimum Funding Requirement Transfer Value (MFRTV)

The amount of accrued rights available to the member, had the scheme wound up 100% MFR funded.

Minimum Payments

Amounts equal to the employer’s and employee’s contracted-out rebate, which an employer must pay into a scheme which is contracted-out on a money purchase basis for the benefit of each employee who is contracted-out by reference to that scheme.

Normal pension age

Age at which an occupational pension normally becomes payable.

Overseas arrangement

A scheme or arrangement other than an occupational pension scheme, which will provide benefits on termination of employment, or on death or retirement. It is not an APP scheme and is administered wholly or primarily outside the United Kingdom (UK).

Overseas scheme

A scheme established under irrevocable trust, or by such other means as the Secretary of State may approve, and which is administered wholly or primarily outside of the UK, as defined in Regulation 1 of the Occupational Pension Schemes (Contracting-out) Regulations 1996.

11

Pensioner

A member who has reached State Pension age before the scheme ceased to contract-out and who has GMP and/or post ’97 COSR rights/protected rights entitlement under the SCON.

Pensions Act

The Pensions Act 1995.

Pension Schemes Act

The Pension Schemes Act 1993.

Pension Sharing on Divorce

A term used where the courts agree or order that on divorce, pension rights are to be shared.

Post ’97 COSR Rights

A member’s rights derived from being a member of a scheme contracted-out on a salary related basis, on or after 6 April 1997 and any post ’97 COSR rights or post ’97 protected rights which have been transferred to the scheme from a COSR scheme, COMP scheme, COMB scheme or APP scheme, but excluding any rights derived from additional voluntary contributions paid for the member, ie section 9(2B) rights as defined in Regulation 1 of the Occupational Pension Schemes (Contracting-out) Regulations 1996.

Protected Rights

Protected rights are the member’s total rights to money purchase benefits under the scheme, unless the scheme rules make separate provision. If the scheme rules do separately provide, then the following have to be included in the scheme rules as protected rights:

• minimum payments

• age-related payments including any made as a result of a transfer from a COMP scheme, the active COMP part of a COMB scheme or an APP scheme

• incentive payments including any made as a result of a transfer from a COMP scheme or an APP scheme

• protected rights transferred in from another COMP scheme or the COMP part of a COMB scheme or from an APP scheme

• GMP or post ’97 COSR rights transferred in from a COSR scheme or the active COSR part of a COMB scheme.

Public Service Scheme

An Occupational Pension Scheme established under Enactment, Royal Prerogative or Royal Charter, as defined in section 1 of PSA 1993.

Reference scheme

The scheme prescribed in section 12B of the Pension Schemes Act 1993.

Responsible Paying Authority (RPA)

An occupational pension scheme or other body, eg an insurance company, responsible for paying a GMP, post ’97 COSR rights or protected rights.

13

Safeguarded rights

Rights as defined in section 68(A) of the Pension Schemes Act 1993.

Schedule of contributions

A schedule of contributions containing rates of contributions which have been certified by the actuary as being adequate to meet the MFR for the period that it covers, or before the end of the period if the scheme was below the MFR at the valuation.

Scheme administrator

The person or persons resident in the UK having responsibility for the management of the scheme or, in the case of an overseas scheme, the person resident in the UK appointed in accordance with section 590(2)(c) of the Income and Corporation Taxes Act 1988 (ICTA).

Scheme authorities

The Employer, Scheme Administrator, Trustee(s), Actuary or Auditor of a scheme.

Scheme-based contracting-out test

A test against which the contracted-out benefits of a COSR scheme are compared in order to ensure they are broadly equivalent or better than those provided by the reference scheme.

Section 53 schemes

A scheme which was formerly a contracted-out scheme and in respect of which section 53 of the Pension Schemes Act 1993 applies.

Section 148

The rate of revaluation set out in an order made under Section 148 of the Social Security Administration Act 1992.

Stakeholder Pension (SHP) scheme

A Pension Scheme that has been registered as a Stakeholder Pension under “The Stakeholder Pension Schemes Regulations 2000” and complies with the Welfare Reform and Pensions Act 1999.

State Earnings Related Pension Scheme (SERPS)

A term used to describe the AP provision of the State Pension scheme up to 5 April 2002, see ‘Additional Pension’.

State Pension age (SPA)

The minimum prescribed age which a person must be before they can be paid a State Pension.

State Second Pension

A term used to describe the AP provision of the State Pension scheme accrued from 6 April 2002, see ‘Additional Pension’.

State Scheme Premiums

A payment made to the state scheme in certain circumstances, normally to reinstate a member/members’ SERPS entitlement up to 5 April 1997.

12

13

Technical amount (TA)

The amount required to restore state scheme rights to a level they would have been, had the member been contracted-in.

Transfer payment

A payment of GMP, post ’97 COSR rights or protected rights made by a COSR, COMP, COMB or APP scheme to

• another occupational pension scheme, or

• an APP scheme, or

• an overseas arrangement, in the case of a COSR scheme where the transfer takes place on or after 6 April 1997.

Transfer value

Value of the benefit to which a member is entitled on transferring to another occupational or personal pension scheme or overseas arrangement.

Trustee

A person or company appointed to carry out the purposes of a trust in accordance with the provisions of the trust instrument and general principals of trust law, or in relation to a scheme which is not set up or established under a trust, the managers or administrators of the scheme.

Unapproved schemes

Schemes which have not been given, or are not awaiting, approval under section 592(1) of ICTA, unless they are a relevant statutory scheme within the meaning of section 611a of ICTA.

Upper Earnings Limit (UEL)

NICs do not have to be paid by employees on earnings over a certain amount. This maximum amount is set at the beginning of each tax year and is about 7 times the amount of the LEL. There is no UEL for employers.

Widow or widower pensioner

A member who has died and has a qualifying widow or widower, and who has GMP and/or post ’97 COSR rights/protected rights entitlement.

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1 Introduction to this manual and the Inland Revenue National Insurance Contributions OfficeAbout this manual

1.1 This manual

• gives guidance for scheme administrator(s) on the action to be taken when

- a Contracted-out Salary Related (COSR) scheme

- a Contracted-out Money Purchase (COMP) scheme, or

- a Contracted-out Mixed Benefit (COMB) scheme ceases to contract-out

• gives guidance for scheme administrator(s) on the action to be taken when a part of a COMB scheme becomes inactive

• advises the conditions which must be satisfied before a scheme can cease to contract-out

• describes what happens to various types of accrued rights when a scheme ceases to contract-out on or before 5 April 1997 or on or after 6 April 1997

• contains guidance on the procedures that you and Services to Pensions Industry follow upon cessation

• details action on schedules and lists for

- current members

- past early leavers

- pensioners

- widows and widowers of scheme members

• incorporates the changes introduced by the Pensions Act 1995.

1.2 Guidance for scheme administrator(s) on the action to be taken when a Contracted-out Money Purchase Stakeholder (COMPSHP) Pension Scheme ceases to contract out or an Appropriate Personal Pension Stakeholder (APPSHP) Pension Scheme is no longer Appropriate is available in manual CA85 Cessation of Contracted-out Stakeholder Pension Schemes, available on the internet at www.inlandrevenue.gov.uk.

1.3 Guidance for scheme administrators when an Appropriate Personal Pension (APP) Scheme is no longer Appropriate is available in manual CA16 Appropriate Personal Pension Scheme Manual - Procedural Guidance, available on the internet at www.inlandrevenue.gov.uk.

14

15

Statutory provisions

1.4 The statutory procedural provisions for contracting-out are contained in the Pension Schemes Act 1993 and the Pensions Act 1995 and associated Regulations. The appropriate references to the Acts and Regulations are noted in the margins of this guide and the following abbreviations have been used:

C-out Regs 1984 The Occupational Pension Schemes (Contracting-out) Regulations 1984 SI 1984/380

C-out Regs The Occupational Pension Schemes (Contracting-out) Regulations 1996 SI 1996/1172

Dis regs Occupational Pension Schemes (Disclosure of Information) Regulations 1986 SI 1986/1046

Discharge Regs The Occupational Pension Schemes (Discharge of Protected Rights on Winding Up) Regulations 1996 SI 1996/775

Preservation Regs Occupational Pension Schemes (Preservation of Benefit) Regulations 1991 SI 1991/167

PR Regs The Personal and Occupational Pension Schemes (Protected Rights) Regulations 1996 SI 1996/1537

PR Transfer Regs The Protected Rights (Transfer Payment) Regulations 1996 SI 1996/1461

C-out Transfer Regs The Contracting-out (Transfer and Transfer Payment) Regulations 1996 SI 1996/1462

Restoring State Scheme The Occupational Pension Schemes (Contracting-out) (Amount Required for Rights Regs Restoring State Scheme Rights and Miscellaneous Amendment) Regulations 1998 SI 1998/1397

PA 1995 Pensions Act 1995

PSA 1993 Pension Schemes Act 1993

Sharing Regs The Pension Sharing (Safeguarded Rights) Regulations 2000 S.I. 2000/1055

WRP Act 1999 Welfare Reform and Pensions Act 1999

1.5 Northern Ireland has separate but corresponding legislation on pensions, the Pension Schemes (N.I.) Act 1993 and the Pensions (Northern Ireland) Order 1995 and associated Regulations. Any reference to Great Britain (GB) Acts and Regulations also refer to the corresponding Northern Ireland provisions.

Responsibilities and contacts

Inland Revenue - National Insurance Contributions Office

1.6 The National Insurance Contributions Office

• has a Director who is responsible to the Director General of Operations in Inland Revenue

• operates the National Insurance scheme, the second largest source of Government revenue after income tax, by:

17

- ensuring compliance with the law relating to National Insurance

- maintaining over 60 million contributors’ National Insurance records

- providing an information and advisory service to the business community and members of the public

- providing National Insurance information to benefit paying Agencies

- administering the contracting-out and APPSHP arrangements.

Services to Pensions Industry

1.7 Services to Pensions Industry is part of the Inland Revenue National Insurance Contributions Office, and

• deals with the registration, cancellation and other related notifications and procedures concerned with APP optants

• deals with procedures for registration and payment of Age Related Rebates (ARRs) for COMP, COMB and APP schemes

• deals with terminations of contracted-out employment and related matters

• ensures all necessary arrangements are made for individuals if a COSR, COMP, COMB or APP scheme ceases to contract-out

• approves a scheme’s arrangements for COSR, COMP, COMB and APP schemes if they cease to contract-out

• has the power to withdraw/refuse approval of arrangements for COSR, COMP, COMB and APP schemes on behalf of the Commissioners of Inland Revenue

• has the power to issue certificates of non-approval and directions to discharge liabilities for COSR, COMP and COMB schemes on behalf of the Commissioners of Inland Revenue.

Any enquiries about the procedures performed within Services to Pensions Industry should be forwarded to

) Inland Revenue National Insurance Contributions Office Services to Pensions Industry Benton Park View Newcastle upon Tyne NE98 1ZZ

All notifications should be sent to the address quoted on the appropriate form.

16

17

Inland Revenue Savings, Pensions, Share Schemes (Nottingham) [IR SPSS (Nottingham)]

1.8 Inland Revenue Savings, Pensions, Share Schemes (Nottingham) is part of the Inland Revenue, and

• considers elections from employers who wish to contract-out of the additional State Pension, commonly known as the State Earnings Related Pension Scheme (SERPS) or State Second Pension, and issues contracting-out certificates if the election is accepted

• considers applications for APP and APP SHP scheme certificates and issues certificates if applications are accepted

• allocates Employer’s Contracting-out Numbers (ECONs) and Scheme Contracted-out Numbers (SCONs) and Appropriate Scheme Numbers (ASCNs)

• supplies contracted-out employers with

- an information pack when the contracting out certificate is first issued

- National Insurance contribution tables

• deals with procedures for registration and payment of ARRs

• issues revised certificates where elections to vary a contracted-out certificate are made

• has the authority to cancel or vary contracting-out certificates on behalf of the Commissioners for the Inland Revenue

• approves a scheme’s arrangements if they cease to contract-out

• has the power to withdraw/refuse approval of arrangements for schemes on behalf of the Commissioners for the Inland Revenue

• has the power to issue certificates of non-approval and directions to discharge liabilities for COMP SHP schemes on behalf of the Commissioners for the Inland Revenue.

Any enquiries about the procedures performed within IR SPSS (Nottingham) should be forwarded to

) Inland Revenue Savings, Pensions, Share Schemes (Nottingham) Yorke House PO Box 62 Castle Meadow Road Nottingham NG2 1BG

Or you can also visit PSO’s website at www.inlandrevenue.gov.uk/pso

19

Department for Work and Pensions (DWP)

1.9 DWP Headquarters deals with matters of policy relating to contracted-out schemes.

Send all enquiries in writing to

) Department for Work and Pensions Branch OPP1 The Adelphi 1-11 John Adam Street London WC2N 6HT

Occupational Pensions Regulatory Authority (OPRA)

1.10 OPRA

• is an executive non departmental public body accountable to Parliament

• regulates occupational pensions and APPSHP schemes

• has the authority to investigate schemes and take action to uphold the law

• has the responsibility for running the Pensions Schemes Registry

• only has jurisdiction over some parts of overseas occupational pensions schemes

Send any enquiries to

) Occupational Pensions Regulatory Authority Invicta House Trafalgar Place Brighton East Sussex BN1 4BY

Or you can visit Opra’s website at www.stakeholder.opra.gov.uk

Further Information

1.11 If you need any further information about this manual please contact


% 08459 150 150 This manual is available on the internet at www.inlandrevenue.gov.uk

18

19

If you require further information about pensions you can order a copy of the following:

Leaflet Title

PM1 A guide to your pension options

PM2 State pensions - Your guide

PM4 Personal pensions - Your guide

PM5 Pensions for the self-employed - Your guide

PM6 Pensions for women - Your guide

PM7 Contracted-out pensions - Your guide

PM8 Stakeholder pensions - Your guide

PP4 A guide to the Financial Services Act for employers

You can get these free pension guides by contacting

) Pension Guide NAT 5951 Ashby de la Zouch LE55 7QP

% 08457 313 233

A textphone number is available on 0845 604 0210.

Lines are open 24 hours.

You can also see these guides on the website at www.pensionguide.gov.uk

The information and instructions in this manual apply in Northern Ireland and the Isle of Man.

Employers with employees in contracted-out employment in the Isle of Man should contact

) DHSS Social Security Division Contributions Section Markwell House Market Street Douglas Isle of Man IM1 2RZ

% 01624 685 685

Lines are open 9.15am to 5.00pm Monday to Thursday and 9.15am to 4.30pm Friday.

21

Helplines

1.12 The following helplines are available as contact points for general queries:

Inland Revenue National Insurance Contributions Office Helpline

% 08459 150 150

Lines are open 8am to 5pm Monday to Friday.

This helpline can answer questions on contracted-out procedures.

Savings, Pensions, Share Schemes (Nottingham) Helpline

% 0115 974 1777


This helpline can answer your questions on tax rules for all pension arrangements and SHP schemes that contract-out of additional State Pension, commonly known as SERPS or State Second Pension.

Inland Revenue Savings, Pensions, Share Schemes (Nottingham) Stationery Orderline

% 0115 974 1670


You can get a copy of a stakeholder pension scheme application pack, or a copy of the booklet IR76 Guidance notes on approval of personal pension schemes (including Stakeholder Pension schemes) from this telephone number.

Inland Revenue Employer’s Helpline

If you have any questions about providing access to a Stakeholder Pensions scheme you can call

% 08457 143 143

Lines are open 8am to 8pm Monday to Friday, and 8am to 5pm Saturday and Sunday.

A textphone number is available on 0845 602 1380.

Inland Revenue Stakeholder Pensions Helpline

This helpline can answer your questions about the Department for Work and Pensions legal rules

% 08459 150 150


Occupational Pensions Regulatory Authority (OPRA)

% 01273 627 600


This helpline can answer your questions on the regulations on Occupational Pension and Appropriate Personal Pension schemes.

20

21

Financial Services Authority

If you have any questions about the rules for authorising Stakeholder Pension scheme managers, or about marketing or promotion of any Stakeholder scheme, you can contact them on:

% 0207 676 5226


Or you can visit the FSA’s website at: www.fsa.gov.uk

Comments on our Service

We welcome any comments you have on how to improve our service to all customers, including your future requirements and expectations. You can let the Customer Support Team know, by phone or by writing to

) Inland Revenue National Insurance Contributions Office Services to Pensions Industry, Room BP4102 Benton Park View Newcastle upon Tyne NE98 1ZZ

% 08459 150 250

Fax 08459 150 285

We would also like to hear from you if you think you have received a particularly good service. If however you have a complaint we will do our best to settle it quickly and to your satisfaction.

We have a range of services for people with disabilities, including leaflets in Braille, audio and large print. For details, please ask at your nearest Inland Revenue office or Enquiry Centre.

Decision Making and Appeals (DMA)

1.13 Following the implementation of the Social Security Act 1998, from 5 July 1999 Services to Pensions Industry has followed the procedures for Decision Making and Appeals. This means that when a formal decision is issued there is a right of appeal against that decision to an independent Appeal Tribunal. Further information can be found in manual CA14F Technical Guidance on Contracted-Out Decision Making and Appeals, available on the internet at www.inlandrevenue.gov.uk.

Data Protection

1.14 The Inland Revenue is a Data Controller under the Data Protection Act. We hold information for the purposes specified in our notification made to the Data Protection Commissioner, and may use this information for any of them.

We may get information about you from others, or we may give information to them. If we do it will only be as the law permits, to check accuracy of information, prevent or detect crime, protect public funds.

We may check information we receive about you with what is already in our records. This can include information provided by you as well as by others such as other government departments and agencies and overseas tax authorities. We will not give information about you to anyone outside the Inland Revenue unless the law permits us to do so.

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Pensions Compensation Board (PCB)

1.15 PCB:

• is an executive non departmental public body accountable to Parliament

• will administer a scheme that can provide compensation where the value of an occupational pension scheme’s assets have been reduced as a result of dishonesty and the sponsoring employer is insolvent.

1.16 The compensation scheme will be funded by a levy on occupational schemes.

1.17 The PCB will administer the compensation scheme and decide whether compensation can be paid, and how much. Compensation will be limited to the lower of either

• 90 per cent of the loss, or

• the amount needed to restore the scheme to 90 per cent funding.

1.18 Send any enquiries to

) Pensions Compensation Board 5th Floor 11 Belgrave Road London SW1V 1RB

23

Additional information/services

1.19 Additional information about schemes in contracted-out employment can be found in the following manuals available on the Internet at www.inlandrevenue.gov.uk

Manual Title

CA14 Termination of Contracted-out Employment - Manual for Salary Related Pension Schemes and Salary Related Parts of Mixed Benefit Schemes

CA14A Termination of Contracted-out Employment - Manual for Money Purchase Pension Schemes and Money Purchase Parts of Mixed Benefit Schemes

CA14C Contracted-out Guidance for Salary Related Pension Schemes and Salary Related Overseas Schemes

CA14D Contracted-out Guidance for Money Purchase Pension Schemes and Money Purchase Overseas Schemes

CA14E Contacted-out Guidance for Mixed Benefit Pension Schemes and Mixed Benefit Overseas Schemes

CA14F Technical guidance on Contracted-Out Decision Making and Appeals

CA16 Appropriate Personal Pension Scheme Manual - Procedural Guidance

CA16A Appropriate Personal Pension Scheme Manual - Guidance for Scheme Managers

CA17 Employee’s Guide to minimum contributions

CA19 Using the Accrued GMP Liability Service

CA20 Using the Contracted-out Contributions/Earnings Information Service

CA21 Using the National Insurance Number/Date of Birth Checking Service

CA22 Contracted-out Data Transactions using Magnetic Media

CA39 National Insurance Contributions Tables - Contracted-out contributions for employers with Contracted-out Salary Related Schemes

CA43 National Insurance Contributions Tables - Contracted-out Contributions and Minimum Payments for Employer’s with Contracted-out Money Purchase Schemes

CA70 Magnetic Media Transmission of Data to Appropriate Personal Pension, Contracted-out Occupational Schemes

CA84 Stakeholder Pension Scheme Manual - Procedural Guidance

CA85 Cessation of Contracted-out Stakeholder Pension Schemes Manual

CWG2 The Employers Further Guide to Pay As You Earn and National Insurance contributions

IR76 Personal Pension Schemes Guidance Notes including Stakeholder Pension Schemes

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2 Salary-related schemes (including salary-related overseas schemes) which cease to be contracted-out on or before 5 April 1997 Ceasing to contract-out

Contracted-out Salary Related (COSR)

2.1 An occupational pension scheme can cease to contract-out if the scheme:

• is amalgamated with or replaced by another scheme operated by the same employer and the Guaranteed Minimum Pension (GMP) rights are transferred

• is ‘winding up’

• is continuing, but not as a contracted-out scheme

• no longer satisfies the contracting-out requirements required by the Commissioners for the Inland Revenue.

2.2 When the scheme ceases to contract-out you must notify in writing

) Inland Revenue Elections Section Audit and Pension Schemes Services PO Box 62 Yorke House Castle Meadow Road Nottingham NG2 1BG

2.3 Following cancellation or surrender action the Inland Revenue Savings, Pensions, Share Schemes will write to the employer and trustee/insurer and confirm the cessation date. The certificate is no longer valid from the end of the day specified in the acceptance of the surrender or the notice of determination to cancel the certificate. If the certificate is the only or the last one valid by reference to the scheme, then this date is the last day on which there can be contracted-out employment by reference to the scheme, and the liability to pay National Insurance contributions (NICs) at the full not contracted-out rate arises from the following day.

What happens to accrued rights built up in the scheme?

2.4 When a COSR scheme ceases to be contracted-out on or before 5 April 1997, trustees must make arrangements to secure all GMPs and safeguarded rights that have accrued in respect of members or former members of the scheme. See Chapter 10 Pension Sharing on Divorce, for further details regarding safeguarded rights.

2.5 If trustees have not already submitted proposals for securing GMPs to the Inland Revenue National Insurance Contributions Office, then we will write to them asking what, if any, arrangements they propose to put forward. Form CA7992 will be included, giving general guidelines on securing the liabilities, and the options that are available.

2.6 It is not necessary to secure every member’s pension rights by the same method. Trustees must provide members with information about their rights and options and should tell us, once a decision has been taken, what arrangements have been made. If arrangements are not made, cannot be approved, or a certificate of non-approval has been issued, a liability for State Scheme Premiums (SSPs) will arise or a direction to discharge liabilities will be issued, see paragraphs 2.43 to 2.47.

C-out Regs: Reg 16(1)(a)

25

2.7 Once a scheme has ceased to be contracted-out, we will obtain by searching through our computer records:

• lists of possible current members

• GMP/Accrued Rights Premium (ARP) calculations for past early leavers with GMP entitlement. Where calculations are provided for members whose contracted-out rights are subject to a pension share, the amount quoted will not take account of any rights shared on divorce

• GMP/Pensioner Rights Premium (PRP) calculations for pensioners and widow(er) pensioners with GMP entitlement. Where calculations are provided for members whose contracted-out rights are subject to a pension share, the amount quoted will not take account of any rights shared on divorce.

2.8 Schemes that have ceased to contract-out may occasionally be required to forward to the Services to Pensions Industry confirmation that relevant requirements are satisfied.

2.9 Please refer to manual CA14C Contracted-out Guidance for Salary Related Pension Schemes and Salary Related Overseas Schemes, for further details on the contracting-out conditions of schemes. This manual is available on the Inland Revenue website at www.inlandrevenue.gov.uk

Time limits

2.10 From 6 April 1997, the Inland Revenue National Insurance Contributions Office will apply a time limit on all schemes which cease to be contracted-out. Schemes will have a period of 2 years in which the accrued contracted-out rights of individual members must either be

• discharged to an appropriate home, or

• preserved within the scheme.

2.11 The 2 year period will begin when calculations are issued by the Inland Revenue National Insurance Contributions Office to the life office/administrator. If arrangements cannot be submitted for approval within this time limit, a request for an extension must be made in writing, providing full details of the circumstances. An extension to the 2 year time limit can only be granted in very exceptional circumstances.

2.12 If rights are not discharged or approved for preservation within the scheme within this period, the Commissioners of Inland Revenue may issue a certificate of non-approval to the trustees, see paragraph 2.44.

Securing the liabilities

2.13 Please advise us as soon as all the contracted-out rights for every member of the scheme have been secured by either

• preservation within the scheme and our requirements are satisfied, see paragraphs 2.18 to 2.21, or

• discharge to an appropriate home by one of the following methods:

- transfer, see paragraphs 2.22 to 2.25, or

- the purchase of an annuity, see paragraphs 2.26 to 2.30.

2.14 We will then carry out a search of our records as explained in paragraph 2.7. If we are able to confirm that nothing is outstanding approval will be granted automatically by the issue of a letter.


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Approval of arrangements for GMPs

2.15 Until we have approved arrangements in respect of all members who have GMP rights in the scheme, the liability for the payment of SSPs remains. The provisions of section 23(a) - (d) of the Pension Schemes Act 1993 relating to scheme rules are not set out in any order of priority and the obligation to pay SSPs arises irrespective of what is said in those scheme rules. SSPs are therefore payable before any other pension liability. It is important therefore that trustees do not dispose of resources without ensuring that the remaining resources are sufficient to meet both the potential SSP liability and any liability for the refund of incentive payments made by the Department of Social Security (DSS), see paragraph 2.35.

2.16 If the proposed arrangements for securing GMPs or accrued rights to GMPs cannot be approved by the Inland Revenue National Insurance Contributions Office a certificate of non-approval will be issued and liability for the payment of SSPs will arise. However there are some widowers whose GMPs cannot be bought back into the state scheme, see paragraph 2.36.

Withdrawal of approval

2.17 If previously approved arrangements break down on or after 6 April 1997, for example where approval has been given to preserving rights but the scheme subsequently ceases to satisfy our contracting-out requirements, no liability for the payment of SSPs will arise, see paragraph 2.34.

Preserving the GMP rights within the scheme

2.18 Where a scheme ceases to be contracted-out and continues in existence, for example as

• a closed scheme where the scheme does not admit new members, but there may or may not be fresh accruals, or

• an active scheme where the scheme remains open and there are further accruals, or

• a frozen scheme where no further contributions are payable and members are entitled to preserved benefits

and the trustees wish to preserve the accrued rights to GMPs within the scheme, the scheme must continue to meet the contracting-out conditions.

2.19 GMPs should be calculated as at the date the scheme ceased to be contracted-out and be revalued in line with the scheme rules. If the scheme allows for limited rate revaluation, the liability to pay Limited Revaluation Premiums (LRPs) in respect of current earners at scheme cessation date, falls to the trustees and must be paid from the scheme’s resources.

2.20 We will approve the preservation of GMP rights within the scheme as long as the contracting-out conditions continue to be met.

2.21 Approval to preserve GMPs within the scheme will be withdrawn if the scheme does not continue to meet the contracting-out requirements. We will issue a certificate of non-approval to the trustees, including a direction to discharge the liabilities by one of the routes specified in paragraph 2.13 within 6 months, see paragraphs 2.44 to 2.47.

Transfers

2.22 Where the rights are to be transferred, the member is entitled in all cases to at least the cash equivalent of accrued rights. The cash equivalent will be determined from guidance given in Guidance Note GN11, issued jointly by the Institute of Actuaries and the Faculty of Actuaries.

27

2.23 A transfer can be made where the receiving scheme is one of the following:

• a Contracted-out Money Purchase (COMP) scheme

• a Contracted-out Money Purchase Stakeholder (COMPSHP) scheme

• COSR scheme

• an Appropriate Personal Pension (APP) scheme

• an Appropriate Personal Pension Stakeholder (APPSHP) scheme

• an overseas occupational pension scheme not contracted-out as above

• a ‘section 53 scheme’ (limited to cases where a member has applied for the transfer before 6 April 1997)

• a Contracted-out Mixed Benefit (COMB) scheme where the transfer is to either:

- the active salary-related part, or

- the active money purchase part.

2.24 Member’s consent will be required in every case except where the member’s accrued rights are transferred as part of a bulk transfer (for example when an employer is taken over), and certain safeguards are met. Guidance on bulk transfers is given in Guidance Note GN16 issued jointly by the Institute of Actuaries and the Faculty of Actuaries.

2.25 The trustees or insurer of the transferring scheme must notify the Inland Revenue National Insurance Contributions Office within 5 weeks of the date of the transfer or transfer payment of GMPs, whichever is the later date.

Purchase of annuities

2.26 GMPs may be secured in the form of immediate or deferred annuities bought, assigned or transferred to each individual scheme member concerned. Where rights are to be bought-out the member is entitled in all cases to at least the cash equivalent of his accrued rights. The cash equivalent will be determined from guidance given in Guidance Note GN11, issued jointly by the Institute of Actuaries and the Faculty of Actuaries.

2.27 If an individual’s GMP is to be secured by more than one annuity with different insurance companies, both companies involved will be required to fill in form CA7994, confirming the amount of GMP accepted by each.

2.28 A scheme’s liability for a member’s GMP will be extinguished by the purchase of an annuity in the following circumstances:

• the annuity is purchased at the written request of, or with the written consent of, the member or their widow/er in the case of a deceased member, or

• the scheme is winding-up.

2.29 We do not require any confirmation regarding whether the member has consented to a buy-out before an annuity is approved.

2.30 Where we give approval to an annuity arrangement, the life office providing the annuity becomes the Responsible Paying Authority (RPA).

C-out Transfer Regs:

Reg 5

Reg 3

Reg 5

Reg 6

Reg 14(3)

C-out Transfer Regs: Reg 4

Preservation Regs: Reg 12

C-out Regs: Reg 44(4)

PSA 1993:S19

PSA 1993:S96

2928

Commutation of trivial benefits

2.31 Since 6 April 2002 schemes have been able to pay small amounts of GMP as a lump sum before the member attained State Pension age. Commutation is allowed where the total scheme benefits are not more than £260.00 a year and

• a scheme has ceased to contract-out and is winding up and the GMP has been revalued by fixed or limited rate, or

• a member retires before State Pension age and the GMP has been revalued by fixed or limited rate.

Schemes cannot commute a GMP revalued at s148 revaluation until State Pension age.

Where the scheme is winding up the pensioner, widow or widower pensioner reinput schedules should be completed as outlined in paragraph 2.102. For current members and early leavers, please tell us in writing of the commutation cases.

Members may have commuted their GMP rights on the grounds of triviality prior to the scheme ceasing. These members will still be shown on our lists. In these cases, the reinput schedules should be completed as outlined in paragraph 2.102.


2.32 The responsibility for calculating and collecting State Scheme Premiums rests with the Inland Revenue National Insurance Contributions Office.

2.33 There will be instances where the scheme authorities do not wish to submit arrangements. In these circumstances we will certify that there are no arrangements to be approved and liability for the payment of State Scheme Premiums will arise, but see paragraph 2.36. An ARP will be payable in respect of a current earner or past early leaver who has not reached State Pension age at the date of scheme cessation; a Pensioners Rights Premium PRP will be payable in respect of a pensioner or widow(er) pensioner. Payment of State Scheme Premiums buys the member back into State Earnings Related Pension Scheme (SERPS), see paragraph 2.36 for exception. The effect of this is that the member will then get their state Additional Pension for the period concerned.

2.34 A liability for State Scheme Premiums will not arise in cases where arrangements to secure GMPs have been approved, but those arrangements subsequently break down on or after 6 April 1997 and a certificate of non-approval is issued. In these circumstances the Inland Revenue National Insurance Contributions Office will direct the trustees to discharge their liabilities within 6 months, see paragraphs 2.44 to 2.47.

Incentive payments

2.35 If a scheme was first contracted-out between 1 January 1986 and 5 April 1993, it may have qualified for incentive payments paid by the Inland Revenue National Insurance Contributions Office. Although the incentive is only payable on contracted-out earnings between 6 April 1988 and 5 April 1993, schemes had until 5 April 2001 to make any claims for incentive payments. If a scheme ceases to be contracted-out and State Scheme Premiums have been certified by the Inland Revenue National Insurance Contributions Office because of non-receipt of arrangements, any incentive payments received by the scheme must be refunded to the Inland Revenue National Insurance Contributions Office when State Scheme Premiums are paid. Interest will be charged from the date that the incentive was paid to the date that the Inland Revenue National Insurance Contributions Office made the determination that the scheme ceased to be contracted-out. However, if this period is less than a year, no interest will be charged.

29

Members for whom State Scheme Premiums cannot be paid

2.36 If a woman dies and leaves a qualifying widower, and either, or both of them were under pensionable age when the member died, then ARPs or PRPs cannot be paid. This is because SERPS does not provide any benefits for people who fall into these categories. In such circumstances the options available are:

• transfers of GMPs to another contracted-out occupational pension scheme or to an APP/APPSHP, see paragraphs 2.22 to 2.25, or

• the purchase of an annuity, see paragraphs 2.26 to 2.30.

Insufficiency of resources

2.37 State Scheme Premiums rank as a debt on pension schemes and are, therefore, payable before any other pension liability. Scheme trustees must meet expenses and other calls on scheme funds (such as fees for professional advice) before sharing out what is left amongst beneficiaries. The provisions of section 23(a) - (d) of the Pension Schemes Act 1993 relating to scheme rules are not set out in any order of priority and the obligation to pay SSPs arises irrespective of what is said in those scheme rules.

2.38 The Commissioners for the Inland Revenue have, at their discretion, the power to defer collection of this debt, where to collect it would be prejudicial to scheme members’ interests.

Option regarding the rate of revaluation of earnings factors used in the calculation of GMPs in the five years preceding the year of cessation

2.39 When a scheme ceases to be contracted-out on or after 1 October 1989 the trustees are required to revalue the earnings factors for the five tax years prior to the tax year of the scheme cessation by 12%, unless the GMP amount calculated by reference to the Section 148, previously Section 21 order made in the tax year of cessation produces a lower amount, in which case the Section 148 calculation would apply.

2.40 The 12% option does not apply in calculating GMP rights

• of members of fixed or limited rate schemes who left more than 5 tax years before the tax year of cessation, or

• that were received as a result of fixed or limited transfers into the scheme during the five tax years prior to cessation, or

• that are being transferred to another COSR scheme or active salary-related part of a COMB scheme of the same or related employer, or

• that are being transferred to a COMP scheme or the active money purchase part of a COMB scheme, or to an APP scheme, or

• if the scheme uses limited revaluation and the scheme ceased or ceases on or after 1 October 1989 and

- the scheme elects to retain the GMP and to pay a LRP, or

- the GMP is transferred to another COSR scheme and a LRP is paid.

2.41 The Inland Revenue National Insurance Contributions Office will use the most beneficial rate to obtain the calculations provided to schemes ceasing to contract-out on or after 1 October 1989.

Re-assurance

2.42 Schemes that have ceased to be contracted-out and are holding contracted-out liabilities are no longer required to complete Triennial Re-assurance statements. However, on occasions we may seek confirmation that the relevant requirements are satisfied.


C-out Regs 1984 Reg 20(2)(b)(4)

3130

Certificate of non-approval of arrangements to secure contracted-out rights

2.43 We will issue a certificate of non-approval if the contracting-out requirements are not met, or if proposals to secure accrued rights to GMP are not submitted within the time limit allowed. The liability for the payment of SSPs would then arise, but see paragraph 2.36. Certificates of non-approval will not normally be withdrawn. Applications received for the approval of arrangements following the issue of a certificate of non-approval, will only be accepted if the circumstances are exceptional.

Direction to discharge liabilities

2.44 There will be cases where the liability for SSPs will not arise following the issue of a certificate of non-approval, see paragraph 2.34. In these circumstances we will issue a written direction to the trustees, stating that liabilities must be discharged to an appropriate home see paragraph 2.13 within 6 months of the issue of the certificate of non-approval. If liabilities cannot be discharged within this time limit, a request for an extension must be made in writing, providing full details of the circumstances. An extension to the 6 month period can only be granted in very exceptional circumstances.

2.45 Where the Commissioners for the Inland Revenue have issued a direction to discharge contracted-out liabilities, trustees must within the 6 month period allowed for discharge

• notify all active and deferred members with any entitlement to GMPs under the scheme, of the issue of the certificate of non-approval and the reasons for it, and

• allow a period of 3 months from the date of the notification to give the member time to elect to transfer their rights before they are discharged.

2.46 Where trustees have not received any request from the member to transfer their rights, they will be able to buy-out the benefits without the individual’s consent through appropriate policies of insurance and annuity contracts, see paragraphs 2.26 to 2.30.

2.47 If trustees have been directed by the Commissioners for the Inland Revenue to discharge contracted-out liabilities and they fail to comply with the direction, the Commissioners for the Inland Revenue may institute civil proceedings.

Initial action by Services to Pensions Industry Scheme Cessation Section to identify scheme members

2.48 When we confirm the date of cessation of contracting-out following an election to surrender a contracting-out certificate, or when we have cancelled or withdrawn a contracting-out certificate, we will:

Step Action

1 take action to identify: • all possible current members • any early leavers from the scheme • pensioners • members who have died and have a qualifying widow or widower

2 send you: • lists of possible current members or current member calculations (where all earnings information is available from our records) and reinput schedules • calculations for: - early leavers - pensioners - widow or widower pensioners • reinput schedules for: - early leavers - pensioners - widow or widower pensioners

PSA 1993: S50(2)

C-out Regs: Reg 46(1)&(3)


31

Calculation service for COSR schemes

2.49 To assist you in deciding how to secure member’s contracted-out rights (see paragraph 2.13) Services to Pensions Industry have a comprehensive calculation service. This service provides calculations for

• the GMP, see paragraphs 2.39 to 2.41, and

• the ARP/PRP, see paragraph 2.32

based on information from the employee’s P14, End of Year Summary (EYS) and/or information provided by the employer on the notice of termination of contracted-out employment or current member list. If this information is subsequently amended, the GMP figure is adjusted and the scheme is responsible for any increase. Where calculations are provided for members whose contracted-out rights are subject to a Pension Share, the amount quoted will not take account of any rights shared on divorce.

Calculating premiums

2.50 The formula for calculating ARPs/PRPs together with specimen calculations are given in Appendix 5.

Married women and widows paying reduced rate National Insurance contributions

2.51 The Government has repealed the provisions in the Social Security Act 1990 relating to GMPs for married women and widows who retain the right to pay NICs at the reduced rate.

2.52 As a result it is no longer necessary to submit termination notices for members paying reduced rate NICs.

2.53 The scheme cessation routines will no longer identify and list members who have retained the right to pay reduced rate NICs.

How to secure GMP rights - current members

2.54 When the scheme ceases to contract-out, we issue either

• ‘Scheme Cessation Enquiry Service’ lists which show the final and penultimate year contracted-out earnings/contributions held for each employee under the Employer’s Contracting-out Number (ECON).

• the appropriate calculations and reinput schedules for each individual current member if we already have all of the earnings/contributions details, see paragraph 2.64.

2.55 The current member lists give details of all employees recorded as being in contracted-out employment with the employer(s) participating in the scheme. The details include the employee’s

• NINO

• surname and initials

• date of birth

• sex

• tax year of commencement of contracted-out employment

• earnings/contributions, if recorded, for the:

- tax year of scheme cessation

- preceding tax year.

3332

2.56 If the employer has more than one scheme, we cannot identify the particular scheme an individual employee belongs to, this is because the EYSs are recorded under a common ECON. It is therefore important that we receive the scheme administrator(s)’ assistance in identifying the members of a scheme that has ceased to contract-out.

2.57 The earnings details shown on the lists are taken from the P14 EYS sent to the DSS by the employer. P14s must be completed accurately. Any queries may delay our action.

2.58 Notify us if you:

• do not require any calculations

• disagree with any of the calculations. This notification must be accompanied by details of the

- employee(s)’ name and NINO

- earnings/contributions used

- employee(s)’ date of birth.

Completing current members’ lists

What to do

2.59 If we issue ‘Scheme Cessation Enquiry Service’ lists:

Step Action

1 delete any employee who is not a member of the scheme, eg those who were in contracted- out employment but were members of a different scheme operated by the same employer

2 add any member who has joined the scheme in the last two tax years but is not listed. If there are no new members, write ‘No new members’ at the end of the list

3 give details of contracted-out earnings/contributions paid up to and including the tax year the scheme ceased and the previous tax year if these are not included

4 if an employee listed is someone who actually left the scheme before the date of cessation, note the entry accordingly and send any termination notice and any applicable remittance

2.60 If an asterisk appears after an employee’s date of birth this indicates that

• a termination notice offering a Contributions Equivalent Premium (CEP), Transfer Premium (TP) or Limited Revaluation Premium (LRP) has been received prior to cessation, but

• at the date the lists were produced, no premium or only part of the premium has been received. Any outstanding premium must be paid immediately.

2.61 When you have completed the lists return them to us, see paragraph 2.104 for the address, with a covering letter quoting the Scheme Contracted-out Number (SCON).

2.62 If we have all the relevant information to enable GMP/premium calculations to be made, the calculations and reinput schedules will be supplied as in the following paragraphs. However, you must confirm that all current members have been identified.

33

Action when no current members’ lists or calculations are issued by Services to Pensions Industry

2.63 If we do not issue a current member list or calculations as outlined in paragraph 2.54, this is because the search of our computer records has not identified any member recorded as being in contracted-out employment by reference to the scheme. If this:

• is correct, we will ask you to confirm that there are no current members

• is not the case, notify us of

- the employee(s)’ NINO

- the employee(s)’ surname and initials

- the ECON

- the employee(s)’ contracted-out earnings/contributions up to the date of cessation

and we will use this information to calculate the GMP liability, see paragraphs 2.39 to 2.41.

Action when Services to Pensions Industry have obtained all the necessary information

2.64 When we have all the information necessary, we will issue

• GMP/SSP calculations for each member identified

• a reinput schedule form CA1557 for you to record the method of securing the member’s contracted-out rights. This is headed ‘Reinput Schedule - Scheme Cessation Current Members’

2.65 These schedules are used to notify that the GMP rights are to be

• restored to the state scheme by the payment of an SSP following the Inland Revenue National Insurance Contributions Office certification that arrangements to secure the GMP rights cannot be approved, see paragraph 2.68, or

• preserved within the scheme and our requirements are satisfied, see paragraphs 2.70, or

• transferred/change of RPA, see paragraphs 2.71 to 2.80, or

• bought-out by the purchase of an immediate or deferred annuity, see paragraphs 2.81.

Completing reinput schedules for current members

2.66 “When you have decided how to secure the members’ rights or we have certified that a liability for State Scheme Premiums has arisen, please fill in and return the re-input schedule(s) form CA1560, current member schedule.

2.67 Ensure that an entry is made in the appropriate box for each member listed on the schedule.

3534

When there is a liability to pay an ARP

What to do

2.68 If a liability to pay an ARP has arisen:

Step Action

1 enter ‘1’ in column 2

2.69 A premium demand requesting the ARP due will be issued in a schedule format.

GMP is to be retained

What to do

2.70 If the GMP is to be retained:

Step Action


Transfer to a COSR scheme or the active COSR part of a COMB scheme

What to do

2.71 If a transfer is being made to an employer in the same group of companies and the ECON is unchanged, do not complete the reinput schedules. However, please let Services to Pensions Industry know that this is the chosen method of preservation.

2.72 If the method of discharging members’ rights is to transfer them to a COSR scheme or the active COSR part of a COMB scheme:

Step Action


2 enter the ECON of the new contracted-out employment in column 8

3 enter the SCON of the new contracted-out employment in column 8

4 enter the date of commencement with the new scheme in column 9

5 enter the code for the onward rate of revaluation in column 10: • ‘1’ for Section 148 (previously Section 21) • ‘2’ for limited rate • ‘3’ for fixed rate

Transfer to a COMP scheme, a COMPSHP scheme or the active COMP part of a COMB scheme

What to do

2.73 If a transfer is being made to an employer in the same group of companies and the ECON is unchanged, do not fill in the reinput schedules.

35

2.74 If the method of discharging members’ rights is to transfer them to a COMP scheme, a COMPSHP scheme or the active COMP part of a COMB scheme:

Step Action





Transfer to an APP or an APPSHP scheme

What to do

2.75 If the method of discharging of member’s rights is to transfer them to an APP scheme or an APPSHP scheme:

Step Action


2 enter the Appropriate Scheme Number (ASCN) in column 8

2.76 Do not enter the date of commencement with the new scheme or the onward rate of revaluation.

Transfer to an overseas occupational pension scheme other than one which is or was contracted-out

What to do

2.77 If an employee’s GMP rights are transferred to an overseas scheme, delete the member from the reinput schedule and fill in form CA1890, see manual CA14 Termination of Contracted-out Employment - Manual for Salary Related Pension Schemes and Salary Related Parts of Mixed Benefit Schemes, available on the internet at www.inlandrevenue.gov.uk.

Change of RPA to a COSR scheme or the active COSR part of a COMB scheme

What to do

2.78 If the method of discharging members’ rights is a change of RPA to a COSR scheme or the active COSR part of a COMB scheme:

Step Action



3736

Change of RPA to a COMP scheme, a COMPSHP scheme or the active COMP part of a COMB scheme

What to do

2.79 If the method of discharging members’ rights is a change of RPA to a COMP scheme, a COMPSHP scheme or the active COMP part of a COMB scheme:

Step Action



Change of RPA to an APP scheme or an APPSHP scheme

What to do

2.80 If the method of discharging members’ rights is a change of RPA to an APP scheme or an APPSHP scheme:

Step Action


2 enter the ASCN of the new contracted-out employment in column 8

Purchase of an annuity - Buy-out of the GMP

What to do

2.81 If the method of discharging members’ rights is to purchase an insurance policy or annuity contract:

Step Action


2 enter the buyout SCON in column 8

Past early leavers, pensioners and widows or widowers

2.82 We provide lists headed ‘Scheme Cessation GMP/Premium Enquiry Service’ and make GMP and SSP calculations for

• members who have left the scheme and have a GMP preserved under the SCON

• members who reached State Pension age (SPA) before the scheme ceased

• widow or widower pensioners. In the case of a deceased member, the widow or widower pensioner may not have been identified. If this is the case, advise us immediately so that the appropriate calculations can be sent.

2.83 There may be pensioners on our lists who have earned increments since 6 April 1988 and are not recorded on the schedules. In these cases fill in form CA1597 to obtain revised calculations.

2.84 The calculations are based on information from the employee’s P14 EYS and/or information provided by the employer on the notice of termination of contracted-out employment. If this information is subsequently amended, the GMP figure is adjusted and the scheme is responsible for any increase.

37

Calculation schedule indicators

2.85 The calculation schedules may show an indicator ‘1’, ‘2’ or ‘3’, in the extreme right-hand column for each member. These indicators mean:

Indicator Meaning

1 a LRP was paid when the member left the scheme and this has been taken into account when assessing the ARP/PRP

2 the GMP figure is aggregated because there has been one or more fixed or limited rate transfers in the period of contracted-out employment

3 a LRP was paid when the member left the scheme and this has been taken into account when assessing the ARP/PRP and the GMP figure is aggregated because there has been one or more fixed or limited rate transfers in the period of contracted-out employment

Additional instructions for Limited Rate schemes

2.86 In the case of Limited Rate schemes which ceased to contract-out after 1 October 1989, the 12% revaluation option does not apply if either

• the scheme elects to retain the GMP and pay a LRP, or

• the GMP is to be transferred to another COSR scheme and a LRP is to be paid.

2.87 If you disagree with any of the calculations, please send details of the:

• employee(s) name and NINO(s)

• earnings/contributions you have used

• date(s) of birth of the person(s) concerned.

Note: The GMP figure for early leavers is that calculated at the date of leaving, revalued to the date of scheme cessation at the scheme’s chosen revaluation rate.

Completing reinput schedules for past early leavers, pensioners and widows or widowers

2.88 When you have decided how to secure the members’ contracted-out rights, or we have certified that a liability for State Scheme Premiums has arisen, please fill in and return the re-input schedules.

2.89 The appropriate schedules are:

Schedule Forms

Early leaver CA1563

Pensioners CA1565

Widow pensioners CA1567

Widower Pensioners CA1569

2.90 Ensure that an entry is made in the appropriate box for each person on the schedule except those deleted from the list.

3938

When there is a liability to pay an ARP or PRP

What to do

2.91 If a liability to pay an ARP or PRP has arisen:

Step Action


2.92 A premium demand requesting the ARP/PRP due will be issued in a schedule format.

GMP to be retained

What to do

2.93 If a GMP is to be retained enter:

Step Action


Purchase of an annuity - Buy-out of the GMP

What to do


Step Action


2 enter the Buy-out SCON in column 3

Transfer to an overseas occupational pension scheme other than one which is or was contracted-out

What to do

2.95 If an employee’s GMP rights are transferred to an overseas scheme, delete the member from the reinput schedule and fill in form CA1890, see manual CA14, Termination of Contracted-out Employment - Manual for Salary Related Pension Schemes and Salary Related Parts of Mixed Benefit Schemes, available on the internet at www.inlandrevenue.gov.uk.


What to do


Step Action



39

2.97 There is no provision on the reinput schedule to record a transfer to a COSR scheme or the active COSR part of a COMB scheme. In these cases fill in form CA1617, CA1599 or CA1600 and delete the member from the schedule.


What to do


Step Action



2.99 There is no provision on the reinput schedule to record a transfer to a COMP scheme, a COMPSHP scheme, a COMP scheme or the active COMP part of a COMB scheme. In these cases fill in form CA1601 and delete the member from the schedule.


What to do


Step Action



2.101 There is no provision on the reinput schedule to record a transfer to an APPSHP scheme. In these cases fill in form CA1602 and delete the member from the schedule.

Commutation

What to do

2.102 If any of the members shown on the pensioner, widow or widower pensioner schedules have commuted their GMP rights prior to the scheme ceasing:

Step Action


4140

Action when a ‘current member only’ list is received

2.103 If we do not issue early leaver, pensioner or widow or widower pensioner schedules, there are none of these recorded as entitled to a GMP under the scheme. If this is not the case, please notify us of the employee(s)’:

• NINO


• period of contracted-out employment and ECON

• earnings/contributions details, and

• supply a copy of the original termination notice if available.

Action when the schedules are completed

2.104 When you have completed all the relevant schedules return them to

) Inland Revenue National Insurance Contributions Office Services to Pensions Industry Scheme Cessation Section (appropriate section number) Benton Park View Newcastle upon Tyne NE98 1ZZ

2.105 Approval of arrangements will be granted automatically by the issue of a letter providing that we can confirm that all of the information is correct.

41

3 Money purchase schemes (including money purchase overseas schemes) which cease to be contracted-out on or before 5 April 1997Ceasing to contract-out

Contracted-out Money Purchase (COMP)

3.1 An occupational pension scheme can cease to contract-out if the scheme

• is amalgamated with or replaced by another scheme operated by the same employer and the protected rights are transferred


• is continuing but not as a contracted-out scheme



) Inland Revenue Elections Section Audit and Pension Schemes Services PO Box 62 Yorke House Castle Meadow Road Nottingham NG2 1BG

3.3 Following cancellation or surrender action, the Inland Revenue Savings, Pensions, Share Schemes will write to the employer and trustee/insurer and confirm the cessation date. The certificate is no longer valid from the end of the day specified in the acceptance of the surrender or the notice of determination to cancel the certificate. If the certificate is the only or the last one valid by reference to the scheme, then this date is the last day on which there can be contracted-out employment by reference to the scheme, and the liability to pay National Insurance contributions (NICs) at the full not contracted-out rate arises from the following day.

What happens to protected rights built up in the scheme?

3.4 When a COMP scheme ceases to be contracted-out on or before 5 April 1997, trustees must make arrangements to secure all protected rights and safeguarded rights that have accrued in respect of members and former members of the scheme. See Chapter 10, Pension Sharing on Divorce for further details regarding safeguarded rights.

3.5 If trustees have not already submitted proposals for securing protected rights to the Inland Revenue National Insurance Contributions Office then we will write to them asking what, if any, arrangements they propose to put forward. Form CA7991 will be included, giving general guidelines on securing the liabilities, and the options that are available.

3.6 It is not necessary to secure every member’s pension rights by the same method. Trustees must provide members with information about their rights and options and should tell us, once a decision has been taken, what arrangements have been made. If arrangements are not made, cannot be approved or a certificate of non-approval has been issued, a liability for State Scheme Premiums will arise or a direction to discharge liabilities will be issued, see paragraphs 3.52 to 3.55.

DIS Regs: Reg 6(4d)

4342

3.7 Once a scheme has ceased to be contracted-out, we will obtain details by searching through our computer records to provide the following information:


• Contracted-out Deduction (COD)/Protected Rights Premium (PROP) calculations for past early leavers with protected rights entitlement. Where calculations are provided for members whose contracted-out rights are subject to a pension share, the amount quoted will not take account of any rights shared on divorce.

• COD/PROP calculations for pensioners and widow(er) pensioners with protected rights entitlement, where calculations are provided for members whose contracted-out rights are subject to a pension share, the amount quoted will not take account of any rights shared on divorce.

3.8 The Commissioners for the Inland Revenue must be satisfied that a scheme’s contracted-out liabilities are 100% funded.

3.9 Please refer to manual CA14D, Contracted-out Guidance for Money Purchase Pension Schemes and Money Purchase Overseas Schemes for further details on the contracting-out conditions of schemes. This manual is available on the Inland Revenue website at www.inlandrevenue.gov.uk

Time limits

3.10 From 6 April 1997, the Inland Revenue National Insurance Contributions Office will apply a time limit on all schemes which cease to be contracted-out. Schemes will have a period of 2 years in which the accrued contracted-out rights of individual members must either be



3.11 The 2 year period will begin when calculations are issued by the Inland Revenue National Insurance Contributions Office to the life office/administrator. If arrangements cannot be submitted for approval within this time limit, a request for an extension must be made in writing, providing full details of the circumstances. An extension to the 2 year time limit can only be granted in very exceptional circumstances.

3.12 If the rights are not discharged or approved for preservation in the scheme within this period, the Commissioners of Inland Revenue may issue a certificate of non-approval to the trustees, see paragraph 3.51.


3.13 The trustees or insurer of a scheme must notify the Inland Revenue National Insurance Contributions Office within 5 weeks of effect being given to protected rights.

3.14 Please advise us as soon as all contracted-out rights for every member of the scheme have been secured by either




C-out Regs: Reg 16(1)(b)

PSA 1993: S52(2)

43

- the purchase of an annuity, see paragraphs 3.25 to 3.28, or

- a pension has been provided by the scheme, see paragraphs 3.29 to 3.31

- the purchase of an appropriate policy of insurance, see paragraphs 3.32 to 3.37.

3.15 We will carry out a search of our records as explained in paragraph 3.7. If we are able to confirm that nothing is outstanding, approval will be granted automatically by the issue of a letter.

Approval of arrangements for protected rights

3.16 Until we have approved arrangements in respect of all members who have protected rights in the scheme, the liability for the payment of State Scheme Premiums remains. The provisions of section 23(a)-(d) of the Pension Schemes Act 1993 relating to scheme rules are not set out in any order of priority and the obligation to pay State Scheme Premiums arises irrespective of what is said in those scheme rules. State Scheme Premiums are therefore payable before any other pension liability. It is important therefore, that trustees do not dispose of any resources without ensuring that the remaining resources are sufficient to meet the potential State Scheme Premium liability.

3.17 If the proposed arrangements for securing protected rights cannot be approved by the Inland Revenue National Insurance Contributions Office, a certificate of non-approval will be issued and liability for the payment of State Scheme Premiums will arise. However there are some widowers whose protected rights cannot be bought back into the state scheme, see paragraph 3.44.


3.18 If previously approved arrangements break down on or after 6 April 1997, for example where approval has been given to preserving rights but the scheme subsequently ceases to satisfy our contracting-out requirements, no liability for the payment of State Scheme Premiums will arise, see paragraph 3.43.

Preserving the protected rights within the scheme




• a frozen scheme where no further contributions are payable and members are entitled to preserved benefits, and

• the trustees wish to preserve the protected rights within the scheme, the scheme must continue to satisfy the contracting-out conditions.

3.20 We will approve the preservation of protected rights within the scheme as long as the conditions continue to be met.

3.21 Approval to preserve protected rights within the scheme will be withdrawn if the scheme does not continue to meet our contracting-out requirements. We will issue a certificate of non-approval to the trustees and administrator of the scheme, including a direction to discharge the liabilities by one of the routes specified in paragraph 3.14 within 6 months, see paragraph 3.52 to 3.55.

Transfers

3.22 Where the rights are to be transferred, the member is entitled to at least the cash equivalent of accrued rights that have not been surrendered, commuted or forfeited. The cash equivalent will be determined from guidance given in Guidance Note GN11, issued jointly by the Institute of Actuaries and the Faculty of Actuaries.

DIS Regs: Reg 6(4d)

4544


• a Contracted-out Money Purchase Stakeholder (COMPSHP) scheme

• a Contracted-out Money Purchase (COMP) scheme

• a Contracted-out Salary-Related (COSR) scheme

• an Appropriate Personal Pension (APP) scheme

• an Appropriate Personal Pension Stakeholder (APPSHP) scheme


• an overseas arrangement (for transfers effected after 6 April 2002)

• a “section 53 scheme” (not applicable where the member has applied for the transfer after 6 April 1997 or before 6 April 2002)

• a Contracted-out Mixed Benefit (COMB) scheme, where the transfer is to either

- the salary-related part, or

- the active money purchase part.

Note: Where a transfer to the money purchase part of a COMB scheme is made before 6 April 2002 that part of the COMB scheme must be active.

3.24 Member’s consent will be required in every case. Guidance on bulk transfers is given in Guidance Note GN16 issued jointly by the Institute of Actuaries and the Faculty of Actuaries.


3.25 An annuity must not commence earlier than the date on which the scheme member reaches age 60, and not later than that on which he/she reaches age 65 (unless he/she has agreed to a later date, in which case it must have commenced by the date on which the member reaches age 75). A single life annuity can be purchased with both pre and post protected rights where the member is unmarried at the time the annuity is purchased.

3.26 Where a member dies before effect has been given to their protected rights, an annuity may be purchased for a qualifying widow or widower or a beneficiary nominated by the member before their death. In these circumstances the annuity should be provided as soon as practicable.

Note: Where the date of death occurred before 6 April 2002 the widow or widower must be a qualifying widow or widower.

3.27 If the insuring life office is to provide the annuity, they must submit form CA7993 to the Inland Revenue National Insurance Contributions Office. Form CA7993 will also be required from every life office where annuities have been purchased. Where an annuity has been purchased from a life office other than the insuring life office, the scheme trustee/insurer may themselves wish to arrange for the completion of forms CA7993 from each of the life offices concerned. If they do not intend to co-ordinate the completion of these forms they must send us details of the life office(s) concerned, quoting a policy number and/or point of contact, and the names and National Insurance Numbers (NINOs) of members involved with each office. This will enable us to pursue completion of the necessary CA7993 in each case.


PR Transfer Regs

Reg 5

Reg 7(3)

PSA Regs: S29(3)(a)

PR Regs: Reg 12(3)(b)

45

Provision of a pension

3.29 Effect may be given to a member’s protected rights by the provision of a pension from the scheme. The pension must not commence earlier than the date on which the member reaches age 60, and not later than the date on which he/she reaches age 65 (unless he/she has agreed to a later date, in which case it must have commenced by the time the member reaches age 75).

3.30 Where a member dies before effect has been given to their protected rights, a pension may be provided for a widow or widower or a beneficiary nominated by the member before their death. In these circumstances the pension should be provided as soon as practicable.

Note: Where the date of death occurred before 6 April 2002 the widow or widower must be a qualifying widow or widower

3.31 The provision of a pension from the scheme is only available if the scheme has not commenced winding up.

Appropriate policies of insurance

3.32 These are insurance policies in the name of individual members. The conditions attached to the policies mean that the member’s protected rights will continue to be treated as such.

Insurance policies

3.33 When a COMP scheme winds up, trustees can discharge the protected rights of the members into appropriate policies of insurance:

• existing insurance policies can be retained, provided they meet the requirements for appropriate policies. If necessary the insurance policy should be endorsed in respect of the individual member

• trustees are not tied to their existing insurance company. They can approach a new insurance company if they wish to take out appropriate policies. However costs are likely to be higher.

Charges

3.34 Where a scheme uses its existing insurance company to provide the appropriate policies of insurance for its members, the only charges the insurance company can levy are for administrative costs. Commission cannot be charged in these cases.

Member’s consent

3.35 The trustees must write to members to tell them of the intention to wind up by means of appropriate policies of insurance. Each member must be given full details of the proposals, and the notification must be sent to the member’s last known address. If the member wishes he/she can opt out of these arrangements. He/she has three months to make alternative arrangements to transfer his/her protected rights into another scheme and to notify the details to the trustees.

3.36 At the end of the three month period the trustees can discharge into insurance policies the protected rights of any remaining scheme members who have not responded. (Any case where the transfer to another scheme is still going through is exempted from this procedure.)

Trustees

3.37 From 6 April 1997, where the trustees cannot be contacted or where they are unable or unwilling to act, the Occupational Pensions Regulatory Authority (OPRA) have the power to appoint a suitable person to act to wind the scheme up.

PSA Regs: S29(1)(a)

PR Regs: Reg 12(3)(a)

Discharge Regs: Reg 6(1)(a)

Discharge Regs: Reg 2

4746


3.38 Commutation is not an option at scheme cessation, however, the member may have commuted their protected rights on the ground of triviality prior to the scheme ceasing. These members will still be shown on our lists. In these cases the reinput schedules should be completed as outlined at paragraphs 3.108, 3.120 and 3.130.

Commutation on the grounds of serious ill health

3.39 commutation is not an option at scheme cessation, however, the member may have commuted their protected rights on the grounds of serious ill health prior to the scheme ceasing. These members will still be shown on our lists. In these cases the re-input schedules should be completed as outlined at paragraphs 3.109, 3.121 and 3.131.


3.40 The responsibility for calculating and collecting State Scheme Premiums rests with the Inland Revenue National Insurance Contributions Office.

3.41 The trustees of the scheme are liable for the payment of PROPs out of the scheme’s assets, unless the scheme has been wound-up and a member’s protected rights have been commuted on the grounds of triviality or serious ill health. Paragraphs 3.45 to 3.48 give details of how payment of a PROP can restore the member back into the State Earnings Related Pension Scheme (SERPS), see paragraph 3.44 for exception.

3.42 There will be instances where the scheme authorities do not wish to submit arrangements. In these circumstances we will certify that there are no arrangements approved and liability for the payment of State Scheme Premiums will arise, but see paragraph 3.43. A PROP will be payable in respect of each member.

3.43 A liability for State Scheme Premiums will not arise in cases where arrangements to secure protected rights have been approved, but those arrangements subsequently break down on or after 6 April 1997 and a certificate of non-approval is issued. In these circumstances the Inland Revenue National Insurance Contributions Office will direct the trustees to discharge their liabilities within 6 months, see paragraphs 3.52 to 3.55.

Members for whom SSPs cannot be paid

3.44 If a member dies and does not leave a spouse or, if a woman dies before 6 April 2001 and leaves a widower and either one or both of them were under pensionable age at the member’s date of death, then a PROP cannot be paid. This is because SERPS does not provide any benefits for people who fall into these categories. The pension scheme will have to consider a different way of discharging the protected rights liability. The options available are

• the purchase of an annuity, see paragraphs 3.25 to 3.28, or

• the provision of a pension, see paragraphs 3.29 to 3.31, or

• the payment of a lump sum.

C-out Regs: Reg 77

C-out Regs 1984: Reg 18(2A)

47

Calculation of a PROP

3.45 The amount of the PROP payable is the cash equivalent of the protected rights in respect of any member. The trustees/insurer of the scheme may need to approve the calculation in particular circumstances. Where the protected rights are fully or partially valued by estimates of the value of benefits, they must be calculated in a manner that is approved by an actuary. The methods and assumptions adopted may be decided by the trustees/insurer, or advised by the actuary. In those circumstances, the actuary must certify that they are consistent with the requirements of the Pension Schemes Act 1993 and with ‘Retirement Benefit Schemes - Transfer Values GN11’ published by the Institute of Actuaries and the Faculty of Actuaries, and current at the date of the calculation.

3.46 Although the premium amount calculated by the Inland Revenue National Insurance Contributions Office will represent the cost of restoring the member back into SERPS, the actual amount that should be paid over to the Inland Revenue National Insurance Contributions Office is the total cash value of the protected rights held in that member’s fund. This can be more or less than the premium requested. The PROP could exceed the amount needed to fully restore SERPS, or may only meet a proportion of the amount needed to restore SERPS. In either case the trustees may wish to decide on another method of securing the protected rights liability.

3.47 Where the PROP would only meet a proportion of the amount needed to fully restore SERPS, the member can make up the difference by

• using any other rights accrued under the scheme (the cash equivalent should be calculated and verified as outlined above), or

• making an additional payment to supplement the premium, in which case they must give notice in writing to the Inland Revenue National Insurance Contributions Office and the payment must be paid either within 6 months of the termination of the relevant contracted-out employment or within 1 month of the Inland Revenue National Insurance Contributions Office sending notice certifying that the premium is payable, whichever is the later.

3.48 Where the resources of a scheme are insufficient to meet the full value of the PROP, we can in certain circumstances deem the amount to have been paid to the National Insurance (NI) fund. This may, or may not, restore a person’s full SERPS entitlement, depending on the value of the PROP. The circumstances are

• the scheme is being or has been wound-up, and

- its assets are insufficient to meet the cost of the PROP, because of

- fraud

- theft, or

- negligence, and

- the Inland Revenue National Insurance Contributions Office are satisfied that no arrangements have been made to meet the cost either fully or partially, or

• the scheme has been wound-up,and

- a cash sum in lieu of the protected rights has been paid to or for the benefit of the scheme member.

3.49 The payment of a PROP extinguishes the member’s, or pensioner’s rights to any benefits under the scheme covered by that part of the cash equivalent related to the protected rights. The COD that would be taken away from the member or any widow or widower’s SERPS entitlement will be eliminated or reduced by the appropriate percentage. Where there are insufficient funds to fully restore the member into SERPS it will be reduced by the relevant proportion of the shortfall.

C-out Regs 1984: Reg 23A(6)-(8)

PSA 1993: S60(3)

C-out Regs 1984: Reg 18(5)

4948

Re-assurance

3.50 Schemes that have ceased to contract-out and are holding contracted-out liabilities are no longer required to complete Triennial Re-assurance statements. However, on occasions we may seek confirmation that the relevant conditions are satisfied.

Certificate of non-approval of arrangements to secure protected rights

3.51 We will issue a certificate of non-approval if our contracting-out requirements are not met, or if proposals to secure accrued protected rights are not submitted within the time limit allowed. The liability for the payment of State Scheme Premiums would then arise, but see paragraph 3.43. Certificates of non-approval will not normally be withdrawn. Applications received for the approval of arrangements following the issue of a certificate of non-approval, will only be accepted if the circumstances are exceptional.

Direction to discharge liabilities

3.52 There will be cases where the liability for State Scheme Premiums will not arise following the issue of a certificate of non-approval, see paragraph 3.43. In these circumstances we will issue a written direction to the trustees, stating that liabilities must be discharged to an appropriate home within 6 months of the issue of the certificate of non-approval. If liabilities cannot be discharged within this time limit, a request for an extension must be made in writing providing full details of the circumstances. An extension to the 6 month period can only be granted in very exceptional circumstances.

3.53 Where the Commissioners for the Inland Revenue have issued a direction to discharge contracted-out liabilities, trustees must within the 6 month period allowed for discharge:

• notify all active and deferred members with any entitlement to protected rights under the scheme, of the issue of the certificate of non-approval and the reasons for it, and


3.54 Where trustees have not received any request from the member to transfer their rights, they will be able to buy-out the protected rights without the individual’s consent through appropriate policies of insurance, see paragraph 3.32 to 3.37.


C-out Regs: Reg 16(1)(b)

PSA 1993: S50(2)

C-out Regs:Reg 46(1)&(3)

C-out Regs:Reg 46(4)

C-out Regs:Reg 43(3)

49



Step Action


2 send you: • lists of possible current members or current member calculations (where all earnings information is available from our records) and reinput schedules • calculations on request for: - early leavers - pensioners - widow or widower pensioners • reinput schedules for: - early leavers - pensioners - widow or widower pensioners

Calculation service for COMP schemes

3.57 To assist you in deciding how to secure members’ rights, we have a comprehensive calculation service. This service provides calculations using Section 148 (previously Section 21) orders for

• the COD

• the PROP

based on information from the employee’s P14 End of Year Summary (EYS) and/or information provided by the employer on the notice of termination of contracted-out employment.

Calculating premiums

3.58 The formula for calculating PROPs, together with specimen calculations are given in Appendix 6.

Married women and widows paying reduced rate NICs

3.59 The Government has repealed the provisions in the Social Security Act 1990 relating to protected rights for married women and widows who retain the right to pay NICs at the reduced rate.



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How to secure protected rights - current members


• ‘Scheme Cessation Enquiry Service’ lists which show the final and penultimate year contracted-out earnings/contributions held for each employee under the Employer’s Contracting-out Number (ECON). In some cases, the most recent earnings/ contributions may not yet have been recorded, in which case we require you to enter this information, see paragraph 3.67, or

• the appropriate calculations and reinput schedules for each individual current member if we already have all of the earnings/contributions details, see paragraph 3.71.


• NINO


• date of birth

• sex


• earnings/contributions, if recorded, for the

- tax year of scheme cessation (up to date of scheme cessation)

- preceding tax year.

3.64 If the employer has more than one scheme, we cannot identify the particular scheme an individual employee belongs to, this is because the EYSs are recorded under a common ECON. It is therefore important that we receive the scheme administrator(s) assistance in identifying the members of a scheme that has ceased to contract-out.

3.65 The earnings details shown on the lists are taken from theP14 EYS sent to the Inland Revenue National Insurance Contributions Office by the employer. P14s must be completed accurately. Any queries may delay our action.

3.66 Notify us if you



- employee(s) name and NINO


- employee(s) date of birth.

51


What to do


Step Action



3 give details of contracted-out earnings/contributions paid up to and including the tax year the scheme ceased and the previous tax year if these are not included

4 and, if an employee listed is someone who actually left the scheme before the date of cessation, note the entry accordingly and send any termination notice

3.68 When you have completed the lists, return them to us, see paragraph 3.133 for the address, with a covering letter quoting the Scheme Contracted-out Number (SCON).

3.69 If we have all the relevant information to enable premium calculations to be made, the calculations and reinput schedule will be supplied as in the following paragraphs. However, you must confirm that all current members have been identified.


3.70 If we do not issue a current members’ list or calculations as in para 3.62, this is because the search of our computer records has not identified any member recorded as being in contracted-out employment by reference to the scheme. If this:

• is correct, we will ask you to confirm there are no current members


- the employee(s) NINO

- the employee(s) surname and initials

- the ECON

- the employee(s) contracted-out earnings/contributions up to the date of cessation.

This information is used by the Inland Revenue National Insurance Contributions Office to calculate the protected rights liability, see paragraph 3.57.



• COD and PROP calculations for each member identified

• a reinput schedule form CA1560 for you to record the method of securing the member’s protected rights. This is headed ‘Reinput Schedule - Scheme Cessation Current Members’.

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3.72 These schedules are used to notify that the protected rights are to be

• restored to the state scheme by payment of a State Scheme Premium, see paragraph 3.40 to 3.44, or

• preserved within the scheme and our requirements are satisfied, see paragraphs 3.19 to 3.21, or

• transferred, see paragraphs 3.22 to 3.24, or

• bought-out by the purchase of an annuity, see paragraphs 3.25 to 3.28, or

• used to provide a pension by the scheme, see paragraphs 3.29 to 3.31, or

• discharged by the purchase of an appropriate policy of insurance, see paragraphs 3.32 to 3.37.


3.73 When you have decided how to secure the members’ protected rights or we have certified that a liability for State Scheme Premiums has arisen, please fill in and return the re-input schedule(s) form CA1560 current member schedule.

3.74 Make sure that an entry is made in the appropriate box for each member listed on the schedule.

When there is a liability to pay PROP

What to do

3.75 If a liability to pay a PROP has arisen:

Step Action


2 enter the amount of the premium in column 14

3.76 All the protected rights held for the individual must be paid to the state when paying a PROP. Any payment must be sent with the schedules.

Protected rights to be retained in the scheme

What to do

3.77 If the protected rights are to be retained:

Step Action


Transfer to a COMP scheme, a COMPSHP scheme or active COMP part of a COMB scheme

What to do


3.79 If the method of discharging members’ rights is to transfer them to a COMP scheme, a COMPSHP scheme or active COMP part of a COMB scheme:

53

Step Action




4 enter the commencement date of the new contracted-out employment in column 11

5 enter the date the transfer takes place in column 13

Note: where a transfer to the COMP part of a COMB scheme is made before 6 April 2002 the COMP part of the COMB scheme must be active.

Transfer to an APP scheme or an APPSHP scheme

What to do

3.80 If the method of discharging members’ rights is to transfer them to an APP scheme or an APPSHP scheme:

Step Action




Do not enter the date of commencement with the new scheme or the onward rate of revaluation.

Transfer to a COSR scheme or COSR part of a COMB scheme

What to do


3.82 If the method of discharging members’ rights is to transfer them to a COSR scheme or active COSR part of a COMB scheme:

Step Action





5 enter the code for the revaluation rate used by the COSR scheme in column 12: • ‘1’ for Section 148 (previously Section 21) • ‘2’ for limited rate • ‘3’ for fixed rate

Note: Where a transfer to the COSR part of the COMB scheme is made before 6 April 2002 the COSR part of the COMB scheme must be active.

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Transfer to an overseas occupational pension scheme or an overseas arrangement other than one which is or was contracted-out

What to do

3.83 If an employee’s protected rights are transferred to an overseas scheme, or from 6 April 2002 an overseas arrangement which is not or has not been contracted-out, delete the member from the reinput schedule and complete form CA1895. See paragraphs 6.45 to 6.49 of manual CA14A, Termination of Contracted-out Employment - Manual for Money Purchase Pension Schemes and Money Purchase Parts of Mixed Benefit Schemes, available on the internet at www.inlandrevenue.gov.uk.

Assuring/taking out of an appropriate insurance policy (only available if the scheme is winding-up)

What to do

3.84 If the method of discharging members’ rights is assuring/taking out an appropriate insurance policy:

Step Action


2 enter the new SCON (this must be in the SCON range 6,700,000 - 6,799,999) in column 9

3 enter the date assuring or taking out an appropriate insurance policy takes place, in column 13


What to do


Step Action



3 enter the date the Change of RPA takes place in column 13

Note: where a change of RPA to the COMP part of the COMB scheme is made before 6 April 2002 the COMP part of the COMB scheme must be active


What to do


Step Action




55


What to do


Step Action




Note: Where a change of RPA to the COSR part of a COMB scheme is made before 6 April 2002, the COSR part of a COMB scheme must be active.


What to do

3.88 Protected rights can be used to provide a pension for the member at any time between their 60th and 75th birthday. If a pension is to be provided:

Step Action


2 enter the date effect is given to the protected rights, ie the date entitlement to the pension commences, in column 13

Purchase of an annuity

What to do

3.89 Protected rights can be used to purchase an annuity for the member at any time between their 60th and 75th birthday. If the protected rights are used to purchase an annuity:

Step Action


2 enter the new SCON in column 9

3 enter the date effect is given to the protected rights, ie the date entitlement to the annuity commences in column 13

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3.90 We provide lists headed ‘Scheme Cessation Enquiry Service’ and make COD and State Scheme Premium calculations for

• members who have left the scheme and have protected rights under the SCON


• widows or widowers. In the case of a deceased member, the widow or widower may not have been identified. If this is the case, advise us immediately so that the appropriate calculations can be sent.

3.91 There may be pensioners on our lists who have earned increments since 6 April 1989 and are not recorded on the schedules. In these cases fill in form CA1594 to obtain revised calculations.

3.92 If effect has been given to the member’s protected rights prior to the date of scheme cessation, these members will be shown on separate calculation and reinput schedules.


3.93 When you have decided how to secure the members’ protected rights, or we have certified that a liability for State Scheme Premiums has arisen, please complete and return the re-input schedules.

3.94 The appropriate schedules are:

Schedule Forms

Early leaver CA1572

Pensioners CA1574




Early leaver

When there is a liability to pay PROP

What to do


Step Action



3.97 All the protected rights held for the individual member must be paid to the state when paying a PROP. Any payment must be sent with the schedules.

57

Protected rights to be retained in scheme

What to do


Step Action



What to do

3.99 Protected rights can be used to purchase an annuity for the member at any time between their 60th and 75th birthday. If the protected rights are to be used to purchase an annuity:

Step Action



3 enter the date effect is given to protected rights, ie the date entitlement to the annuity commences in column 9


What to do


Step Action


2 enter the date effect is given to the protected rights, ie the date entitlement to the pension commences in column 9

Transfer to an overseas occupational pension scheme or overseas arrangement other than one which is or was contracted-out

What to do

3.101 If an employee’s protected rights are transferred to an overseas scheme or from 6 April 2002, an overseas arrangement which is not or has not been contracted-out, delete the member from the reinput schedule and complete form CA1895. See paragraphs 6.45 to 6.49 of manual CA14A Termination of Contracted-out Employment Manual for Money Purchase Pension Schemes and Money Purchase Parts of Mixed Benefit Schemes, available on the internet at www.inlandrevenue.gov.uk.

5958


What to do


Step Action




3.103 There is no provision on the reinput schedule to record a transfer to a COMP scheme, a COMPSHP scheme or the active COMP part of a COMB scheme. In these cases delete the member from the schedule, fill in form CA1590 and advise Services to Pensions Industry the date the transfer takes place.

Note: where a change of RPA to the COMP part of a COMB scheme is made before 6 April 2002, the COMP part of the COMB scheme must be active.


What to do

3.104 If the method of discharging members’ rights is a change of RPA to an APP scheme, or an APPSHP scheme enter:

Step Action




There is no provision on the reinput schedule to record a transfer to an APP scheme or an APPSHP scheme. In these cases delete the member from the schedule, fill in form CA1591 and advise Services to Pensions Industry the date the transfer takes place.


What to do

3.105 If the method of discharging members’ rights is a change of RPA to a COSR scheme or the COSR part of a COMB scheme:

59

Step Action




Note: Where a change of RPA to the COSR part of a COMB scheme is made before 6 April 2002, the COSR part of the COMB scheme must be active.

3.106 There is no provision on the reinput schedule to record a transfer to a COSR scheme or the active COSR part of a COMB scheme. In these cases fill in form CA1592 and delete the member from the schedule.

Note: Where a transfer to the COSR part of a COMB scheme is made before 6 April 2002, the COSR part of the COMB scheme must be active.


What to do

3.107 If the method of discharging members rights is assuring/taking out an appropriate insurance policy:

Step Action


2 enter the new SCON (this must be in the SCON range 6,700,000 - 6,799,999)

3 enter the date assuring or taking out an appropriate insurance policy takes place, in column 9

Commutation on the grounds of triviality

What to do

3.108 If any of the members shown on the early leaver reinput schedule (where effect has been given to protected rights) have commuted their protected rights prior to the scheme ceasing:

Step Action


2 advise Services to Pensions Industry the date the new member commuted their protected rights

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What to do

3.109 If any of the members shown on the early leaver reinput schedule (where effect has been given to protected rights) have commuted their protected rights prior to the scheme ceasing:

Step Action

1 if Services to Pensions Industry have already been notified on form CA1594, note the schedule to that effect

2 if Services to Pensions Industry have not been notified on form CA1594, arrange for form CA1594, available from Services to Pensions Industry, to be filled in and returned with the schedule

Pensioner schedule

When there is a liability to pay a PROP

What to do


Step Action



3 enter ‘1’ in column 12 if the member was deferring retirement when the scheme ceased



What to do


Step Action


61


What to do

3.113 If the protected rights are to be used to purchase an annuity:

Step Action





What to do

3.114 If a pension is to be provided:

Step Action




What to do

3.115 If an employee’s protected rights are transferred to an overseas scheme or from 6 April 2002, an overseas arrangement which is not or has not been contracted-out, delete the member from the reinput schedule and fill in form CA1895. See manual CA14A Termination of Contracted-out Employment Manual for Money Purchase Pension Schemes and Money Purchase Parts of Mixed Benefit Schemes, available on the internet at www.inlandrevenue.gov.uk.


What to do


Step Action




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What to do

3.117 If the method of discharging members’ rights is a change of RPA to an APP scheme or a APPSHP scheme:

Step Action




Change of RPA to a COSR scheme or the COSR part of a COMB scheme

What to do

3.118 If the method of discharging members’ rights is a change of RPA a COSR scheme or the COSR part of a COMB scheme:

Step Action






What to do

3.119 If the method of discharging members rights is assuring/taking out an appropriate insurance policy:

Step Action


2 enter the new SCON (this must be in the SCON range 6,700,000 - 6,799,999)

3 enter the date assuring or taking out an appropriate insurance policy takes place in column 9


What to do

3.120 If any of the members shown on the pensioner reinput schedule (where effect has been given to protected rights) have commuted their protected rights prior to the scheme ceasing:

63

Step Action


2 advise Services to Pensions Industry the date the member commuted their protected rights


What to do

3.121 If any of the members shown on the pensioner reinput schedule (where effect has been given to protected rights) have commuted their protected rights prior to the scheme ceasing:

Step Action


2 if Services to Pensions Industry have not been notified on form CA1594, arrange for form CA1594, available from Services to Pensions Industry, to be completed and returned with the schedule

Widow or widower pensioner schedule

When there is a liability to pay a PROP

What to do


Step Action



3 enter the widow/widowers’ date of birth in column 13

4 enter ‘1’ in column 12 if the member was deferring retirement at the time of death



What to do

3.124 If the protected rights are to be used to purchase an annuity:

Step Action




6564


What to do


Step Action




What to do

3.126 If an employee’s protected rights are transferred to an overseas scheme or from 6 April 2002, an overseas arrangement which is not or has not been contracted-out, delete the member from the reinput schedule and fill in form CA1895, see manual CA14A Termination of Contracted-out Employment Manual for Money Purchase Pension Schemes and Money Purchase Parts of Mixed Benefit Schemes, available on the internet at www.inlandrevenue.gov.uk.


What to do


Step Action



3 enter the date the change takes place in column 9

Note: where a change of RPA to the COMP part of a COMB scheme is made before 6 April 2002, the COMP part of the COMB scheme must be active.


What to do


Step Action



3 enter the date the change takes place in column 9

65


What to do


Step Action





Commutation

What to do

3.130 If any of the members shown on the widow/widower reinput schedule (where effect has been given to protected rights) have commuted their protected rights prior to the scheme ceasing:

Step Action


2 advise Services to Pensions Industry the date the member commuted their protected rights.


What to do

3.131 If any of the members shown on the widow/widower reinput schedule (where effect has been given to protected rights) have commuted their protected rights prior to the scheme ceasing:

Step Action

1 If Services to Pensions Industry have already been notified on form CA1594, note the schedule to that effect

2 If Services to Pensions Industry have not been notified on form CA1594, arrange for form CA1594, available from Services to Pensions Industry, to be completed and returned with the schedule.

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3.132 If we do not issue early leaver, pensioner or widow/widower pensioner schedules, there are none of these recorded as entitled to protected rights under the scheme. If this is not the case, notify us of the employee(s)

• NINO



• earnings/contributions for the tax year of termination and the preceding tax year, and



3.133 When you have completed all the relevant schedules please return the schedules to


3.134 Approval of arrangements will be granted automatically by the issue of a letter provided that we can confirm that all of the information is correct.

67

4 Appropriate Personal Pension Schemes (APP) (including overseas schemes) which ceases to be appropriate on or before 5 April 1997Conditions for an App scheme ceasing to be appropriate

4.1 An APP can cease to be appropriate if the scheme

• surrenders the Appropriate scheme certificate


• no longer satisfies the contracting-out requirements of the Commissioners of Inland Revenue.

4.2 When a scheme ceases to be appropriate you must notify in writing

) Inland Revenue (Savings, Pensions, Share Schemes) Yorke House P.O. Box 62 Castle Meadow Road Nottingham NG2 1BG

4.3 Following cancellation or surrender action Inland Revenue (Savings, Pensions, Share Schemes) will write to the provider and confirm the cessation date.


4.4 When an APP scheme ceases to be appropriate, the provider must make arrangements to secure all rights that have accrued in respect of members or former members of the scheme. These rights will either be

• pre-97 protected rights accrued up to 5 April 1997, or

• post-97 protected rights accrued from 6 April 1997, or

• a combination of both pre-97 protected rights and post-97 protected rights, or

• safeguarded rights. See Chapter 12 Pension Sharing on Divorce for further details about safeguarded rights.

4.5 Once an APP scheme ceases to be Appropriate, Inland Revenue (Savings, Pensions, Share Schemes) will notify Services to Pensions Industry, who after searching through their computer records will send the scheme

• Contracted-out Deduction (COD) calculations for any current members, early leavers, pensioners or widow(er) pensioners who have pre 1997 protected rights, and

• re-input schedules for all current members, early leavers, pensioners or widow(er) pensioners with pre and/or post 1997 protected rights.

4.6 Services to Pensions Industry will also send form CA1721 to each scheme member explaining that the scheme is no longer Appropriate and outlining the options available to them to secure their protected rights.

4.7 It is not necessary to secure every member’s protected rights by the same method. Trustees must provide members with information about their rights and options. When members have decided how to secure their protected rights, you should tell Services to Pensions Industry what arrangements have been made.

6968


4.8 The trustees or insurers of a scheme must notify Services to Pensions Industry within 5 weeks of effect being given to protected rights.



• discharged to an appropriate home by one of the following methods

- transfer to another contracted-out scheme, see paragraphs 4.18 to 4.20, or


- the provision of a pension by the scheme, see paragraphs 4.24 to 4.26, or

- income withdrawal, see paragraphs 4.27 to 4.29.

4.10 We will then carry out a further search of our records as explained in 4.5. If we are able to confirm that nothing is outstanding, approval of arrangements will be granted automatically by the issue of a letter.

Restoring a member’s State Earnings Related Pension Scheme (SERPS) rights

4.11 If a scheme ceases to be Appropriate on or before 5 April 1997, one option is to restore a member’s SERPS entitlement by paying a Protected Rights Premium (PROP).

4.12 The payment of a PROP is only an option if formal approval has not been given to any other method of preservation. If formal approval has been given and is subsequently removed on or after 6 April 1997, the option to pay a PROP will no longer be available.

4.13 A PROP is the cash equivalent of a member’s protected rights in the scheme. The schedule of members that Services to Pensions Industry send to the scheme shows the amount needed to restore fully each member’s SERPS rights.

4.14 If the value of a member’s protected rights is

• greater than the amount needed to restore fully each member’s SERPS rights, no extra benefit would be gained if a PROP was paid, or

• smaller than the amount needed to fully restore SERPS rights, then those rights, to the value of the PROP paid, would be restored. The member can make up the difference.

Example

Cost of fully restoring SERPS rights £1000.00 PROPs paid £950.00 State scheme rights restored 95% The member can pay £50 to fully restore their rights

Schemes should always consult members before deciding to pay PROPs

4.15 SERPS rights for certain widows or widowers may also be restored.

69


4.16 Where a scheme ceases to be Appropriate but continues in existence protected rights can be preserved within the scheme if the contracted-out conditions continue to be met.

4.17 Approval to preserve protected rights within the scheme will be withdrawn if the contracted-out requirements are not met. Inland Revenue (Savings, Pensions, Share Schemes) will issue a certificate of non-approval to the trustees, including a direction to discharge the liabilities by one of the other methods specified in 4.9.

Transfers

4.18 When the rights are transferred, the member is entitled to at least the cash equivalent of accrued right that have not been surrendered, commuted or forfeited. The cash equivalent will be determined from guidance given in the Guidance Note (GN11), issued jointly by the Institute of Actuaries and the Faculty of Actuaries.

4.19 A transfer can be made where the receiving scheme is one of the following

• an APP scheme. Pre-97 protected rights and/or post-97 protected rights must remain as either pre-97 protected rights or post-97 protected rights respectively

• an Appropriate Personal Pension Stakeholder Pension (APPSHP) scheme. Pre-97 protected rights and/or post-97 protected rights must remain as either pre-97 protected rights or post-97 protected rights respectively

• a Contracted-out Money Purchase (COMP) scheme, including the COMP part of a Contracted-out Mixed Benefit (COMB) scheme. Pre-97 protected rights and/or post-97 protected rights must remain as either pre-97 protected rights or post-97 protected rights respectively

• a Contracted-out Money Purchase Stakeholder Pension (COMPSHP) scheme. Pre-97 protected rights and/or post-97 protected rights must remain as either pre-97 protected rights or post-97 protected rights respectively

• a Contracted-out Salary Related (COSR) scheme, including the COSR part of a Contracted-out Mixed Benefit (COMB) scheme. Pre-97 protected rights transferred are converted to become Guaranteed Minimum Pensions (GMPs). Post-97 protected rights transferred are converted to post-97 COSR rights

• an overseas occupational pension scheme or an overseas arrangement not contracted-out as above.

Members consent

4.20 Members consent to the transfer of protected rights will be required in every case.


4.21 An annuity must not commence earlier than the date on which the scheme member reaches age 60, and not later than the date on which he or she reaches age 75. A single life annuity can be purchased with both pre and post-97 protected rights where the member is unmarried at the time the annuity is purchased.

4.22 Where a member dies before effect is given to his or her protected rights, an annuity may be purchased for their widow or widower. In these circumstances the annuity should be provided as soon as practicable.


7170


4.24 Effect may be given to the member’s protected rights by the provision of a pension from the scheme. The pension must not commence earlier than the date on which the scheme member reaches 60, and not later than the date on which he or she reaches 75.

4.25 Where the member dies before effect is given to their protected rights, a pension may be provided for their widow or widower, or a beneficiary nominated by the member before the death. In these circumstances the pension should be provided as soon as practicable.

4.26 The provision of a pension is only available if the scheme has not commenced winding up.

Income withdrawal

4.27 Income withdrawal allows a member to draw an income from the protected rights before using them to buy or provide a pension. Income withdrawal must not commence earlier than the date on which the scheme member reaches 60, and not later than the date on which he or she reaches age 75.

4.28 Where a member dies before effect is given to his or her protected rights , their widow or widower can give effect to the protected rights by income withdrawal.

4.29 Income withdrawal from the scheme is only available if the scheme has not commenced winding up.

Initial action by Services to Pensions Industry to identify scheme members

4.30 When we confirm the date of cessation of contracted-out following an election to surrender a contracting-out certificate, or Inland Revenue (Savings, Pensions, Share Schemes) have cancelled or withdrawn a contracted-out certificate, Services to Pensions Industry will:

Step Action

1 take action to identify • current members • early leavers from the scheme • pensioners • members who have died and have a widow or widower

2 send you • calculations for - current members - early leavers - pensioners - widow or widower pensioners if appropriate • reinput schedules for - current members - early leavers - pensioners - widow or widower pensioners

3 Issue a letter to each member of the scheme informing them that the scheme is no longer

appropriate.

71

Calculation service for APP schemes

4.31 To assist you in deciding on the method of securing the member’s protected rights, Services to Pensions Industry will provide COD calculations based on information from the members’ End of Year Summary (EYS) (P14) for tax years up to and including the 1996/97 tax year.

4.32 The earnings recorded on the EYS are deducted at the non contracted-out rate (A rate). The earnings figure used to calculate the COD is the ‘A’ rate earnings minus the Lower Earnings Limit (LEL).

4.33 The calculations will only be issued for those members whose periods of contracted-out employment includes protected rights accrued up to and including the 1996/7 tax year.

4.34 When the scheme ceases to be Appropriate, Services to Pensions Industry will issue COD calculations for members who have pre-97 protected rights.

4.35 Please notify Services to Pensions Industry if you

• do not require any calculations, or

• disagree with any of the calculations. You should provide details of the

- scheme member’s name and NINO

- earnings used in your calculation

- scheme member’s date of birth.

Completing re-input schedules for current members

4.36 Services to Pensions Industry will issue you with re-input schedules for all current members of the scheme. The re-input schedule is for you to record the method of preservation (see paragraph 4.11 to 4.29).

This schedule is headed ‘Scheme Cessation – Current Member Reinput Schedule’ CA1801A

4.37 When you have decided on the method of preservation, please fill in and return the reinput schedule(s). Ensure that an entry is made in the appropriate box for each member listed on the schedule(s).

Protected Rights Premium (PROP)

What to do

4.38 If the protected rights are to be restored into SERPS:

Step Action


2 enter PROP amount in column 7


70

7372

Protected rights retained in the scheme

What to do


Step Action



What to do

4.41 If the method of discharging member’s rights is to transfer them to an APP scheme or an APPSHP scheme:

Step Action




Transfer to a COMP scheme, a COMPSHP scheme or the COMP part of a COMB scheme

What to do

4.42 If the method of discharging member’s rights is to transfer them to a COMP scheme, a COMPSHP scheme or the COMP part of a COMB scheme:

Step Action





73

Transfer to a COSR scheme or the COSR part of a COMB scheme

What to do

4.43 If the method of discharging member’s rights is to transfer them to a COSR scheme or the COSR part of a COMB scheme:

Step Action




4 enter the date of transfer in column 11

5 enter the code for the revaluation rate used by the COSR scheme in column 12 • ‘1’ for Section 148 (previously Section 21) • ‘3’ for fixed rate This will only be necessary where the period of contracted-out employment spans April 1997, or if the period is wholly pre 6 April 1997

Transfer to an overseas occupational pension scheme, or an overseas arrangement other than one which is or was contracted-out

What to do

4.44 If any employee’s protected rights are transferred to an overseas scheme, or overseas arrangement that is not or has not been contracted-out, delete the member from the reinput schedule and fill in form CA1881. See paragraphs 5.23 to 5.27 of the manual CA16 Appropriate Personal Pension Scheme Manual.

Provision of a Pension


Step Action


2 enter the date effect is given to protected rights, i.e. the date entitlement to pension commences in column 13

Change of RPA to an APP or APPSHP scheme

4.46 If a method of discharging member’s rights is a change of RPA to an APP scheme, follow the instructions provided in paragraph 4.41.

Change of RPA to a COMP scheme, a COMPSHP scheme or the COMP part of a COMB scheme

4.47 If the method of discharging member’s rights is a change of RPA to a COMP scheme, a COMPSHP scheme or the COMP part of a COMP scheme, follow the instructions provided in paragraph 4.42 omitting step 2.

7574


4.48 If the method of discharging member’s rights is a change of RPA to a COSR scheme or the COSR part of a COMB scheme, follow the instructions in paragraph 4.43 omitting step 2.

Completing reinput schedules for post early leavers, pensioners and widow or widowers

4.49 Services to Pensions Industry will issue you with reinput schedules for

• members who have left the scheme and have protected rights under the ASCN

• members who have reached State Pension age (SPA) before the scheme ceased

• widows or widowers. In cases of a deceased member, the widow or widower may not have been identified. If this is the case, advise Services to Pensions Industry of the widows or widower details.

4.50 When you have decided how to secure the member’s protected rights, please fill in and return the completed reinput schedules(s) to us. The appropriate schedules are:

Schedule Forms

Early Leaver CA1802A

Pensioner CA1803A

Widow pensioners CA1805A

Widower pensioners CA1808A


Completion of Form CA1802A

Early leaver

Protected Rights Premium (PROP)

What to do


Step Action


2 enter PROP amount in column 8


75


What to do


Step Action



What to do

4.55 If the method of discharging member’s rights is to transfer them to an APP scheme or an APPSHP scheme:

Step Action



3 enter the date the trasfer takes place in column 12

Transfer to a COMP scheme, a COMPSHP scheme or the COMP part of a COMB scheme

What to do


Step Action





7776


What to do


Step Action





5 enter the code for the revaluation rate used by the COSR scheme in column 13; • ‘1’ for Section 148 (previously Section 21) • ‘3’ for fixed rate This will only be necessary where the period of contracted-out employment spans April 1997, or if the period is wholly pre 6 April 1997.


What to do

4.58 If an employee’s protected rights are transferred to an overseas scheme, or overseas arrangement, which is not or has not been contracted out, delete the member from the reinput schedule and fill in form CA1881. See paragraphs 5.23 to 5.27 of the manual CA16 Appropriate Personal Pension Scheme Manual, available on the Internet at www.inlandrevenue.gov.uk.



Step Action




4.60 Protected rights can be used to purchase an annuity for the member at any time between their 60th and 75th birthday. If the protected rights are to be secured by a purchase of an annuity:

Step Action




77


4.61 If the method of discharging member’s rights is a change of RPA to an APP scheme, follow the instructions provided in paragraph 4.55.


4.62 If the method of discharging member’s rights is a change of RPA to a COMP scheme, a COMPSHP scheme or the COMP part of a COMP scheme, follow the instructions provided in paragraph 4.56 omitting step 2.


4.63 If the method of discharging member’s rights is a change of RPA to a COSR scheme or the COSR part of a COMB scheme, follow the instructions in paragraph 4.57 omitting step 2.

Completing forms CA1803A, CA1805A and CA1808A

Pensioners, Widow and Widower Pensioners

Protected Rights Premium ( PROP)

What to do


Step Action


2 Enter PROP amount in column 9



What to do


Step Action


7978


What to do


Step Action



3 enter the date effect is given to protected rights i.e. the date entitlement to the annuity commences in column 8


What to do


Step Action


2 enter the date effect is given to protected rights, i.e. the date entitlement to the annuity commences in column 8

Transfer to an overseas occupational pension scheme, or an overseas arrangement other than one, which is or was contracted-out

What to do

4.69 If an employee’s protected rights are transferred to an overseas scheme, or an overseas arrangement, which is not or has not been contracted-out, delete the member from the reinput schedule and fill in form CA1881. See paragraph 5.23 to 5.27 of the manual CA16 Appropriate Personal Pension Scheme Manual, available on the Internet at www.inlandrevenue.gov.uk.

Transfer or change of RPA to an APP scheme or an APPSHP scheme

What to do

4.70 There is no provision on the reinput schedules to record a transfer or change of RPA to an APP scheme, or an APPSHP scheme. In these cases delete the member from the schedule, fill in form CA1544 and advise Services to Pensions Industry the date the transfer takes place.

79

Transfer or change of RPA to a COMP scheme, a COMPSHP scheme or the COMP part of a COMB scheme

What to do

4.71 There is no provision on the reinput schedules to record a transfer or change of RPA to a COMP scheme, a COMPSHP scheme or the COMP part of a COMB scheme. In these cases delete the member from the schedule, fill in form CA1545 and advise Services to Pensions Industry to date the transfer takes place.

Transfer or change of RPA to a COSR scheme or the COSR part of a COMB scheme

What to do

4.72 There is no provision on the reinput schedules to record a transfer or change of RPA to a COSR scheme or the COSR part of a COMB scheme. In these cases delete the member from the schedule, fill in form CA1548 and advise Services to Pensions Industry the date the transfer takes place.

Action when a current member only list is received

4.73 If Services to Pensions Industry do not issue early leaver, pensioner or widow or widower pensioner schedules, there are none of these recorded as entitled to protected rights under the scheme. If this is not the case, notify Services to Pensions Industry the scheme member(s)

• NINO


• period of contracted-out employment

• earnings/contributions up to and including the 1996-97, if appropriate, and



4.74 When you have completed all relevant schedules return them to

) Inland Revenue National Insurance Contributions Office Services to Pensions Industry Scheme Cessation Section Benton Park View Newcastle upon Tyne NE98 1ZZ

4.75 Approval of the arrangements will be granted automatically by the issue of a letter, providing we can confirm all of the information is correct.

818080

5 Salary-related schemes (including salary-related overseas schemes) which cease to be contracted-out on or after 6 April 1997Ceasing to contract-out

5.1 A Contracted-out Salary Related (COSR) pension scheme can cease to contract-out if the scheme

• is amalgamated with or replaced by another scheme operated by the same employer and the Guaranteed Minimum Pension (GMP)/post ’97 COSR rights are transferred



• no longer satisfies the contracting-out requirements required by the Commissioners for the Inland Revenue

5.2 When the scheme ceases to contract-out you must notify, in writing

) Inland Revenue Election Section Audit and Pension Schemes Services PO Box 62

Yorke House Castle Meadow Road Nottingham NG2 1BG

5.3 Following cancellation or surrender action the Inland Revenue Savings Pensions Share Schemes will write to the employer and trustee/insurer and confirm the cessation date. The certificate is no longer valid from the end of the day specified in the acceptance of the surrender or the notice of determination to cancel the certificate. If the certificate is the only or the last one valid by reference to the scheme, then this date is the last day on which there can be contracted-out employment by reference to the scheme, and the liability to pay National Insurance contributions (NICs) at the full not contracted-out rate arises from the following day.

What happens to accrued rights built up in the scheme?

5.4 When a COSR scheme ceases to be contracted-out on or after 6 April 1997, trustees must make arrangements to secure all contracted-out rights that have accrued in respect of members, or former members of the scheme. These rights will either be

• GMPs accrued up to 5 April 1997, or

• rights accrued from 6 April 1997 under the provisions of section 9(2B) of the Pension Schemes Act 1993 (post ’97 COSR rights), or

• a combination of both GMP and post ’97 COSR rights, or

• safeguarded rights. See Chapter 12 Pension Sharing on Divorce for further details regarding safeguarded rights.

5.5 We will issue form CA7992 to the trustees, giving general guidelines on securing the liabilities, and the options that are available.

5.6 It is not necessary to secure every member’s pension rights by the same method. Trustees must provide members with information about their rights and options and should tell us, once a decision has been taken, what arrangements have been made.

DIS Regs: Reg 6

81

5.7 Once a scheme has ceased to be contracted-out, we will obtain details by searching through our computer records to provide the following information:

• lists of possible current members with GMP and/or post ’97 COSR rights

• GMP calculations for past early leavers based on contracted-out earnings up to and including 5 April 1997, if appropriate, and/or reinput schedules for those with post ’97 COSR rights

• GMP calculations for pensioners and widow(er) pensioners based on contracted-out earnings up to and including 5 April 1997, if appropriate, and/or reinput schedules for those with post ’97 COSR rights.

5.8 The Commissioners for the Inland Revenue must be satisfied that a scheme’s contracted-out liabilities are 100% funded. Schemes that have ceased to contract-out may occasionally be required to forward to the Services to Pensions Industry confirmation that relevant requirements are satisfied.

5.9 Please refer to manual CA14C Contracted-out Guidance for Salary Related Pension Schemes and Salary Related Overseas Schemes, for further details on the contracting-out conditions of schemes. This manual is available on the internet at www.inlandrevenue.gov.uk.

Time limits

5.10 On cessation of contracting-out, schemes have a period of 2 years in which the accrued contracted-out rights of individual members must either be



5.11 The 2 year period will begin when calculations and/or membership lists are issued by the Inland Revenue National Insurance Contributions Office to the life office/administrator. If arrangements cannot be submitted for approval within this time limit, a request for an extension must be made in writing providing full details of the circumstances. An extension to the 2 year time limit can only be granted in very exceptional circumstances.

5.12 If rights are not discharged or approved for preservation in the scheme within this period, the Commissioners for the Inland Revenue may issue a certificate of non-approval to the trustees, including a written direction to discharge the liabilities to an appropriate home within 6 months, see paragraphs 4.33 to 4.36.



• preservation within the scheme and our requirements are satisfied, see paragraph 4.15, or



- the purchase of an annuity, see paragraphs 4.21 to 4.25.

5.14 We will then carry out a search of our records as explained in paragraph 4.7. If we are able to confirm that nothing is outstanding, approval will be granted automatically by the issue of a letter.

838282

Preserving the rights within the scheme





and the trustees wish to preserve contracted-out rights within the scheme, the scheme must continue to meet the contracting-out conditions.


5.16 Approval to preserve GMPs and/or post ’97 COSR rights within the scheme will be withdrawn if the scheme does not continue to meet our contracting-out requirements. We will issue a certificate of non-approval to the trustees, including a direction to discharge the liabilities by one of the routes specified in paragraph 4.13 within 6 months, see paragraph 4.33 to 4.36.

Transfers

5.17 Where the rights are to be transferred, the member is entitled in all cases to at least the cash equivalent of accrued rights. The cash equivalent will be determined from guidance given in Guidance Note GN11, issued jointly by the Institute of Actuaries and the Faculty of Actuaries.


• a Contracted-out Money Purchase (COMP) scheme. GMPs and/or post ’97 COSR rights transferred are converted to become either pre-97 protected rights or post-97 protected rights, respectively

• a Contracted-out Money Purchase Stakeholder (COMPSHP) scheme. GMPS and/or post ‘97 COSR rights transferred are converted to become either pre-97 protected rights or post-97 protected rights, respectively

• a COSR scheme. GMPs and/or post ’97 COSR rights transferred must remain as either GMPs or post ’97 COSR rights respectively

• an Appropriate Personal Pension (APP) scheme. GMPs and/or post ’97 COSR rights transferred are converted to become either pre-97 protected rights or post-97 protected rights, respectively

• an Appropriate Personal Pension Stakeholder (APPSHP) scheme. GMPS and/or post ’97 COSR rights transferred are converted to become either pre-97 protected rights or post-97 protected rights, respectively


• an overseas arrangement (only post ’97 COSR rights permitted)

• a ‘section 53 scheme’ (limited to cases where a member has applied for the transfer before 6 April 1997)

• a Contracted-out Mixed Benefit (COMB) scheme. Where the transfer is to either

- the salary-related part. GMPs and/or post ’97 COSR rights transferred must remain as either GMPs or post ’97 COSR rights respectively, or


Reg 16(1)(c)

C-out Transfer: Regs

Regs 5 & 10

Regs 3 & 8

Regs 5 & 10

Regs 6 & 11

Regs 11

Regs 14(3)

Regs 4 & 9

Preservation Regs: Regs 12

83

- the money purchase part. GMPs and/or post ’97 COSR rights transferred are converted to become either pre-97 protected rights or post-97 protected rights, respectively.

5.19 Member’s consent will be required in every case except where the member’s accrued rights are transferred as part of a bulk transfer (eg when an employer is taken over), and certain safeguards are met. Guidance on bulk transfers is given in Guidance Note GN16 issued jointly by the Institute of Actuaries and the Faculty of Actuaries.

5.20 The trustees or insurer of a scheme must notify the Inland Revenue National Insurance Contributions Office within 5 weeks of the date of the transfer or transfer payment of GMPs and/or post ’97 COSR rights, whichever is the later date.


5.21 Contracted-out rights may be secured in the form of immediate or deferred annuities bought, assigned or transferred to each individual member concerned. Where rights are to be bought-out, the member is entitled in all cases to at least the cash equivalent of his accrued rights. The cash equivalent will be determined from guidance given in Guidance Note GN11, issued jointly by the Institute of Actuaries and the Faculty of Actuaries.

5.22 If an individual’s GMP and/or post ’97 COSR rights are to be secured by more than one annuity with different insurance companies, both companies involved will be required to fill in form CA7994, confirming the amount of GMP and/or post ’97 COSR rights accepted by each.

5.23 A scheme’s liability for a member’s GMP and/or post ’97 COSR rights will be extinguished by the purchase of an annuity in the following circumstances:

• the annuity is purchased at the written request of, or with the written consent of, the member, or of his widow in the case of a member deceased, or

• the scheme is winding-up.

5.24 We do not require any confirmation that the member has consented before an annuity is approved.



5.26 Since 6 April 2002 schemes have been able to pay small amounts of GMP and/or post ‘97 COSR rights as a lump sum before the member attained State Pension age. Commutation is allowed where the total scheme benefits are not more than £260.00 a year and

• a scheme has ceased to contract-out and is winding up and the GMP has been revalued by fixed or limited rate, or

• a member retires before State Pension age and the GMP has been revalued by fixed or limited rate.

Schemes cannot commute a GMP revalued at s148 revaluation until State Pension age.

Where the scheme is winding up the pensioner, widow or widower pensioner reinput schedules should be completed as outlined at paragraph 5.91. For current members and early leavers, please tell us in writing of the commutation cases.

Members may have commuted their GMP and/or post ‘97 COSR rights on the grounds of triviality prior to the scheme ceasing. These members will still be shown on our lists. In these cases the reinput schedules should be completed as outlined at paragraph 5.91.

PSA Reg: S19

PSA 1993S96

858484

Restoration of state scheme rights after 6 April 1997

5.27 Restoration of scheme members to the additional State Pension, commonly known as the State Earnings Related Pension Scheme (SERPS) or, from 6 April 2002 State Second Pension will only be available where liability for the payment of a Contributions Equivalent Premium (CEP) arises. The payment of a CEP is only applicable in respect of current members with less than 2 years’ qualifying service and no rights to short service benefits have accrued when the scheme ceases to be contracted-out.

5.28 There may be the possibility of deemed buy-back where the scheme winds up with insufficient assets to discharge its contracted-out liabilities in full and the relevant conditions are satisfied in respect of scheme members.


5.29 When a scheme ceases to be contracted-out on or after 1 October 1989, the trustees are required to revalue the earnings factors for the five tax years prior to the tax year of the scheme cessation by 12%, unless the GMP amount calculated by reference to the Section 148 (previously Section 21) order made in the tax year of cessation produces a lower amount, in which case the Section 148 calculation would apply.

5.30 The 12% option does not apply in calculating GMP rights

• of members of fixed rate schemes who left more than 5 tax years before the tax year of cessation, or

• that were received as a result of fixed or limited transfers into the scheme during the five tax years prior to cessation, or

• that are being transferred to another COSR scheme or to the salary-related part of a COMB scheme of the same or related employer, or

• that are being transferred to a COMP scheme or to the money purchase part of a COMB scheme, or to an APP scheme.

5.31 The Inland Revenue National Insurance Contributions Office will use the most beneficial rate to obtain the calculations provided to schemes ceasing to contract-out on or after 1 October 1989.

Re-assurance

5.32 Schemes that have ceased to be contracted-out and are holding contracted-out liabilities are no longer required to complete Triennial Re-assurance statements. However, on occasions we may seek confirmation that the relevant requirements are satisfied.

Certificate of non-approval of arrangements to secure contracted-out rights and written direction to discharge liabilities

5.33 If contracted-out rights are not secured to an appropriate home within the specified period, see paragraph 5.10, or if the contracted-out requirements are not met, the Inland Revenue National Insurance Contributions Office on behalf of the Commissioners of Inland Revenue, will issue a certificate of non-approval to the trustees. We will include a written direction stating that liabilities must be discharged to an appropriate home, see paragraph 5.13, within 6 months of the issue of the certificate of non-approval. If liabilities cannot be discharged within this time limit, a request for an extension must be made in writing providing full details of the circumstances. An extension to the 6 month period can only be granted in very exceptional circumstances.

5.34 Where the Commissioners for the Inland Revenue have issued a direction to discharge contracted-out liabilities, trustees must within the 6 month period allow for discharge:

C-out Regs: Reg 16(1)(a)&(c)



85

• notify all active and deferred members with any entitlement to GMPs and/or post ’97 COSR rights under the scheme, of the issue of the certificate of non-approval and the reasons for it, and


5.35 Where trustees have not received any request from the member to transfer their rights, they will be able to buy-out the benefits without the individual’s consent through appropriate policies of insurance and annuity contracts, see paragraphs 5.21 to 5.25.




Step Action


2 send you: • lists of possible current members and/or current member calculations (where all earnings information is available from our records) and reinput schedules • calculations for: - early leavers - pensioners - widow or widower pensioners • reinput schedules for: - early leavers - pensioners - widow or widower pensioners

5.38 If the period of contracted-out employment is entirely post 5 April 1997, no calculations will be applicable. The individual will be shown on the reinput schedule only.


5.39 To assist you in deciding how to secure member’s contracted-out rights, see paragraph 5.13, Services to Pensions Industry have a comprehensive calculation service. This service provides calculations of GMPs for those members whose period of contracted-out employment includes GMP liability accrued on earnings up to and including the 1996-97 tax year.

5.40 The GMP calculations are based on information from the employee’s P14 End of Year Summary (EYS) and/or information provided by the employer on the notice of termination of contracted-out employment or current member list.

5.41 If this information is subsequently amended, the GMP figure is adjusted and the scheme is responsible for any increase.

878686





How to secure GMP and Post ’97 COSR Rights -current members


• ‘Scheme Cessation Enquiry Service’ lists which show the scheme’s current members which may require you to enter additional information, see paragraph 5.51, or

• the appropriate calculations, where appropriate, and/or reinput schedules for each individual current member if we already have all the earnings/contributions details, see paragraph 5.56. The calculations will only be provided where the member’s period of contracted-out employment spans 6 April 1997.


• NINO


• date of birth

• sex


• earnings, if recorded, for the tax year preceding the tax year of scheme cessation (only if the date of scheme cessation is between 6 April 1997 and 5 April 1998).

5.47 If the date of scheme cessation is 6 April 1998 or later no earnings will be shown.

5.48 If the employer has more than one scheme, we cannot identify the particular scheme an individual employee belongs to, this is because the EYSs are recorded under a common ECON. It is therefore important that we receive the scheme administrator(s) assistance in identifying the members of a scheme that has ceased to contract-out.

5.49 The details shown on the lists are information taken from the EYS (P14) sent to the Inland Revenue National Insurance Contributions Office by the employer. P14s must be completed accurately. Any queries may delay our action.




- employee(s) name and NINO


- employee(s) date of birth.

87


What to do


Step Action



3 if the scheme cessation date is in the 1997-98 tax year give details of contracted-out earnings/contributions paid in the 1996-97 tax year, where appropriate, if these are not included


5.52 If an asterisk appears after an employee’s date of birth, this indicates that

• a termination notice offering a Contribution Equivalent Premium (CEP), Transfer Premium (TP) or Limited Revaluation Premium (LRP) has been received prior to cessation, but



5.54 If we have all the relevant information to enable GMP calculations to be made, where appropriate, the calculations and/or reinput schedules will be supplied as in the following paragraphs. However, you must confirm that all current members have been identified.


5.55 If we do not issue a current members’ list or calculations as in paragraph 5.45, this is because the search of our computer records has not identified any member recorded as being in contracted-out employment by reference to the scheme. If this


• is not the case, notify us of:



- the ECON

- the employee(s)’ tax year of commencement of contracted-out employment

- contracted-out earnings/contributions up to and including the 1996-97 tax year, if appropriate.

This information is used by Inland Revenue National Insurance Contributions Office to calculate the GMP liability, where appropriate.

898888



• GMP calculations, where appropriate, for each member identified, and/or

• a reinput schedule form CA1557 for you to record the method of securing the members’ rights. This is headed ‘Reinput Schedule - Scheme Cessation Current Members’.

5.57 If the member’s period of contracted-out employment commenced 6 April 1997 or later they will only appear on the reinput schedule.

5.58 These schedules are used to notify GMP and post ’97 COSR rights are to be

• preserved within the scheme

• transferred/change of RPA to another contracted-out occupational pension/APP scheme

• bought out by the purchase of an immediate or deferred annuity

• discharged by payment of a CEP.


5.59 When you have decided how to secure the members’ rights, please fill in and return the reinput schedule(s) form CA1557 (current member schedule). Make sure that an entry is made in the appropriate box for each member listed on the schedule.

5.60 The payment of a CEP was introduced as a method of discharge for current members with less than two years’ service at the date of scheme cessation/wind up. The premium demands issued will be produced in schedule format.

When there is a liability to pay a CEP

What to do

5.61 If a CEP is to be paid:

Step Action


GMP and/or Post ’97 COSR Rights to be retained

What to do

5.62 If the GMP and/or post ’97 COSR rights are to be retained:

Step Action


Transfer to a COSR scheme or the active COSR part of a COMB scheme

What to do


89


Step Action

1 enter ‘3’ in column 2’




5 enter the code for the onward rate of revaluation in column 10: • ‘1’ for Section 148 (previously Section 21) • ‘3’ for fixed rate this will only be necessary where the period of contracted-out employment spans 6 April 1997

Transfer to a COMP scheme, a COMPSHP scheme or the active COMP part of COMB scheme

What to do

5.65 If a transfer is being made to an employer in the same group of companies and the ECON is unchanged, do not complete the reinput schedules. However, it would be helpful if you could let Services to Pensions Industry know that this is the chosen method of preservation.


Step Action





Transfer to an APP scheme or a APPSHP scheme

What to do


Step Action



919090


Transfer to an overseas occupational pension scheme or arrangement other than one which is or was contracted-out

What to do

5.69 If an employee’s GMP rights or post ‘97 case rights are transferred to an overseas scheme, or post ’97 COSR rights are transferred to an overseas arrangement which is not or has not been contracted-out, delete the member from the reinput schedule and complete form CA1890, see manual CA14 Termination of Contracted-out Employment - Manual for Salary Related Pension Schemes and Salary Related Parts of Mixed Benefits Schemes, available on the internet at www.inlandrevenue gov.uk.


What to do


Step Action



Change of RPA to a COMP scheme, a COMPSHP scheme or to the active COMP part of a COMB scheme

What to do


Step Action




What to do


Step Action



Purchase of an annuity - Buy-out of the GMP and/or Post ’97 COSR Rights

What to do


91

Step Action




5.74 We provide lists headed ‘Scheme Cessation GMP Enquiry Service’ and make GMP calculations where appropriate, for:

• members who have left the scheme and have GMP rights preserved under the SCON

• members who reached State Pension age (SPA) before the scheme ceased, who have GMP rights

• widows or widowers, whose spouses had GMP rights. In the case of a deceased member, the widow or widower may not have been identified. If this is the case, advise us immediately so that the appropriate calculations can be sent.

5.75 There may be pensioners on our lists who have earned increments since 6 April 1988 and are not recorded on the schedules. In these cases, fill in form CA1597 to obtain revised calculations.

5.76 The calculations are based on information from the employee’s EYS (P14), up to and including the 1996-97 tax year and/or information provided by the employer on the notice of termination. If this information is subsequently amended, the GMP figure is adjusted and the scheme is responsible for any increase.

5.77 Earnings from and including the 1997-98 tax year are not included in the calculation of the GMP.


5.78 The calculation schedules may show an indicator ‘2’, in the extreme right-hand column for each member. The indicator means the GMP figure is aggregated because there has been one or more fixed or limited rate transfers in the period of contracted-out employment.

5.79 If you disagree with any of the calculations, please send details of the

• employee(s)’ name and NINO

• earnings/contributions you have used


Note: The GMP figure for early leavers is that calculated at the date of leaving revalued to the date of scheme cessation at the scheme’s chosen revaluation rate.


5.80 When you have decided how to secure the members’ contracted-out rights, please fill in and return the reinput schedule(s). The appropriate schedules are:

Schedule Forms

Early leaver CA1563

Pensioners CA1565



939292


GMP and/or Post ’97 COSR Rights to be retained

What to do

5.82 If the GMP and/or post ’97 COSR rights are to be retained:

Step Action


Purchase of an annuity - Buy-out of the GMP and/or Post ’97 COSR Rights

What to do


Step Action




What to do

5.84 If an employee’s GMP rights are transferred to an overseas scheme, or post ’97 COSR rights are transferred to an overseas scheme or overseas arrangement, which is not or has not been contracted-out, delete the member from the reinput schedule and complete form CA1890, see manual CA14, Termination of Contracted-out Employment - Manual for Salary Related Pension Schemes and Salary Related Parts of Mixed Benefits Schemes, available on the internet at www.inlandrevenue gov.uk.


What to do


Step Action



5.86 There is no provision on the reinput schedule to record a transfer to a COSR scheme or the active COSR part of a COMB scheme. In these cases fill in form CA1599, CA1600, CA1617 or CA1887, as appropriate and delete the member from the reinput schedule.

93


What to do


Step Action



5.88 There is no provision on the reinput schedule to record a transfer to a COMP scheme, a COMPSHP scheme or the active COMP part of a COMB scheme. In these cases fill in form CA1601 or CA1887, as appropriate and delete the member from the reinput schedule.


What to do


Step Action



5.90 There is no provision on the reinput schedule to record a transfer to an APP scheme or an APPSHP scheme. In these cases fill in form CA1602 or CA1887, as appropriate and delete the member from the reinput schedule.

Commutation

What to do

5.91 If any members shown on the pensioner, widow or widower pensioner schedules have commuted their GMP and/or post ’97 COSR rights prior to the scheme ceasing:

Step Action


94


5.92 If we do not issue early leaver, pensioner or widow or widower pensioners schedules, there are none of these recorded as entitled to a GMP/post ’97 COSR rights under the scheme. If this is not the case, notify us of the employee(s)

• NINO



• earnings/contributions up to and including the 1996-97 tax year, if appropriate, and





5.94 Approval of arrangements will be granted automatically by the issue of a letter providing we can confirm all of the information is correct.

95

6 Money purchase schemes (including money purchase overseas schemes) which cease to be contracted-out on or after 6 April 1997Conditions for a scheme ceasing to contract-out

6.1 A contracted-out Money Purchase (COMP) pensions scheme (COMPSHP) can cease to contract-out if the scheme

• is amalgamated with or replaced by another scheme operated by the same employer and the protected rights are transferred





) Inland Revenue Election Section Audit and Pension Schemes Services PO Box 62 Yorke House Castle Meadow Road Nottingham NG2 1BG

6.3 Following cancellation or surrender action the Inland Revenue Savings, Pensions, Share Schemes will write to the employer and trustee/insurer and confirm the cessation date. The certificate is no longer valid from the end of the day specified in the acceptance of the surrender or the notice of determination to cancel the certificate. If the certificate is the only or the last one valid by reference to the scheme, then this date is the last day on which there can be contracted-out employment by reference to the scheme, and the liability to pay National Insurance contributions (NICs) at the full not contracted-out rate arises from the following day.


6.4 When a Contracted-out Money Purchase (COMP) scheme ceases to be contracted-out on or after 6 April 1997, trustees must make arrangements to secure all contracted-out rights that have accrued in respect of members, or former members of the scheme. These rights will either be





6.5 We will issue form CA7991 to the trustees, giving general guidelines on securing the liabilities, and the options that are available.

6.6 It is not necessary to secure every member’s protected rights by the same method. Trustees must provide members with information about their rights and options and should tell us, once a decision has been taken, what arrangements have been made.

DIS Regs: Reg 6(4D)

97

6.7 Once a scheme has ceased to be contracted-out, we will obtain by searching through our computer records the following information:


• Contracted-out Deduction (COD) calculations for past early leavers based on contracted-out earnings up to and including 5 April 1997, and/or reinput schedules for those with post-97 protected rights

• COD calculations for pensioners and widow(er) pensioners based on contracted-out earnings up to and including 5 April 1997 and/or reinput schedules for those with post-97 protected rights.

6.8 The Commissioners for the Inland Revenue must be satisfied that a scheme’s contracted-out liabilities are 100% funded.

6.9 Please refer to manual CA14D Contracted-out Guidance for Money Purchase Pension Schemes and Money Purchase Overseas Schemes, for further details on the contracting-out conditions of schemes. This manual is available on the internet at www.inlandrevenue gov.uk.

Time limits

6.10 On cessation of contracting-out, schemes have a period of 2 years in which the protected rights of individual members must either be



6.11 The 2 year period will begin when calculations and/or membership lists are issued by the Inland Revenue National Insurance Contributions Office to the life office/administrator. If arrangements cannot be submitted for approval within this time limit, a request for an extension must be made in writing providing full details of the circumstances. An extension to the 2 year time limit can only be granted in very exceptional circumstances.

6.12 If rights are not discharged or approved for preservation within the scheme within this period, the Commissioners for the Inland Revenue may issue a certificate of non-approval to the trustees, including a written direction to discharge the liabilities to an appropriate home within 6 months, see paragraphs 5.39 to 5.42.


6.13 The trustees or insurer of a scheme must notify the Inland Revenue National Insurance Contributions Office within 5 weeks of effect being given to protected rights.







• the purchase of an appropriate policy of insurance, see paragraphs 6.29 to 6.34.

96

C-out Regs: Reg 16(b)&(d)

C-out Regs:

C-out Regs: Reg 46(1)&(3)

Reg 45(1) &(2)

Reg 45(1) &(3)(b)&(4)


97

6.15 We will then carry out a search of our records as explained in paragraph 6.7. If we are able to confirm that nothing is outstanding, approval will be granted automatically by the issue of a letter.

Preserving the rights within the scheme





and the trustees wish to preserve protected rights within the scheme, the scheme must continue to satisfy the contracting-out conditions.

6.17 We will approve the preservation of protected rights within the scheme as long as the conditions continue to be met.


6.18 Approval to preserve protected rights within the scheme will be withdrawn if the scheme does not continue to meet our contracting-out requirements. We will issue a certificate of non-approval to the trustees, including a direction to discharge the liabilities by one of the routes specified in paragraph 6.14 within 6 months, see paragraphs 6.39 to 6.42.

Transfers

6.19 Where the rights are to be transferred, the member is entitled to at least the cash equivalent of accrued rights that have not been surrendered, commuted or forfeited. The cash equivalent will be determined from guidance given in Guidance Note GN11, issued jointly by the Institute of Actuaries and the Faculty of Actuaries.


• a COMP scheme. Pre-97 protected rights and/or post-97 protected rights transferred must remain as either pre-97 protected rights or post-97 protected rights respectively

• a COMPSHP scheme. Pre-97 protected rights and/or post-97 protected rights transferred must remain as either pre-97 protected rights or post-97 protected rights respectively

• a Contracted-out Salary-Related (COSR) scheme. Pre-97 protected rights and/or post-97 protected rights transferred are converted to become either Guaranteed Minimum Pensions (GMPs) or post ’97 COSR rights, respectively

• an Appropriate Personal Pension (APP) scheme. Pre-97 protected rights and/or post-97 protected rights transferred must remain as either pre-97 protected rights or post-97 protected rights respectively

• an Appropriate Personal Pension Stakeholder (APPSHP) scheme. Pre-97 protected rights and/or post-97 protected rights transferred must remain as either pre-97 protected rights or post-97 protected rights respectively


• an overseas arrangement (for transfers effected after 6 April 2002)

C-out Regs: Reg 45(3)(b)&(4)

PR Transfer Regs:

Reg 7(3)

9998

• a Contracted-out Money Purchase (COMP) “section 53 scheme” (not applicable where the member has applied for the transfer after 6 April 1997 or before 6 April 2002)

• a Contracted-out Salary Related (COSR)/COSR part of a Contracted-out Mixed Benefit (COMB) “section 53 scheme” (not applicable where the member has applied for the transfer after 6 April 1997 or before 6 April 2002)

• a Contracted-out Mixed Benefit (COMB) scheme. Where the transfer is to either

- the salary-related part. Pre-97 protected rights and/or post-97 protected rights transferred are converted to become either GMPs or post ’97 COSR rights, respectively, or

- the active money purchase part. Pre-97 protected rights and/or post-97 protected rights transferred must remain as either pre-97 protected rights or post-97 protected rights respectively.

Note: Where a transfer is made to the salary related part of a COMB scheme before 6 April 2002 that part of the COMB scheme must be active.

6.21 Member’s consent will be required in every case.

6.22 Guidance on bulk transfers is given in Guidance Note GN16 issued jointly by the Institute of Actuaries and the Faculty of Actuaries.


6.23 An annuity must not commence earlier than the date on which the scheme member reaches age 60, and not later than the date on which he/she reaches age 65 (unless he/she has agreed to a later date, in which case it must have commenced by the date on which the member reaches age 75). A single life annuity can be purchased with both pre and post 97 protected rights where the member is unmarried at the time the annuity is purchased.

6.24 Where a member dies before effect has been given to his/her protected rights, an annuity may be purchased for a qualifying widow or widower. In these circumstances the annuity should be provided as soon as practicable.



6.26 Effect may be given to a member’s protected rights by the provision of a pension from the scheme. The pension must not commence earlier than the date on which the scheme member reaches age 60, and not later than the date on which he/she reaches age 65 (unless he/she has agreed to a later date, in which case it must have commenced by the time the member reaches age 75).

6.27 Where a member dies before effect has been given to their protected rights, a pension may be provided for a qualifying widow or widower or a beneficiary nominated by the member before their death. In these circumstances the pension should be provided as soon as practicable.

6.28 The provision of a pension from the scheme is only available if the scheme has not commenced winding up.

PreservationRegs: Reg 12

PSA 1993:S29(3)(a)

PR Regs:Reg 12(3)(b)

PSA 1993:S29(1)(a)

PR Regs: Reg 12(3)(a)

99

Appropriate policies of insurance

6.29 These are insurance policies in the name of individual members. The conditions attached to the policies mean that the member’s protected rights will continue to be treated as such.

Insurance policies

6.30 When a COMP scheme winds up, trustees can discharge the protected rights of the members into appropriate policies of insurance:

• existing insurance policies can be retained, provided they meet the requirements for appropriate policies. If necessary the insurance policy should be endorsed in respect of the individual member

• trustees are not tied to their existing insurance company. They can approach a new insurance company if they wish to take out appropriate policies. However costs are likely to be higher.

Charges

6.31 Where a scheme uses its existing insurance company to provide the appropriate policies of insurance for its members, the only charges the insurance company can levy are for administrative costs. Commission cannot be charged in these cases.

Member’s consent

6.32 The trustees must write to members to tell them of their intention to wind up by means of appropriate policies of insurance. Each member must be given full details of the proposals, and the notification must be sent to the member’s last known address. If the member wishes he/she can opt out of these arrangements. He/she has three months to make alternative arrangements to transfer his/her protected rights into another scheme and to notify the details to the trustees.

6.33 At the end of the three month period the trustees can discharge into insurance policies the protected rights of any remaining scheme members who have not responded. (Any case where the transfer to another scheme is still going through is exempted from this procedure.)

Trustees

6.34 From 6 April 1997, where the trustees cannot be contacted or where they are unable or unwilling to act, the Occupational Pensions Regulatory Authority (OPRA) have the power to appoint a suitable person to act to wind the scheme up.


6.35 Commutation is not an option at scheme cessation, however the member may have commuted their protected rights on the ground of triviality prior to the scheme ceasing. These members will still be shown on our lists. In these cases the reinput schedules should be completed as outlined at paragraphs 6.94 and 6.102.


6.36 Commutation is not an option at scheme cessation, however the member may have commuted their protected rights on the grounds of serious ill health prior to the scheme ceasing. These members will still be shown on our lists. In these cases the reinput schedules should be completed as outlined at paragraphs 6.95 and 6.103.

Discharge Regs: Reg 6(1)(a)

Discharge Regs: Reg 2

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Restoration of state scheme rights after 6 April 1997

6.37 The protected rights of members and schemes which have ceased to contract-out on or after 6 April 1997, can no longer be restored to the state scheme via the payment of a State Scheme Premium. However, there may be the possibility of deemed buy-back where the scheme winds up with insufficient assets to discharge its contracted-out liabilities in full as the consequence of a compensatable event, ie fraud, theft or misappropriation of funds.

Re-assurance

6.38 Schemes that have ceased to be contracted-out and are holding contracted-out liabilities are no longer required to complete Triennial Re-assurance statements. However, on occasions we may seek confirmation that the relevant conditions are satisfied.

Certificate of non-approval of arrangements to secure contracted-out rights and written direction to discharge liabilities

6.39 If protected rights are not secured to an appropriate home within the specified period, see paragraph 6.10, or if our contracting-out requirements are not met, the Inland Revenue National Insurance Contributions Office on behalf of the Commissioners of Inland Revenue, will issue a certificate of non-approval to the trustees. We will include a written direction that liabilities must be discharged to an appropriate home, see paragraph 6.14, within 6 months of the issue of the certificate of non-approval. If liabilities cannot be discharged within this time limit, a request for an extension must be made in writing providing full details of the circumstances. An extension to the 6 month period can only be granted in very exceptional circumstances.

6.40 Where the Commissioners for the Inland Revenue has issued a direction to discharge contracted-out liabilities, trustees must within the 6 month period allow for discharge, and

• notify all active and deferred members with any entitlement to protected rights under the scheme, of the issue of the certificate of non-approval and the reasons for it, and


6.41 Where trustees have not received any request from the member to transfer their rights, they will be able to buy-out the benefits without the individual’s consent through appropriate policies of insurance, see paragraphs 6.29 to 6.34.




Step Action


100

C-out Regs: Reg 49

C-out Regs: Reg 16(1)(b)&(d)

101

2 send you: • lists of possible current members or current member calculations (when all earnings information is available from our records) and reinput schedules • calculations for: - early leavers - pensioners - widow or widower pensioners • reinput schedules for: - early leavers - pensioners - widow or widower pensioners

6.44 If the period of contracted-out employment is entirely post 5 April 1997 no calculations will be applicable. The individual will be shown on the reinput schedule only.

Calculation service for COMP/COMPSHP schemes

6.45 To assist you in deciding on the method of discharging the members’ protected rights, we will provide COD calculations based on information from the employee’s P14 End of Year Summary (EYS) and/or information provided by the employer on the notice of termination of contracted-out employment.

6.46 The calculations will only be issued for those members whose period of contracted-out employment includes protected rights accrued on earnings up to and including the 1996-97 tax year.





How to preserve protected rights - current members

6.50 When the scheme ceases to contract-out, we will issue either


• the appropriate calculations and reinput schedules for each individual current member if we already have all the earnings/contributions details, see paragraph 6.60. The calculations will only be provided where the members’ period of contracted-out employment spans 6 April 1997.


• NINO


• date of birth

• sex


• earnings/contributions, if recorded, for the tax year preceding the tax year of cessation (only where the date of scheme cessation is between 6 April 1997 and 5 April 1998).

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6.52 If the date of scheme cessation is 6 April 1998 or later no earnings will be shown.

6.53 If the employer has more than one scheme, we cannot identify the particular scheme an individual employee belongs to. This is because the EYSs are recorded under a common ECON. It is therefore important that we receive the scheme administrator(s) assistance in identifying the members of a scheme that has ceased to contract-out.

6.54 The details shown on the lists are taken from the P14 EYS, sent to the Inland Revenue National Insurance Contributions Office by the employer. P14s must be completed accurately. Any queries may delay our action.



• disagree with any of the calculations. This notification must be accompanied by details of the:

- employee(s)’ name and NINO


- employee(s)’ date of birth.


What to do


Step Action



3 if the scheme cessation date is in the 1997-98 tax year give details of contracted-out earnings paid in the 1996-97 tax year, where appropriate, if these are not included

4 if an employee listed is someone who actually left the scheme before the date of cessation, note the entry accordingly and send any termination notice


6.58 If we have all the relevant information to enable calculations to be made, where appropriate, the calculations and or/reinput schedules will be supplied as in the following paragraphs. However, you must confirm that all current members have been identified.

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103

Action when no current members’ lists or calculations are supplied by Services to Pensions Industry

6.59 If we do not issue a current members’ list or calculations as in paragraph 6.51, this is because the search of our computer records has not identified any member as being in contracted-out employment by reference to the scheme. If this

• is correct we will ask you to confirm that there are no current members

• is not the case, notify us of:

- the employee(s)’ NINO

- the employee(s)’ surname and initials

- the Employer’s Contracting-out Number (ECON)

- the tax year of commencement of contracted-out employment

- the contracted-out contributions/earnings for all tax years up to and including the 1996-97 tax year, if appropriate.

This information is used by Inland Revenue National Insurance Contributions Office to calculate the protected rights liability, where appropriate, see paragraphs 6.45 to 6.46.



• COD calculations, if appropriate, for each member identified

• a reinput schedule for you to record the method of preservation. This schedule form CA1560 is headed ‘Reinput Schedule - Scheme Cessation Current Members’

6.61 If the member’s period of contracted-out employment commenced 6 April 1997 or later, they will only appear on the reinput schedule.

6.62 These schedules are used to notify that protected rights are to be

• preserved within the scheme

• transferred to another contracted-out/APP scheme

• bought out by the purchase an annuity

• used to provide a pension by the scheme

• discharged by the purchase of an appropriate policy of insurance.


6.63 When you have decided on the method of preservation, please complete and return the reinput schedule(s). Make sure that an entry is made in the appropriate box for each member listed on the schedule(s).

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Protected rights to be retained in the scheme

What to do


Step Action


Transfer to a COMP scheme, a COMPSHP scheme or the active COMP part of a COMB scheme

What to do



Step Action






Note: where a transfer is made to the COMP part of a COMB scheme before 5 April 2002, the COMP part of the COMB scheme must be active.

Transfer to a APP scheme or an APPSHP scheme

What to do

6.67 If the method of discharging members’ rights is to transfer them to a APP scheme or an APPSHP scheme:

Step Action





What to do


105

6.69 If the method of discharging members’ rights is to transfer them to a COSR scheme or the COSR part of a COMB scheme:

Step Action





5 enter the code for the revaluation rate used by the COSR scheme in column 12: • ‘1’ for Section 148 (previously Section 21) • ‘3’ for fixed rate This will only be necessary where the period of contracted-out employment spans 6 April 1997

Note: Where a transfer is made to the COSR part of a COMB scheme is made before 6 April 2002, the COSR part of the COMB scheme must be active


What to do

6.70 If an employee’s protected rights are transferred to an overseas scheme or from 6 April 2002, an overseas arrangement which is not or has not been contracted-out, delete the member from the reinput schedule and complete form CA1895. See paragraphs 8.45 to 8.49 of manual CA14A Termination of Contracted-out - Manual for Money Purchase Pension Schemes and Money Purchase Parts of Mixed Benefit Schemes available on the internet at www.inlandrevenue gov.uk.


What to do

6.71 If the method of discharging members’ rights is assuring/taking out an appropriate insurance policy:

Step Action





What to do


107

Step Action





What to do


Step Action




6.74 Do not complete the commencement date with the new scheme or the onward rate of revaluation.


What to do


Step Action




Note: Where a change of RPA is made to the COSR part of a COMB scheme before 6 April 2002, the COSR part of the COMB scheme must be active

106

107


What to do


Step Action




What to do


Step Action





6.78 We provide lists headed ‘Scheme Cessation Enquiry Service’ and make COD calculations for

• members who have left the scheme and have protected rights under the SCON


• widows or widowers. In the case of a deceased member, the widow or widower may not have been identified. If this is the case, advise Services to Pensions Industry immediately so that the appropriate calculations can be sent.

6.79 There may be pensioners on Services to Pensions Industry lists who have earned increments since 6 April 1989 and are not recorded on the schedules. In these cases fill in form CA1594 to obtain revised calculations.

6.80 The calculations are based on information from the employee’s P14 EYS and from information provided by the employer on the notice of termination up to and including the 1996-97 tax year.

109


6.81 When you have decided how to secure the member’s protected rights, please fill in and return the completed reinput schedule(s) to us. The appropriate schedules are

Schedule Forms

Early leaver CA1572

Pensioners CA1574




Early leaver/pensioner


What to do


Step Action



What to do


Step Action




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109


What to do


Step Action




What to do

6.86 If an employee’s protected rights are transferred to an overseas scheme or from 6 April 2002, an overseas arrangement which is not or has not been contracted-out, delete the member from the reinput schedule and fill in form CA1895. See manual CA14A Termination of Contracted-out - Manual for Money Purchase Pension Schemes and Money Purchase Parts of Mixed Benefit Schemes available on the internet at www.inlandrevenue gov.uk.

Change of RPA to a COMP scheme , a COMPSHP scheme or the active COMP part of a COMB scheme

What to do


Step Action




6.88 There is no provision on the reinput schedule to record a transfer to a COMP scheme, a COMPSHP scheme or the active COMP part of a COMB scheme. In these cases delete the member from the schedule, fill in form CA1590 or form CA1892 and advise Services to Pensions Industry the date the transfer takes place.

Note: where a change of RPA is made to the COMP part of a COMB scheme before 6 April 2002, the COMP part of the COMB scheme must be active.

111

Change of RPA to an APP Scheme or an APPSHP scheme

What to do

6.89 If the method of discharging members’ rights is a change of RPA to an APP scheme, or an APPSHP scheme

Step Action




6.90 There is no provision on the reinput schedule to record a transfer to APP scheme, or APPSHP scheme. In these cases delete the member from the schedule, fill in form CA1591 or form CA1892 and advise Services to Pensions Industry the date the transfer takes place.


What to do


Step Action




Note: Where a change of RPA to the COSR part of a COMB scheme is made before 6 April 2002, the COSR part of the COMB scheme must be active

6.92 There is no provision on the reinput schedule to record a transfer to a COSR scheme or the active COSR part of a COMB scheme. In these cases fill in form CA1592 or form CA1892 and delete the member from the schedule.

Note: Where a transfer is made to the COSR part of a COMB scheme is made before 6 April 2002, the COSR part of the COMB scheme must be active

110

111


What to do

6.93 If the method of discharging member’s rights is assuring/taking out an appropriate insurance policy:

Step Action





What to do

6.94 If any of the members shown on the early leaver or pensioner reinput schedules (where effect has been given to protected rights) have commuted their protected rights prior to the scheme ceasing:

Step Action



What to do

6.95 If any of the members shown on the early leaver or pensioner re-input schedule (where effect has been given to protected rights) have commuted their protected rights prior to the scheme ceasing:

Step Action


2 if Services to Pensions Industry have not been notified on form CA1594, arrange for form CA1594, available from Services to Pensions Industry, to be filled in and returned with the schedule note the schedule to that effect

113



What to do

6.96 If the protected rights are discharged by a purchase of an annuity:

Step Action





What to do


Step Action




What to do

6.98 If an employee’s protected rights are transferred to an overseas scheme or from 6 April 2002 an overseas arrangement which is not or has not been contracted-out, delete the member from the reinput schedule and fill in form CA1895. See manual CA14A Termination of Contracted-out - Manual for Money Purchase Pension Schemes and Money Purchase Parts of Mixed Benefit Schemes available on the internet at www.inlandrevenue gov.uk.


What to do


Step Action




112

113

Note: where a change of RPA to the COMP part of a COMB is made before 6 April 2002, the COMP part of the COMB scheme must be active.


What to do


Step Action





What to do


Step Action






What to do

6.102 If the members rights have been commuted prior to the scheme ceasing:

Step Action


115


What to do

6.103 If the members rights have been commuted prior to the scheme ceasing:

Step Action




6.104 If we do not issue early leaver, pensioner or widow or widower pensioner schedules, there are none of these recorded as entitled to protected rights under the scheme. If this is not the case, notify us of the employee(s)

• NINO









114

115

7 Personal Pension schemes (including overseas schemes) which ceases to be appropriate on or after 6 April 1997Conditions for an APP scheme ceasing to be appropriate

7.1 Appropriate Personal Pension (APP) can cease to be appropriate if the scheme

• surrenders the Appropriate scheme certificate


• no longer satisfies the contracting-out requirements of the Commissioners of Inland Revenue.

7.2 When a scheme ceases to be appropriate you must notify in writing

) Inland Revenue (Savings, Pensions, Share Schemes) Yorke House P.O. Box 62 Castle Meadow Road Nottingham NG2 1BG

7.3 Following cancellation or surrender action Inland Revenue (Savings, Pensions, Share Schemes) will write to the provider and confirm the cessation date.


7.4 When an APP scheme ceases to be appropriate, the provider must make arrangements to secure all rights that have accrued in respect of members or former members of the scheme. These rights will either be




• safeguarded rights. See Chapter 12 Pension Sharing on Divorce for further details about safeguarded rights.

7.5 Once an Appropriate Personal Pension Scheme ceases to be Appropriate, Inland Revenue (Savings, Pensions, Share Schemes) will notify Services to Pensions Industry, who after searching through their computer records will send the scheme

• Contracted-out Deduction (COD) calculations for any current members, early leavers, pensioners or widow(er) pensioners who have pre 1997 protected rights, and

• Re-input schedules for all current members, early leavers, pensioners or widow(er) pensioners with pre and/or post 1997 protected rights.

7.6 Services to Pensions Industry will also send form CA1721 to each scheme member explaining that the scheme is no longer Appropriate and outlining the options available to them to secure their protected rights.

7.7 It is not necessary to secure every member’s protected rights by the same method. Trustees must provide members with information about their rights and options. When members have decided how to secure their protected rights, you should tell Services to Pension Industry what arrangements have been made.

117116


7.8 The trustees or insurers of a scheme must notify Services to Pensions Industry within 5 weeks of effect being given to protected rights.


• Preservation within the scheme and our requirements are satisfied, see paragraphs 7.11 to 7.12, or

• Discharged to an appropriate home by one of the following methods

- transfer to another contracted-out scheme, see paragraphs 7.13 to 7.15, or



- income withdrawal, see paragraphs 7.22 to 7.24.

7.10 We will then carry out a further search of our records as explained 7.5. If we are able to confirm that nothing is outstanding, approval of the arrangements will be granted automatically by the issue of a letter.


7.11 Where a scheme ceases to be Appropriate but continues in existence protected rights can be preserved within the scheme if the contracted-out conditions continue to be met.

7.12 Approval to preserve protected rights within the scheme will be withdrawn if the contracted-out requirements are not met. Inland Revenue (Savings, Pensions, Share Schemes) will issue a certificate of non-approval to the trustees, including a direction to discharge the liabilities by one of the other methods specified in paragraph 7.9.

Transfers

7.13 When the rights are transferred, the member is entitled to at least the cash equivalent of accrued right that have not been surrendered, commuted or forfeited. The cash equivalent will be determined from guidance given in the Guidance Note (GN11), issued jointly by the Institute of Actuaries and the Faculty of Actuaries.

7.14 A transfer can be made where the receiving scheme is one of the following

• an Appropriate Personal Pension (APP) scheme. Pre-97 protected rights and/or post-97 protected rights must remain as either pre-97 protected rights or post-97 protected rights respectively

• an Appropriate Personal Pension Stakeholder (APPSHP) scheme. Pre-97 protected rights and/or post-97 protected rights must remain as either pre-97 protected rights or post-97 protected rights respectively

• a Contracted-out Money Purchase (COMP) scheme, including the COMP part of a Contracted-out Mixed Benefit (COMB) scheme. Pre-97 protected rights and/or post-97 protected rights must remain as either pre-97 protected rights or post-97 protected rights respectively

• a Contracted-out Money Purchase Stakeholder Pension (COMPSHP) scheme. Pre-97 protected rights and/or post-97 protected rights must remain as either pre-97 protected rights or post-97 protected rights respectively

117

• a Contracted-out Salary Related (COSR) scheme, including the COSR part of a Contracted-out Mixed Benefit (COMB) scheme. Pre-97 protected rights transferred are converted to become Guaranteed Minimum Pensions (GMPs). Post-97 protected rights transferred are converted to post-97 COSR rights

• an overseas occupational pension scheme or an overseas arrangement not contracted-out as above.

Members consent

7.15 Members consent to the transfer of protected rights will be required in every case.


7.16 An annuity must not commence earlier than the date on which the scheme member reaches age 60, and not later than the date on which he or she reaches age 75. A single life annuity can be purchased with both pre and post-97 protected rights where the member is unmarried at the time the annuity is purchased.

7.17 Where a member dies before effect is given to his or her protected rights, an annuity may be purchased for their widow or widower. In these circumstances the annuity should be provided as soon as practicable.



7.19 Effect may be given to the member’s protected rights by the provision of a pension from the scheme. The pension must not commence earlier than the date on which the scheme member reaches 60, and not later than the date on which he or she reaches 75.

7.20 Where the member dies before effect is given to their protected rights, a pension may be provided for their widow or widower, or a beneficiary nominated by the member before the death. In these circumstances the pension should be provided as soon as practicable.

7.21 The provision of a pension is only available if the scheme has not commenced winding up.

Income Withdrawal

7.22 Income withdrawal allows a member to draw an income from the protected rights before using them to buy or provide a pension. Income withdrawal must not commence earlier that the date on which the scheme member reaches 60, and not later than the date on which he or she reaches age 75.

7.23 Where a member dies before effect is given to his or her protected rights, their widow or widower can give effect to the protected rights by income withdrawal.

7.24 Income withdrawal from the scheme is only available if the scheme has not commenced winding up.

Initial action by Services to Pensions Industry to identify scheme members

7.25 When we confirm the date of cessation of contracted-out following an election to surrender a contracting-out certificate, or Inland Revenue (Savings, Pensions, Share Schemes) have cancelled or withdrawn a contracted-out certificate, Services to Pensions Industry will:

119118

Step Action

1 take action to identify • current members • early leavers from the scheme • pensioners • members who have died and have a widow or widower

2 send you • calculations for - current members - early leavers - pensioners - widow or widower pensions if appropriate • reinput schedules for - current members - early leavers - pensioners - widow or widower pensions if appropriate

3 issue a letter to each member of the scheme informing them that the scheme is no longer appropriate.

7.26 If the period of scheme membership is entirely post 5 April 1997 no calculation will be applicable. The individual will be shown on the reinput schedule only.

Calculation service for APP schemes

7.27 To assist you in deciding on the method of securing the member’s protected rights, Services to Pensions Industry will provide COD calculations based on information from the member’s End of Year Summary (EYS) (P14) for tax years up to and including the 1996-97 tax year.

7.28 The earnings recorded on the EYS are deducted at the non contracted-out rate (A rate). The earnings figure used to calculate the COD is the ‘A’ rate earnings minus the Lower Earnings Limit (LEL).

7.29 The calculations will only be issued for those members whose periods of contracted-out employment includes protected rights accrued up to and including the 1996-7 tax year.

7.30 When the scheme ceases to be Appropriate, Services to Pension Industry will issue COD calculations for members who have pre-97 protected rights.

7.31 Please notify Services to Pensions Industry if you

• do not require any calculations, or

• disagree with any of the calculations.

You should provide details of the

• scheme member’s name and NINO

• earnings used in your calculation

• scheme member’s date of birth.

119

Completing re-input schedules for current members

7.32 Services to Pensions Industry will issue you with re-input schedules for all current members of the scheme. The re-input schedule is for you to record the method of preservation (see paragraph 7.11 to 7.24).

This schedule is headed ‘Scheme Cessation – Current Member Reinput Schedule’ CA1801.

7.33 When you have decided on the method of preservation, please fill in and return the reinput schedule(s). Ensure that an entry is made in the appropriate box for each member listed on the schedule(s).


What to do


Step Action



What to do

7.35 If the method of discharging member’s rights is to transfer them to a APP scheme or an APPSHP scheme:

Step Action




Transfer to a COMP scheme, a COMPSHP scheme or the COMP part of a COMB Scheme

What to do


Step Action





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What to do


Step Action





5 enter the code for the revaluation rate used by the COSR scheme in column 11

• ‘1’ for Section 148 (previously Section 21) • ‘3’ for fixed rate

This will only be necessary where the period of contracted-out employment spans April 1997, or if the period is wholly pre 6 April 1997


What to do

7.38 If an employee’s protected rights are transferred to an overseas scheme, or overseas arrangement which is not or has not been contracted out, delete the member from the reinput schedule and fill in form CA1881. See paragraphs 5.23 to 5.27 of the manual CA16 Appropriate Personal Pension Scheme Manual, available on the internet at www.inlandrevenue.gov.uk.

Purchase of annuity

What to do


Step Action



3 enter the date effect is given to the protected rights, i.e. the date entitlement to the annuity commences in column 12

121


What to do


Step Action




What to do



What to do

7.42 If the method of discharging member’s rights is a change of RPA to a COMP scheme, a COMPSHP scheme or the COMP part of a COMB scheme:

Step Action



3 enter the date the change of RPA takes place in column 10


What to do

7.43 If the method of discharging member’s rights is a change of RPA to a COSR scheme or the COSR part of a COMB scheme:

Step Action




123122

Income withdrawal

What to do

7.44 Income withdrawal can take place any time between the members 60th and 75th birthday. If an income withdrawal is to be provided:

Step Action


2 enter the date effect is give to protected rights, i.e. the date entitlement to pension commences in column 12

3 enter a tick in column 13


What to do

7.45 If any of the members (where effect has been given to protected rights) have commuted their protected rights prior to the scheme ceasing:

Step Action


2 enter the date commutation took place in column 10

Completing reinput schedules for post early leavers, pensioners and widow or widowers

7.46 Services to Pensions Industry will issue you with reinput schedules for

• members who have left the scheme and have protected rights under the ASCN

• members who have reached State Pension age (SPA) before the scheme ceased

• widows or widowers. In cases of a deceased member, the widow or widower may not have been identified. If this is the case, advise Services to Pensions Industry of the widows or widower details.

7.47 When you have decided how to secure the member’s protected rights, please fill in and return the completed reinput schedule(s) to us. The appropriate schedules are:

Schedule Forms

Early Leaver CA1802

Pensioners CA1803


Widower pensioners CA1808

123


Completion of Form CA1802

Early leaver


What to do


Step Action



What to do


Step Action




Transfer to a COMP scheme, a COMPSHP scheme or the COMP part of a COMB Scheme

What to do


Step Action





125124


What to do


Step Action





5 enter the code for the revaluation rate used by the COSR scheme in column 12

• ‘1’ for Section 148 (previously Section 21) • ‘3’ for fixed rate.

This will only be necessary where the period of contracted-out employment spans April 1997 or if the period is wholly pre 6 April 1997.


What to do

7.53 If an employee’s protected rights are transferred to an overseas scheme, or overseas arrangement which is not or has not been contracted out, delete the member from the reinput schedule and fill in form CA1881. See paragraphs 5.23 to 5.27 of the manual CA16 Appropriate Personal Pension Scheme Manual, available on the internet at www.inlandrevenue.gov.uk



Step Action


2 enter the date effect is give to protected rights, i.e. the date entitlement to pension commences in column 14


7.55 Protected rights can be used to purchase an annuity for the member at any time between their 60th and 75th birthday. If the protected rights are to be secured by a purchase of an annuity

125

Step Action








Step Action






Step Action




Income withdrawal

What to do

7.59 Income withdrawal can take place any time between the members 60th and 75th birthday. If an income withdrawal is to be provided:

Step Action




127126


What to do

7.60 If any of the members (where effect has been given to protected rights) have commuted their protected rights prior to the scheme ceasing:

Step Action



Completion of forms CA1803, CA1805 and CA1808

Pensioner, widow or widower pensioners


What to do


Step Action



What to do


Step Action




127


What to do


Step Action



Transfer to an overseas occupational pension scheme, or an overseas arrangement other than one which is or was contracted out

What to do

7.64 If an employee’s protected rights are transferred to an overseas scheme, or an overseas arrangement which is not or has not been contracted-out, delete the member from the reinput schedule and fill in form CA1881. See paragraph 5.23 to 5.27 of the manual CA16 Appropriate Personal Pension Scheme Manual, available on the internet at www.inlandrevenue.gov.uk.

Change of RPA to an APP Scheme or an APPSHP Scheme

What to do


Step Action




What to do


Step Action



129128

Transfer or change of RPA to a COSR scheme or the COSR part of a COMB scheme

What to do


Step Action



Income withdrawal

What to do

7.68 Income withdrawal can take place any time between the members 60th and 75th birthday. If an income withdrawal is to be provided

Step Action





What to do

7.69 If any of the members (where effect has been given to protected rights) have commuted their protected rights prior to the scheme ceasing

Step Action



129


7.70 If Services to Pensions Industry do not issue early leaver, pensioner or widow or widower pensioner schedules, there are none of these recorded as entitled to protected rights under the scheme. If this is not the case, notify Services to Pensions Industry the scheme member(s)

• NINO


• period of contracted-out employment



Action when schedules are completed

7.71 When you have completed all relevant schedules return them to

) Inland Revenue National Insurance Contribution Office Services to Pensions Industry Scheme Cessation Section Benton Park View Newcastle upon Tyne NE98 1ZZ


131130

8 Deemed Buyback procedures - Contracted-out Salary Related (COSR) schemesBackground

8.1 As a result of the 1995 Pensions Act, where a Contracted-out Salary Related (COSR) scheme ceases to contract-out on or after 6 April 1997, it is not possible for the member’s accrued rights to be bought back into the additional State Pension, commonly known as State Earnings Related Pension Scheme (SERPS) or from 6 April 2002 as State Second Pension by way of Accrued Rights Premiums (ARPs) or Pensioners Rights Premiums (PRPs).

8.2 In order to provide a safety net for members of a scheme which winds up insolvent, the 1995 Act allows for Deemed Buyback to apply in certain circumstances. Deemed buyback is not an option for members who have safeguarded rights, if safeguarded rights are held they must be secured by some other means.

8.3 This will, in effect, restore or partially restore the members’ state scheme rights to additional State Pension. It can only be applied when the date of scheme wind-up is on or after 6 April 1997.

8.4 Where the necessary conditions are satisfied, the option of Deemed Buyback is one of a number of options available to the member for securing their accrued rights. The final decision on which option for securing their accrued rights should be adopted will be taken by the member, not the scheme.

Conditions for Deemed Buyback

8.5 The following conditions need to be satisfied before a scheme member has the option of securing their rights within the state scheme:

• the scheme must be in wind up

• the employer must be unable to provide sufficient additional funds to the scheme

• the funds available to the scheme in respect of the member must be less than the amount required to restore their state scheme rights for the period of contracted-out employment

• the scheme must have insufficient resources to meet its 100% Minimum Funding Requirement (MFR)

• the amount available in the scheme in respect of the member must be less than the amount which would have been available had the scheme wound up 100% funded

Restoring state scheme rights

8.6 The maximum amount available which can be used to restore state scheme rights in respect of a COSR scheme is limited to the lower of the following:

• the amount required to restore state scheme rights to a level which they would have been had the member been contracted-in, ie the Technical Amount (TA)

• the amount of accrued rights had the scheme wound up 100% MFR funded, ie the Minimum Funding Requirement Transfer Value (MFRTV)

8.7 If a payment from the compensation fund is due, or has been made, to the scheme, this must be taken into account in determining the amount of accrued rights available from the scheme in respect of the member, see paragraphs 1.15 to 1.18.

131

8.8 In order to determine whether it is appropriate to apply the deeming provisions in respect of a member, three calculations will be carried out:

• the scheme will calculate the amount of scheme rights available in respect of the member, ie the Actual Transfer Value (ATV)

• the scheme will calculate the amount of scheme rights which would have been available in respect of the member had 100% funding been available, ie the Minimum Funding Requirement Transfer Value (MFRTV)

• we will calculate the amount required to restore state scheme rights to the level they would have been had the member been contracted-in, ie the Technical Amount (TA).

To enable us to calculate the correct TA, schemes should bring to our attention any members whose contracted-out rights are subject to pension sharing on divorce.

8.9 The calculations provided by us will include a forecast of the weekly SERPS/State Second Pension amount calculated at the effective date. This information should be made available to the members who may qualify for the choice of restoring their rights in the state scheme, to assist them in deciding on the option for securing their accrued rights.

8.10 The initial TA calculation is calculated up to the effective date and is a provisional figure only. The effective date for the provisional calculations is the date that Services to Pensions Industry (on behalf of the Secretary of State) is satisfied that the scheme meets the conditions for deemed payback.

8.11 Only where the ATV is less than the MFRTV and the TA, will the member be given the option of securing their rights within the state scheme.

8.12 Where the MFRTV is less than the TA, then the amount of SERPS/State Second Pension restored will be proportionately reduced.

8.13 All of the ATV amount held for each individual member must be paid to the state where Deemed Buyback is the chosen method of preservation. Any payments must be sent with the completed reinput schedules.

8.14 The final TA and a forecast of the weekly SERPS/State Second Pension amount will be recalculated by us on return of the completed reinput schedules. The effective date used in the final TA calculation is the date that we receive the completed reinput schedules. A comparison will be made between the ATV, the TA and the MFRTV to ensure that Deemed Buyback is still appropriate.

8.15 If after recalculation the amounts originally notified have changed, but deeming is still appropriate, the scheme will be notified of the revised TA and revised weekly SERPS/State Second Pension amount.

8.16 Once a member has chosen to have their state scheme rights restored it will not be possible for them to subsequently opt for an alternative method of preservation, except in situations outlined at paragraph 6.15.

8.17 The member should be made aware of this before making their decision on which option should be adopted in order to secure their Guaranteed Minimum Pension (GMP) and/or post ’97 COSR rights.

Restoring StateScheme Rights RegsReg 3

133132


8.18 When we receive confirmation of a scheme ceasing to contract-out and are aware that Deemed Buyback calculations are appropriate, we will:

Step Action




8.19 This service will provide calculations of

• the TA, and

• GMP, where appropriate, and

• a forecast of the weekly SERPS/State Second Pension amount calculated at the effective date.

8.20 The calculations are based on information from the employee’s P14 End of Year Summary (EYS) and/or information provided by the employer on the current member list.

Note: The total contracted-out earnings factors, not the contracted-out earnings factors, are used in the calculation of the TA.

8.21 GMP calculations will only be issued in respect of those members whose period of contracted-out employment includes GMP rights accrued on earnings up to and including the 1996-97 tax year.

Married women and widows paying reduced rate National Insurance contributions (NICs)

8.22 The Government has repealed the provisions in the Social Security Act 1990 relating to GMP for married women and widows who retain the right to pay NICs at the reduced rate.



133

How to preserve GMP and/or Post ’97 COSR Rights - current members

8.25 When the scheme ceases to contract-out, Services to Pensions Industry sends either


• the appropriate calculations and reinput schedules for each individual current member if we already have all the earnings/contributions details, see paragraph 8.36.


• National Insurance Number (NINO)


• date of birth

• sex

• total contracted-out earnings, if recorded, for the


- preceding tax year

• tax year of commencement of contracted-out employment.

8.27 The final and penultimate year total contracted-out earnings held for each employee under the Employer’s Contacting-out Number (ECON) are shown on each list. However in some cases the most recent earnings may not yet have been recorded.

8.28 If the employer has more than one scheme, we cannot identify the particular scheme an individual employee belongs to, this is because the P14 EYSs are recorded under a common ECON. It is therefore important that we receive the scheme administrator(s) assistance in identifying the members of a scheme that has ceased to contract-out.

8.29 The details shown on the lists are taken from the employee’s EYSs (P14s), sent to the Department for Work and Pensions by the employer. P14s must be completed accurately. Any queries may delay our action.

8.30 Notify us if you disagree with any of the GMP calculations. This notification must be accompanied by details of the

• employee(s)’ name and NINO

• earnings/contributions used

• employee(s)’ date of birth.

135134


What to do


Step Action



3 give details of total contracted-out earnings paid in the tax year in which the scheme ceased and the previous tax year if these are not included


8.32 If an asterisk appears after an employee’s date of birth this indicates that

• a termination notice offering a Contribution Equivalent Premium (CEP), Transfer Premium (TP) or Limited Revaluation Premium (LRP) has been received prior to cessation, but




8.34 If we do not issue a current members’ list or calculations as in para 8.32, this is because the search of our computer records has not identified any member as being in contracted-out employment by reference to the scheme. If this





- the ECON

- the employee(s) total contracted-out earnings/contributions up to the date of scheme cessation

- the employee(s) contracted-out earnings/contributions up to and including the 1996-97 tax year, if appropriate.

This information is used by Inland Revenue National Insurance Contributions Office to calculate the GMP liability where appropriate, the TA and a forecast of the weekly SERPS/State Second Pension amount available to the individual.

135

Action when Inland Revenue National Insurance Contributions Office have obtained all the necessary information


• GMP (where appropriate) and TA calculations for each member identified and a forecast of the weekly SERPS/State Second Pension amount available to the member

• a reinput schedule form CA1903 for you to record the method of securing the member(s)’ rights. This is headed ‘Reinput Schedule - Scheme Cessation Current Members’.

8.36 On receipt of these calculations the scheme should compare the TA with their calculations of the MFRTV and the ATV.

8.37 The reinput schedules are used to notify that GMP and/or post ’97 COSR rights are to be:

• discharged by Deemed Buyback

• transferred/change of RPA to another contracted-out occupational pension/Appropriate Personal Pension (APP)/Appropriate Personal Pension Stakeholder (APPSHP) scheme

• bought out by the purchase of an immediate or deferred annuity

• discharged by payment of a CEP.

8.38 If Deemed Buyback is chosen, the reinput schedules should be completed as in paragraph 8.41. If it is decided that Deemed Buyback is not to apply, see paragraphs 8.42 to 8.52 and 8.63 to 8.71, as appropriate.


8.39 Please fill in and return the reinput schedule form CA1903. Make sure that an entry is made in the appropriate box for each member listed on the schedule.

Deemed Buyback

What to do

8.40 If Deemed Buyback is chosen:

Step Action


2 enter the ATV in column 11, the amount should be sent with the schedule

3 enter the MFRTV in column 12

137136

Contributions Equivalent Premium (CEP)

What to do

8.41 If a CEP is to be paid:

Step Action


2 delete the total contracted-out earnings from columns 6 and 7

3 enter the contracted-out earnings in columns 6 and 7

Transfer to a COSR scheme or the active COSR part of a Contracted - out Mixed Benefit (COMB) scheme

What to do



Step Action


2 enter the ECON and SCON of the new contracted-out employment in column 8



Transfer to a Contracted-out Money Purchase (COMP) scheme, a (COMPSHP) scheme or the active COMP part of a COMB scheme

What to do


Step Action


2 enter the ECON and SCON of the new contracted-out employment in column 8


137

Transfer to an Appropriate Personal Pension (APP) scheme or an Appropriate Personal Pension Stakeholder (APPSHP) scheme

What to do


Step Action




Change of Responsible Paying Authority (RPA) to a COSR scheme or the active COSR part of a COMB scheme

What to do


Step Action



3 enter the code for the onward revaluation in column 10: • ‘1’ for Section 148 (previously Section 21) • ‘3’ for fixed rate this will only be necessary where the period of contracted-out employment spans 6 April 1997


What to do


Step Action



139138


What to do


Step Action



Purchase of an annuity/buy-out of GMP and/or Post ’97 COSR Rights

What to do

8.50 If the method of preservation of members’ rights is to purchase an annuity:

Step Action




What to do

8.51 If an employee’s GMP rights are transferred to an overseas scheme, and/or post ’97 COSR rights are transferred to an overseas scheme or overseas arrangement which is not or has not been contracted-out, delete the member from the reinput schedule and fill in form CA1890. See manual CA14 Termination of Contracted-out Employment - Manual for Salary Related Pension Schemes and Salary Related Parts of Mixed Benefit Schemes, available on the internet at www.inlandrevenue.gov.uk.


8.52 We provide lists headed ‘Scheme Cessation GMP Enquiry Service’ and make calculations for

• members who have left the scheme and have a GMP or post ’97 COSR rights preserved under the SCON

• members who reached SPA before the scheme ceased

• widows/widowers. In the case of a deceased member, the widow or widower may not have been identified. If this is the case, advise Services to Pensions Industry immediately so that the appropriate calculations can be sent.

8.53 There may be pensioners on Services to Pensions Industry’s lists who have earned increments since 6 April 1988 and are not recorded on the schedules. In these cases fill in form CA1597 to obtain revised calculations.

8.54 The calculations are based on information from the employee’s P14 EYS.

139

8.55 The calculations will include details of

• the TA, and

• the GMP, where appropriate, and

• a forecast of the weekly SERPS/State Second Pension amount available to the member.

8.56 The GMP calculations will only be issued in respect of those members whose period of contracted-out employment includes GMP rights accrued on earnings up to and including the 1996-97 tax year.

8.57 If you disagree with any of the GMP calculations, please send details of the

• employee(s) name and NINO

• contracted-out earnings/contributions you have used


8.58 The GMP figure for early leavers is that calculated at the date of leaving revalued to the ‘effective date’, at the scheme’s chosen revaluation rate.


8.59 Please fill in and return the reinput schedule(s) to us. The appropriate schedules are:

Schedule Forms

Early leaver CA1904

Pensioners CA1905




Deemed Buyback

What to do


Step Action



3 enter the MFRTV in column 10

Restoring StateScheme Rights RegsReg 1(C2)

141140

Purchase of an annuity/buy-out of GMP and/or Post ’97 COSR Rights

What to do

8.62 If the method of discharging members’ rights is to purchase an annuity:

Step Action




What to do


Step Action



8.64 There is no provision on the reinput schedule to record a transfer to a COSR scheme or the active COSR part of a COMB scheme. In these cases fill in form CA1887 and delete the member from the schedule.


What to do


Step Action



8.66 There is no provision on the reinput schedule to record a transfer to a COMP scheme, a COMPSHP scheme or the active COMP part of a COMB scheme. In these cases fill in form CA1887 and delete the member from the schedule.

141


What to do


Step Action



8.68 There is no provision on the reinput schedule to record a transfer to an APP scheme. In these cases fill in form CA1887 and delete the member from the schedule.

Commutation

What to do

8.69 If any members shown on the pensioner, widow or widower pensioner schedules have commuted their GMP and/or post ’97 COSR rights prior to the scheme winding up:

Step Action



What to do

8.70 If an employee’s GMP rights are transferred to an overseas scheme, or post ’97 COSR rights are transferred to an overseas scheme or overseas arrangement which is not or has not been contracted-out, delete the member from the reinput schedule and fill in form CA1890. See manual CA14 Termination of Contracted-out Employment - Manual for Salary Related Pension Schemes and Salary Related Parts of Mixed Benefit Schemes, available on the internet at www.inlandrevenue.gov.uk.


8.71 If we do not issue early leaver, pensioner or widow or widower pensioner schedules, there are none of these recorded as entitled to a GMP/post ’97 COSR rights under the scheme. If this is not the case, notify us of the employee(s)

• NINO



• the employee(s) total contracted-out earnings/contributions up to the date of scheme cessation

• the employee(s) contracted-out earnings/contributions up to and including the 1996-97 tax year, if appropriate, and


143142




8.73 Approval of arrangements will be granted automatically by the issue of a letter, providing we can confirm all of the information is correct.

9 Deemed Buyback procedures - Contracted-out Money Purchase (COMP) schemesBackground

9.1 As a result of the 1995 Pensions Act, where a Contracted-out Money Purchase (COMP) scheme ceases to contract-out on or after 6 April 1997, it is not possible for the member’s protected rights to be bought back into the additional State Pension, commonly known as State Earnings Related Pension Scheme (SERPS) or from 6 April 2002 as State Second Pension by way of Protected Rights Premiums (PROPs).

9.2 In order to provide a safety net for members of a scheme which winds up insolvent, the 1995 Act allows for Deemed Buyback to apply in certain circumstances. Deemed buyback is not an option for members who have safeguarded rights, if safeguarded rights are held they must be secured by some other means.

9.3 This will, in effect, restore or partially restore the members’ state scheme rights to additional State Pension. It can only be applied when the date of scheme wind-up is on or after 6 April 1997.

9.4 Where the necessary conditions are satisfied, the option of Deemed Buyback is one of a number of options available to the member for securing their protected rights. The final decision on which option for securing their protected rights should be adopted will be taken by the member, not the scheme.

Conditions for Deemed Buyback

9.5 The following conditions need to be satisfied before a scheme member has the option of securing their rights within the state scheme:

• the scheme must be in wind up

• the employer must be unable to provide sufficient additional funds to the scheme

• the funds available to the scheme in respect of the member must be less than the amount required to restore their state scheme rights for the period of contracted-out employment

• the scheme must have lost monies as a result of a compensatable event

• the amount available in the scheme in respect of the member must be less than the amount which would have been available had the compensatable event not occurred.

143

Restoring state scheme rights

9.6 The maximum amount which can be used to restore state scheme rights in respect of a COMP scheme is limited to the lower of the following:

• the amount required to restore state scheme rights to a level which they would have been had the member been contracted-in, ie the Technical Amount (TA)

• the amount of accrued rights had the compensatable event not occurred, ie the Fully Solvent Transfer Value (FSTV).

9.7 Where there is due, or has been, a payment from the compensation fund to the scheme this must be taken into account in determining the amount of accrued rights available from the scheme in respect of the member, see paragraphs 1.15 to 1.18.

9.8 In order to determine whether it is appropriate to apply the deeming provisions in respect of a member three calculations will be carried out:

• the scheme will calculate the amount of scheme rights available in respect of the member, ie the Actual Transfer Value (ATV)

• the scheme will calculate the amount of scheme rights which would have been available had the compensatable event not occurred, ie the Fully Solvent Transfer Value (FSTV)

• we will calculate the amount required to restore state scheme rights to level they would have been had the member been contracted-in, ie the Technical Amount (TA).

To enable us to calculate the correct TA, schemes should bring to our attention any members whose contracted-out rights are subject to pension sharing on divorce.

9.9 The calculations provided by us will include a forecast of the weekly SERPS/State Second Pension amount calculated at the effective date. This information should be made available to the members who may qualify for the choice of restoring their rights in the state scheme, to assist them in deciding on the option for securing their accrued rights.

9.10 The initial TA calculation is calculated up to the effective date and is a provisional figure only. The effective date for the provisional calculations is the date that Services to Pensions Industry (on behalf of the Secretary of State) is satisfied that the scheme meets the conditions for deemed payback.

9.11 Only where the ATV is less than the FSTV and the TA, will the member be given the option of securing their rights within the state scheme.

9.12 Where the FSTV is less than the TA then the amount of SERPS/State Second Pension restored will be proportionately reduced.

9.13 All of the ATV amount held for each individual must be paid to the state where deemed buyback is the chosen method of preservation. Any payments must be sent with the completed reinput schedules.

9.14 The final TA and a forecast of the weekly SERPS/State Second Pension amount will be recalculated by us on return of the completed reinput schedules. The effective date used in the final TA calculation is the date that we receive the completed reinput schedules. A comparison will be made between the ATV, the TA and the FSTV to ensure that Deemed Buyback is still appropriate.

9.15 If after recalculation the amounts originally notified have changed, but deeming is still appropriate, the scheme will be notified of the revised TA and revised weekly SERPS/State Second Pension amount.

9.16 Once a member has chosen to have their state scheme rights restored it will not be possible for them to subsequently opt for an alternative method of preservation, except in situations outlined at paragraph 9.15.

145144

9.17 The member should be made aware of this before making their decision on which option should be adopted in order to secure their protected rights.


9.18 When we receive confirmation of a scheme ceasing to contract-out and are aware that Deemed Buyback calculations are appropriate we will:

Step Action



Calculation service for COMP schemes

9.19 This service will provide calculations of:

• the TA, and

• the Contracted-Out Deduction (COD), where appropriate, and

• a forecast of the weekly SERPS/State Second Pension amount calculated at the effective date.

9.20 The calculations are based on information from the employee’s P14 End of Year Summary (EYS) and/or information provided by the employer on the current member list.

Note: The total contracted-out earnings factors, not the contracted-out earnings factors, are used in the calculation of the TA.

9.21 COD calculations will only be issued for those members whose period of contracted-out employment includes protected rights accrued on earnings up to and including the 1996/97 tax year.

Married women and widows paying reduced rate National Insurance contributions (NICs)




145

How to preserve pre and post ’97 protected rights -current members

9.25 When the scheme ceases to contract-out, Services to Pensions Industry sends either


• the appropriate calculations and reinput schedules for each individual current member if we already have all the earnings/contributions details, see paragraph 9.35.


• National Insurance Number (NINO)


• date of birth

• sex

• total contracted-out earnings, if recorded, for the:


- preceding tax year

• tax year of commencement of contracted-out employment.

9.27 The final and penultimate year total contracted-out earnings held for each employee under the Employer’s Contracting-out Number (ECON) are shown on each list. However, in some cases the most recent earnings may not yet have been recorded.

9.28 If the employer has more than one scheme, we cannot identify the particular scheme an individual employee belongs to, this is because the P14 EYSs are recorded under a common ECON. It is therefore important that we receive the scheme administrator(s) assistance in identifying the members of a scheme that has ceased to contract-out.

9.29 The details shown on the lists are taken from the P14 EYS, sent to the Department for Work and Pensions (DWP) by the employer. P14s must be completed accurately. Any queries may delay Services to Pensions Industry action.

9.30 Notify us if you disagree with any of the COD calculations. This notification must be accompanied by details of the


• contracted-out earnings/contributions used

• employee(s) date of birth

147146


What to do


Step Action



3 give details of total contracted-out earnings paid in to the tax year in which the scheme ceased and the previous tax year if these are not included

4 if an employee listed is someone who actually left the scheme before the date of cessation, note the entry accordingly and send any applicable termination notice



9.33 If we do not send a current member list or calculations as in para 9.32, this is because the search of our computer records has not identified any member recorded as being in contracted-out employment by reference to the scheme. If this





- the employee(s) total contracted-out earnings/contributions up to the date of scheme cessation

- the employee(s) contracted-out earnings/contributions up to and including the 1996/97 tax year, if appropriate

this information is used by Services to Pensions Industry to calculate the COD liability where appropriate, the TA and a forecast of the weekly SERPS amount available to the individual.


9.34 When we have all the information necessary, we will issue:

• COD (where appropriate) and TA calculations for each member identified and a forecast of the weekly SERPS/State Second Pension amount available to the member

• a reinput schedule form CA1908 for you to record the method of preservation. This is headed ‘Reinput Schedule - Scheme Cessation Current Members’

9.35 On receipt of these calculations the scheme should compare the TA with their calculations of the FSTV and the ATV.

147

9.36 The reinput schedules are used to notify that pre and/or post ’97 protected rights are to be

• discharged by Deemed Buyback

• transferred/change of Responsible Paying Authority (RPA) to another contracted-out occupational pension/Appropriate Personal Pension (APP) Appropriate Personal Pension (APPSHP) scheme

• bought out by the purchase of an annuity

• discharged by the purchase of an appropriate policy of insurance.

9.37 If Deemed Buyback is chosen, the reinput schedule should be completed as in paragraphs 9.40, 9.60, 9.72, and 9.80. If it is decided that Deemed Buyback is not to apply, see paragraphs 9.41 to 9.51, 9.61 to 9.70, 9.72 to 9.78 and 9.80 to 9.85, as appropriate.


9.38 Please complete and return the reinput schedule form CA1908. Ensure that an entry is made in the appropriate box for each member listed on the schedule.

Deemed Buyback

What to do


Step Action



3 enter the FSTV in column 16


What to do


Step Action




Transfer to a COMP scheme, a COMPSHP scheme or the active COMP part of a Contracted-out Mixed Benefit (COMB) scheme


149148

9.42 If the method of discharging members’ rights is to transfer them to a COMP scheme, a COMSHP scheme or the active COMP part of a COMB scheme:

Step Action






Transfer to a Contracted-Out Salary Related (COSR) scheme or the active COSR part of a COMB scheme

What to do



Step Action






Note: Where a transfer to the COSR part of a COMB scheme is made before 6 April 2002, the COSR part of the COMB scheme must be active


What to do

9.45 If the method of discharging members’ rights is to transfer them to an APP scheme:

Step Action



3 the date the transfer takes place in column 13

149


What to do

9.46 If the method of discharging members’ rights is a change of RPA to a COMP scheme, a COMPSHP or the active COMP part of a COMB scheme:

Step Action





What to do


Step Action



3 enter the code for the onward revaluation used by the COSR scheme in column 12: • ‘1’ for Section 148 (previously Section 21) • ‘3’ for fixed rate



What to do

9.48 If the method of discharging members’ rights is a change of RPA to a APP scheme or an APPSHP scheme:

Step Action




151150

Assuring/taking out of an appropriate insurance policy

What to do

9.49 For assuring/taking out an appropriate insurance policy:

Step Action





9.50 If an employee’s protected rights are transferred to an overseas scheme or from 6 April 2002, an overseas arrangement which is not or has not been contracted-out, delete the member from the reinput schedule and fill in form CA1895. See manual CA14A, Termination of Contracted-out - Manual for Money Purchase Pension Schemes and Money Purchase Parts of Mixed Benefit Schemes, available on the internet at www.inlandrevenue.gov.uk.


9.51 We provide lists headed ‘Scheme Cessation Enquiry Service’ and make calculations for:

• members who have left the scheme and have protected rights preserved under the SCON

• members who reached SPA before the scheme ceased

• widow or widower pensioners. In the case of a deceased member, the widow or widower may not have been identified. If this is the case, advise Services to Pensions Industry immediately so that the appropriate calculations can be sent.

9.52 There may be pensioners on Services to Pensions Industry lists who have earned increments since 6 April 1989 and are not recorded on the schedules. In these cases fill in form CA1594 to obtain revised calculations.

9.53 The calculations are based on information from the employee’s P14 EYS.

9.54 The calculations will include details of

• the TA, and

• the COD, where appropriate, and

• a forecast of the weekly SERPS/State Second Pension amount available to the member.

9.55 The COD calculations will only be issued in respect of those members whose period of contracted-out employment includes protected rights accrued on earnings up to and including the 1996/97 tax year.

151

9.56 If you disagree with any of the COD calculations, please send details of the


• contracted-out earnings/contributions you have used

• date(s) of birth of the person(s) concerned


9.57 Please fill in and return the schedule(s) to us. The appropriate schedules are:

Schedule Forms

Early leaver CA1909

Pensioners CA1910



9.58 Make sure that an entry is made in the appropriate box for each person on the schedule except those deleted from the list.

Early leaver

Deemed Buyback

What to do

9.59 If deemed buyback is chosen:

Step Action





What to do


Step Action



153152


What to do


Step Action





9.62 There is no provision on the reinput schedule to record a transfer to a COSR scheme or the active COSR part of a COMB scheme. In these cases delete the member from the schedule and fill in form CA1592 or form CA1892.

Note: Where a transfer to the COSR part of a COMB scheme is made before 6 April 2002, the COSR part of the COMB scheme must be active.


What to do


Step Action




9.64 There is no provision on the reinput schedule to record a transfer to a COMP scheme, a COMPSHP scheme or the active COMP part of a COMB scheme. In these cases delete the member from the schedule, fill in form CA1892 and advise Services to Pensions Industry the date the transfer takes place.

153


What to do


Step Action




9.66 There is no provision on the termination schedule to record a transfer to an APP scheme or an APPSHP scheme. In these cases delete the member from the schedule, fill in form CA1892 and advise Services to Pensions Industry the date the transfer takes place.


What to do


Step Action


2 enter the new SCON (this must be in the SCON range 6,700,000-6,799,999) in column 3



What to do

9.68 If any of the members shown on the early leaver reinput schedules (where effect has been given to protected rights) have commuted their protected rights prior to the scheme ceasing:

Step Action


9.69 Commutation on the grounds of serious ill health

What to do

If any of the members shown on the early leaver reinput schedule (where effect has been given to protected rights) have commuted their protected rights prior to the scheme ceasing:

Step Action


154 155



9.70 If an employee’s protected rights are transferred to an overseas scheme or from 6 April 2002 an overseas arrangement which is not or has not been contracted-out, delete the member from the reinput schedule and complete form CA1895. See manual CA14A Termination of Contracted-out - Manual for Money Purchase Pension Schemes and Money Purchase Parts of Mixed Benefit Schemes, available on the internet at www.inlandrevenue.gov.uk.

Pensioner

Deemed Buyback

What to do


Step Action






What to do

9.72 If the protected rights are secured by a purchase of an annuity:

Step Action





What to do


Step Action



155


Note: Where a change of RPA to the COSR part of a COMB scheme is made before 6 April 2002, the COSR part of the COMB scheme must be active


What to do


Step Action





What to do


Step Action





What to do


Step Action


2 enter the new SCON (this must be in the SCON range 6,700,000-6,799,999) in column 3


156 157


What to do

9.77 If any of the members shown on the pensioner reinput schedules (where effect has been given to protected rights) have commuted their protected rights prior to the scheme ceasing:

Step Action



What to do

If any of the members shown on the pensioner reinput schedule (where effect has been given to protected rights) have commuted their protected rights prior to the scheme ceasing:

Step Action




9.78 If an employee’s protected rights are transferred to an overseas scheme or from 6 April 2002, an overseas arrangement which is not or has not been contracted-out, delete the member from the reinput schedule and fill in form CA1895. See paragraphs 8.45 to 8.49 of manual CA14A, Termination of Contracted-out - Manual for Money Purchase Pension Schemes and Money Purchase Parts of Mixed Benefit Schemes, available on the internet at www.inlandrevenue.gov.uk.


Deemed Buyback

What to do


Step Action


2 enter the widows or widowers date of birth in column 12




157


What to do

9.80 If the protected rights are secured by a purchase of an annuity:

Step Action





What to do

9.81 If the method of discharging members’ rights is a change of RPA to a COSR scheme or the COSR part of a COMB scheme:

Step Action






What to do


Step Action




158 159


What to do


Step Action





What to do

9.84 If any of the members shown on the widow or widower pensioner schedules (where effect has been given to protected rights) have commuted their protected rights prior to the scheme ceasing:

Step Action



What to do

If any of the members shown on the widow or widower pensioner reinput schedule (where effect has been given to protected rights) have commuted their protected rights prior to the scheme ceasing:

Step Action




9.85 If an employee’s protected rights are transferred to an overseas scheme or from 6 April 2002, an overseas arrangement which is not or has not been contracted-out, delete the member from the reinput schedule and fill in form CA1895. See manual CA14A, Termination of Contracted-out Employment Manual for Money Purchase Pension Schemes and Money Purchase Parts of Mixed Benefit Schemes, available on the internet at www.inlandrevenue.gov.uk.

159


9.86 If we do not issue early leaver, pensioner or widow or widower pensioner schedules, there are none of these recorded as entitled to protected rights under the scheme. If this is not the case, notify Services to Pensions Industry of the employee(s)

• NINO



• the employee(s)’ total contracted-out earnings/contributions up to the date of scheme cessation

• the employee(s)’ contracted-out earnings/contributions up to and including the 1996/97 tax year, if appropriate, and

• supply a copy of the original termination notice if appropriate.


9.87 When you have completed all the relevant schedules please return them to


9.88 Approval of the arrangements will be granted automatically by the issue of a letter providing we can confirm all of the information is correct.

160 161

10 Contracted-out Mixed Benefit (COMB) schemes which cease to be contracted-outCeasing to contract-out

10.1 A COMB pension scheme ceases to contract-out if the scheme

• is amalgamated with or replaced by another scheme operated by the same employer and the Guaranteed Minimum Pension (GMP)/post ’97 Contracted-out Salary Related (COSR) rights/protected rights are transferred





) Inland Revenue Election Section Audit and Pension Schemes Services PO Box 62 Yorke House Castle Meadow Road Nottingham NG2 1BG

10.3 The Inland Revenue Savings, Pensions, Share Schemes will cancel a contracting-out certificate if the Commissioners for the Inland Revenue is no longer satisfied that the scheme meets the contracting-out requirements.

10.4 Following cancellation or surrender action, Inland Revenue Savings, Pensions, Share Schemes will write to the employer and trustee/insurer and confirm the cessation date. The certificate is no longer valid from the end of the day specified in the acceptance of the surrender or the notice of determination to cancel the certificate. If the certificate is the only or the last one valid by reference to the scheme, then this date is the last day on which there can be contracted-out employment by reference to the scheme, and the liability to pay National Insurance contributions (NICs) at the full not contracted-out rate arises from the following day.

What happens to rights built up in the scheme?

10.5 If a COMB scheme ceases to be contracted-out, trustees must make arrangements to secure all contracted-out rights that have accrued in respect of members or former members of the scheme. These rights will either be

• GMPs accrued up to 5 April 1997, or

• rights accrued from 6 April 1997 under the provisions of section 9(2B) of the Pensions Act 1993 (post ’97 COSR rights), or



161

• a combination of

- GMPs

- post-’97 COSR rights

- pre-97 protected rights

- post-97 protected rights, or


10.6 We will issue form CA7992 and/or CA7991, as appropriate, to the trustees, giving general guidelines on securing the liabilities and the options that are available.

10.7 It is not necessary to secure every member’s pension rights by the same method. Trustees must provide members with information about their rights and options and should tell us, once a decision has been taken, what arrangements have been made.

10.8 Once a COMB scheme has ceased to be contracted-out we will obtain details from scheme members’ National Insurance (NI) accounts, to provide separate listings for the COSR part and for the Contracted-out Money Purchase (COMP) part of the scheme. See Chapter 5, paragraph 5.7 for the COSR part and Chapter 6, paragraph 6.7 for the COMP part.

Time limits

10.9 The time limits as outlined in Chapter 5, paragraph 5.10 to 5.12 will apply to the COSR part of a COMB scheme.

10.10 The time limits as outlined in Chapter 6, paragraph 6.10 to 6.12 will apply to the COMP part of a COMB scheme.


10.11 The methods of securing the liabilities as outlined in Chapter 5, paragraph 5.13 of this manual will apply to the COSR part of the COMB scheme.

10.12 The methods of securing the liabilities as outlined in Chapter 6, paragraph 6.14 of this manual will apply to the COMP part of the COMB scheme.


10.13 The 12% option as detailed in Chapter 5, paragraph 5.29 to 5.31 will apply to the COSR part of a COMB scheme.

Deemed Buyback

10.14 There may be a possibility of Deemed Buyback if a COMB scheme winds up insolvent and the necessary conditions are satisfied, see Chapter 6, paragraph 6.5 and Part 7, paragraph 7.5 of this manual.

162 163


10.15 When we confirm the date of cessation of contracting-out following an election to surrender a contracting-out certificate, or when we have cancelled or withdrawn a contracting-out certificate we will:

Step Action



10.16 Where the computer routines identify that the member has both salary related and money purchase rights they will be shown on both the COSR and COMP current member lists and the appropriate calculation schedules.

10.17 For early leavers, pensioners and widow or widower pensioners the calculations that will be issued will depend on whether or not the member has pre ’97 rights and what those rights are. Where the member’s period of contracted-out employment is entirely post ’97 they will only be output on the reinput schedule.

10.18 Separate reinput schedules will be provided for the COSR and COMP parts of a COMB scheme.

Calculation service for COSR schemes and COMP schemes

10.19 The calculation services are explained in Chapter 5, paragraph 5.39 to 5.41 and Chapter 6, paragraph 6.45 and 6.46 respectively.





How to secure GMP, Post ’97 COSR Rights and pre and post- 97 protected rights - current members

10.23 The procedures outlined in Chapter 5, paragraphs 5.45 to 5.50 and Chapter 6, paragraphs 6.50 to 6.55 should be followed.

163


10.24 The procedures outlined in Chapter 5, paragraph 5.51 and Chapter 6, paragraph 6.56 should be followed.

Action when no current members’ lists are supplied by Services to Pensions Industry





10.27 The procedures outlined in Chapter 5, paragraph 5.59 to 5.73 and Chapter 6, paragraph 6.56 to 6.77 should be followed.


10.28 The procedures outlined in Chapter 5, paragraph 5.74 to 5.79 and Chapter 6, paragraph 6.78 to 6.82 et seq should be followed.


10.29 The COSR calculation schedules may show an indicator ‘2’ in the extreme right-hand column for each member, see Chapter 5, paragraph 5.78.


10.30 The procedures outlined in Chapter 5, paragraph 5.80 to 5.91 and Chapter 6, paragraph 6.81 to 6.103 should be followed.





COMB schemes

Requirements for an inactive salary-related part only

10.33 When the salary-related part of a COMB scheme becomes inactive, the Inland Revenue National Insurance Contributions Office’s approval requirements are the same as those for a COSR scheme which has ceased to be contracted-out. See paragraphs 5.4 to 5.36.

Requirements for an inactive money purchase part only

10.36 When the money purchase part of a COMB scheme becomes inactive, the Inland Revenue National Insurance Contributions Office’s approved requirements are the same as those for a COMP scheme which has ceased to be contracted-out. See paragraphs 6.4 to 6.42.

164 165

11 Contracted-out Salary Related (COSR) schemes which switch and become Contracted-out Money Purchase (COMP) schemes at 6 April 1997 under Regulation 76A of the Occupational Pension Schemes (Contracting-out) Amendment Regulations 1996Background

11.1 During the transitional period only, 6 April 1997 to 31 January 1998, and strictly with effect from 6 April 1997 an existing Contracted-out Salary Related (COSR) scheme (as at 5 April 1997) was able to switch to Contracted-out Money Purchase (COMP) status for future accruals without first having to discharge its liabilities to pay Guaranteed Minimum Pensions (GMPs). Future benefits will accrue on a contracted-out money purchase basis although the scheme will continue to hold accrued GMPs.

Requirements for the inactive salary-related part

11.2 The GMPs in these schemes are subject to approval as if they were provided by a formerly certified scheme which is preserving GMP rights, see paragraphs 2.18, 2.20 and 2.21.

11.3 This type of scheme is known as a COMP scheme preserving GMP rights.

11.4 Such schemes were issued with COMP contracting-out certificates and a COMP Scheme Contracted-out Number (SCON) but also retained the SCON for the COSR part for the period for which they continue to preserve the GMP rights.

11.5 This provision will not be extended to COMP schemes.

11.6 If COMP schemes wish to switch to become COSR schemes they will have to discharge all liabilities for protected rights before doing so.

165

12 Pension Sharing on DivorceBackground

12.1 Pension scheme rights can be an important part of the assets which need to be considered when a marriage ends. From 1 December 2000 legislation will come into force which will allow divorcing couples the option to share their pension assets as part of the overall divorce settlement. Apart from the basic State Pension and survivor’s pensions, which will not be shareable, it will be possible to share most types of occupational and personal pensions including that available through the additional State Pension commonly known as the State Earnings Related Pension Scheme (SERPS) or State Second Pension.

12.2 Pension sharing will be available alongside existing methods of dealing with pension rights on divorce: offsetting and earmarking. The new measure will help to provide the courts with a comprehensive range of options with dealing with pensions at the time of divorce. Pension sharing will

• provide greater flexibility and choice for divorcing couples and the courts

• allow pension rights to be treated in a way which provides for the fairest overall settlement of assets in each divorce case, and

• increase the opportunity for divorcing couples to achieve complete financial independence through a “clean break” settlement.

12.3 Pension sharing on divorce was introduced as part of the Welfare Reform and Pensions Act 1999. Pension sharing will be available in all divorce and nullity proceedings which begin on or after 1 December 2000. After this date it will be possible for a court to issue a pension share order or agreement to the pension scheme provider as part of the divorce settlement.

12.4 Once a couple decide to go ahead with divorce proceedings a court can order that pension sharing is to apply. The court (or for divorces obtained in Scotland, the party who will benefit from the pension sharing) will issue copies of the pension sharing order or agreement to the pension scheme or provider.

Safeguarded Rights

12.5 Rights of a scheme member derived from the membership of a contracted-out occupational pension scheme which are transferred to the former spouse on divorce are known as “safeguarded rights” and therefore will be distinguished from the contracted-out rights built up by a member of a contracted-out occupational pension scheme.

12.6 Scheme rules can specify whether all of the accrued rights that are subject to a pension share become safeguarded rights, therefore safeguarded rights may include some non contracted-out rights. In addition, the safeguarded rights might include safeguarded rights from a previous divorce.

12.7 The requirements for safeguarded rights broadly reflect those for contracted-out rights. In particular the government wish to ensure that safeguarded rights (which are wholly or in part financed by rebates of National Insurance contributions) are securely protected and used for the purpose for which they are intended - to provide an income in retirement.

12.8 Safeguarded rights will not be tracked or monitored by the department. It is important, therefore, that schemes maintain accurate records when a former spouse’s rights are preserved in the scheme, transferred or bought out through an insurance policy. Schemes should also keep details of the pension share order, as they will need to record the percentage of the share on the member’s pension account.

12.9 The “safeguarded” rights will be ringfenced and will be subject to the same conditions that apply to post – 1997 salary related contracted-out rights or protected rights. But note that schemes will not be required to provide survivors’ benefits from the safeguarded rights nor will we track or monitor them.

166 167

12.10 A pension or annuity in respect of safeguarded rights is normally required to start being paid between the ages of 60 and 65, unless early payment is appropriate, for example, because of ill health, or the former spouse has agreed to payment on a date later than their 65th birthday up to age 75.

12.11 Schemes that opt to hold safeguarded rights after having elected to contract-out will not be required to advise Services to Pensions Industry that they intend to start holding safeguarded rights. Instead, all schemes that hold a contracting-out certificate and hold safeguarded rights confirm, if required that they meet the safeguarded rights requirements.

Calculation Service

12.12 Occupational pension schemes will be required to provide a valuation of accrued pension rights to enable the courts to decide on the fairest overall settlement of assets.

12.13 To assist schemes with this process, the calculation services currently available can be used to request a COD/GMP calculation at any time during the pension sharing on divorce procedures.

12.14 As with the existing Individual Contracted-out Deduction (COD)/GMP Calculation Service, calculations for pension sharing cases will be provided free of charge.

Pension Sharing on Divorce Notification

12.15 Where pension rights have been shared, the courts, (or in Scotland, the party who will benefit from the pension sharing) will formally notify the scheme which will in turn be required to notify Services to Pensions Industry. Schemes will have 4 months to implement the pension share order.

12.16 A new form CA2202 Pension Sharing on Divorce Notification has been introduced for completion by scheme administrators to notify Services to Pensions Industry of the pension share. This should be submitted to Services to Pensions Industry following the implementation of the pension sharing order, but not later than six months following the date of termination of contracted-out employment.

12.17 For couples obtaining a divorce in Scotland, a monetary value or percentage rate will be awarded to the former spouse, however, the scheme will be required to notify Services to Pensions Industry as a percentage.

12.18 On receipt of the notification Services to Pensions Industry will update the National Insurance (NI) records of both the member and the former spouse to show that a “Pension Share” has occurred.

12.19 Details from form CA2202 will be held on a stand-alone computer system, which in turn, may be interrogated to answer any specific enquiries about the pension share itself. Information from the database can be provided on request.

Contracted-out Deduction

12.20 When a member’s pension rights are shared with a former spouse, a full COD will always be deducted from the member’s Additional Pension under SERPS. The COD will not be reduced to take account of any contracted-out rights that are subject to a pension sharing order/agreement.

Statement of GMP liability

12.21 The calculation of contracted-out pension rights does not take account of any pension rights shared on divorce, therefore, the full GMP amount will continue to be notified. All statements (except those issued by magnetic media) which show a GMP amount will include the notation “The amount quoted does not take account of any pension rights shared on divorce”.

167

Ceasing to contract-out

12.22 When a scheme ceases to be contracted-out, trustees must make arrangements to secure all safeguarded rights held within the scheme.

12.23 Schemes will have a period of 2 years in which the safeguarded rights of individual members must either be



12.24 Where a certificate of non-approval is issued, a scheme will be required to discharge any safeguarded rights.

12.25 As safeguarded rights will not be tracked or monitored by Inland Revenue the membership lists and calculations issued by ourselves will not contain any details of former spouse members or their safeguarded rights entitlement. However, where the former spouse was an earner under the scheme any entitlement to contracted-out rights will be detailed in the normal way.

12.26 Where calculations are provided for members whose contracted-out rights are subject to a pension share, the amount quoted will not take account of any rights shared on divorce.

12.27 As we will not be tracking or monitoring safeguarded rights, the scheme trustees do not have to tell us about the destination of those rights when they are being discharged or transferred, or when they are to be retained in a formerly certified scheme. However, overall approval for the discharge/transfer or preservation of safeguarded rights will be given.

12.28 Please advise us in writing, as soon as all of the safeguarded rights held by the scheme have been secured. Approval will be granted automatically by the issue of a letter.

Securing safeguarded rights - salary related schemes

12.29 Safeguarded rights can be secured by:

• transfer to a Contracted-out Money Purchase (COMP) scheme/Contracted-out Money Purchase Stakeholder (COMPSHP) scheme or the active COMP part of Contracted-out Mixed Benefit (COMB) scheme

• transfer to a Contracted-out Salary Related (COSR) scheme or the active COSR part of a COMB scheme

• transfer to an Appropriate Personal Pension (APP) or an Appropriate Personal Pension Stakeholder (APPSHP) scheme

• purchase of an Annuity

• preservation within the scheme.

12.30 State Scheme Premiums (SSPs) cannot be paid to secure a former spouse member’s safeguarded rights because he/she would not have built up a notional entitlement (in his/her own right) to an Additional Pension (AP) in the State Scheme which would have broadly equated to those safeguarded rights. However, a former spouse member’s own GMP rights can be secured by the payment of premium, where the liability exists, in the normal way.

168

Securing safeguarded rights - money purchase schemes

12.31 Safeguarded rights can be secured by

• Transfer to a COMP scheme, a COMP SHP scheme or the active COMP part of a Contracted-out Mixed Benefit (COMB) scheme

• Transfer to a Contracted-out Salary Related (COSR) scheme, or the active COSR part of a COMB scheme

• Transfer to an Appropriate Personal pension (APP) or an Appropriate Personal Pension Stakeholder (APP SHP) scheme

• Purchase of an Annuity

• Preservation within the scheme

• Provision of a pension

• Appropriate policy of insurance.

12.32 State Scheme Premiums cannot be paid to secure a former spouse member’s safeguarded rights because he/she would not have built up a notional entitlement (in his/her own right) to an Additional Pension in the State Scheme which would have broadly equated to those safeguarded rights. However, a former spouse member’s own protected rights can be secured by the payment of premium, where the liability exists, in the normal way.

169

Appendix 1

Contracted-out Salary Related (COSR) forms

Form Description

CA7992 Guidance to trustees of salary-related pension schemes which have ceased to be contracted-out or an inactive salary-related part of a COMB scheme

CA7318 Statement from trustee confirming actuary given opportunity to consider validity of solvency certificate current at point of scheme cessation or point salary-related part of a COMB scheme becomes inactive

CA7994 Life office annuity certificate for use when GMPs and/or post ’97 COSR rights are secured by two insurance companies

CA2202 Pension Sharing on Divorce Notification

Contracted-out Salary Related (COSR) reinput schedules

Form Description

CA1557 Current Member

CA1563 Early Leaver

CA1565 Pensioner

CA1567 Widow Pensioner

CA1569 Widower Pensioner

CA1903 Current Member Deemed Buyback

CA1904 Early Leaver Deemed Buyback

CA1905 Pensioner Deemed Buyback

CA1906 Widow Pensioner Deemed Buyback

CA1907 Widower Pensioner Deemed Buyback

Send any enquiries about the forms to


171170

Appendix 2

Contracted-out Money Purchase (COMP) forms

Form Description

CA7991 Guidance to trustees of money purchase pension schemes which have ceased to be contracted-out or an inactive money purchase part of a COMB scheme

CA7993 Life office annuity certificate

CA2202 Pension Sharing on Divorce Notification

Contracted-out Money Purchase (COMP) reinput schedules

Form Description

CA1560 Current Member

CA1572 Early Leaver

CA1574 Pensioner

CA1575 Widow Pensioner

CA1576 Widower Pensioner

CA1908 Current Member Deemed Buyback

CA1909 Early Leaver Deemed Buyback

CA1910 Pensioner Deemed Buyback

CA1911 Widow Pensioner Deemed Buyback

CA1912 Widower Pensioner Deemed Buyback

Send any enquiries about the forms to


171 PB

Appendix 3

Tables - Contracted-out Salary Related (COSR)

List of Tables

Table 1 Revaluation factors

Table 2 Composite divisors for tax years up to and including 1987-88

Table 3 Composite divisors for tax years from 1988-89

Table 4 Accrued Rights Premium - event before 6/4/88 no Limited Revaluation Premium (LRP) - employee

Table 5 Accrued Rights Premium - event before 6/4/88 LRP paid - employee

Table 6 Pensioner’s Rights Premium - event before 6/4/88 - pensioner

Table 7 Pensioner’s Rights Premium - event before 6/4/88 - widow

Table 8 Accrued Rights Premium - event after 5/4/88 - no LRP

Table 9 Accrued Rights Premium - event after 5/4/88 - LRP paid

Table 10 Pensioner’s Rights Premium - event after 5/4/88 - pensioner

Table 11 Pensioner’s Rights Premium - event after 5/4/88 - widow

Table 12 Pensioner’s Rights Premium - event after 5/4/89 - widower

Table 13 Accrued Rights Premium - event after 5/4/93 no LRP

Table 14 Accrued Rights Premium - event after 5/4/93 - LRP paid

Table 15 Pensioners Rights Premium - event after 5/4/93 - pensioner

Table 16 Pensioners Rights Premium - event after 5/4/93 - widow or widower

173172

Table 1 - Revaluation factors

Use this table to revalue earnings factors for calculating the Guaranteed Minimum Pension (GMP):

Order made:

173 PB

Table 2 - Composite divisors for tax years up to and including 1987-88

Use this table to obtain the divisor used to calculate the GMP, see Appendix 5.

Tax years in working life Divisor Composite Divisor

1-20 80 4160

21 84 4368

22 88 4576

23 92 4784

24 96 4992

25 100 5200

26 104 5408

27 108 5616

28 112 5824

29 116 6032

30 120 6240

31 124 6448

32 128 6656

33 132 6864

34 136 7072

35 140 7280

36 144 7488

37 148 7696

38 152 7904

39 156 8112

40 160 8320

41 164 8528

42 168 8736

43 172 8944

44 176 9152

45 180 9360

46 184 9568

47 188 9776

48 192 9984

49 196 10192

175

Table 3 - Composite divisors for tax years from 1988-89

Use this table to obtain the divisor used to calculate the GMP, see Appendix 5.


1-20 100 5200

21 105 5460

22 110 5720

23 115 5980

24 120 6240

25 125 6500

26 130 6760

27 135 7020

28 140 7280

29 145 7540

30 150 7800

31 155 8060

32 160 8320

33 165 8580

34 170 8840

35 175 9100

36 180 9360

37 185 9620

38 190 9880

39 195 10140

40 200 10400

41 205 10660

42 210 10920

43 215 11180

44 220 11440

45 225 11700

46 230 11960

47 235 12220

48 240 12480

49 245 12740

174

175 PB

Table 4 - Accrued Rights Premium (ARP)

Use this table if

• the event giving rise to the liability for the premium occurred before 6 April 1988, and

• the scheme operates:

- Section 148, or

- fixed rate revaluation, or

- no revaluation is required.

Age Male (£) Female (£) Age Male (£) Female (£)

16 5.56 6.79 41 6.15 7.55

17 5.58 6.82 42 6.18 7.59

18 5.60 6.85 43 6.20 7.63

19 5.63 6.88 44 6.23 7.67

20 5.65 6.91 45 6.27 7.71

21 5.67 6.94 46 6.30 7.75

22 5.69 6.97 47 6.33 7.80

23 5.71 7.00 48 6.36 7.84

24 5.73 7.02 49 6.40 7.89

25 5.76 7.05 50 6.45 7.95

26 5.78 7.08 51 6.49 8.01

27 5.80 7.11 52 6.53 8.06

28 5.82 7.13 53 6.58 8.12

29 5.85 7.16 54 6.63 8.19

30 5.88 7.19 55 6.68 8.26

31 5.90 7.22 56 6.74 8.33

32 5.93 7.25 57 6.80 8.41

33 5.95 7.28 58 6.87 8.50

34 5.97 7.31 59 6.95 8.59

35 6.00 7.34 60 7.03 9.41

36 6.02 7.37 61 7.12 -

37 6.05 7.41 62 7.22 -

38 6.07 7.45 63 7.34 -

39 6.10 7.48 64 7.47 -

40 6.12 7.52 65 8.26 -

177176


Use this table if


• an LRP has already been paid.


16 1.29 1.76 41 3.06 4.28

17 1.33 1.83 42 3.17 4.44

18 1.38 1.90 43 3.27 4.60

19 1.43 1.97 44 3.39 4.77

20 1.48 2.05 45 3.52 4.95

21 1.54 2.12 46 3.65 5.13

22 1.59 2.20 47 3.78 5.33

23 1.64 2.28 48 3.92 5.53

24 1.70 2.35 49 4.06 5.75

25 1.76 2.43 50 4.22 5.98

26 1.82 2.52 51 4.38 6.22

27 1.88 2.61 52 4.54 6.46

28 1.95 2.70 53 4.71 6.72

29 2.02 2.79 54 4.89 6.99

30 2.10 2.89 55 5.07 7.27

31 2.17 2.99 56 5.27 7.57

32 2.25 3.10 57 5.48 7.89

33 2.32 3.21 58 5.71 8.23

34 2.40 3.33 59 5.96 8.59

35 2.49 3.45 60 6.21 9.41

36 2.57 3.57 61 6.49 -

37 2.67 3.70 62 6.78 -

38 2.76 3.84 63 7.11 -

39 2.86 3.98 64 7.47 -

40 2.96 4.13 65 8.26 -

177 PB

Table 6 - Pensioners Right’s Premium (PRP) - Pensioner

Use this table if


• a person is entitled to receive a GMP in respect of their contracted-out employment.

Male Age Premium (£) Female Age Premium (£)

65 8.26 60 9.41

66 8.09 61 9.28

67 7.90 62 9.13

68 7.70 63 8.98

69 7.50 64 8.81

70 7.30 65 8.64

71 7.10 66 8.47

72 6.89 67 8.28

73 6.66 68 8.09

74 6.44 69 7.88

179178

Table 7 - Pensioners Right’s Premium (PRP) - Widow

Use this table if


• a woman is entitled to receive a GMP in respect of her late husband’s service in contracted-out employment.

Age Premium (£) Age Premium (£) Age Premium (£)

16-25 4.78 49 9.35 73 6.73

26 5.05 50 9.39 74 6.51

27 5.35 51 9.42 75 6.27

28 5.66 52 9.43 76 6.02

29 5.99 53 9.43 77 5.77

30 6.31 54 9.42 78 5.52

31 6.61 55 9.39 79 5.26

32 6.91 56 9.34 80 5.01

33 7.19 57 9.28 81 4.77

34 7.45 58 9.20 82 4.53

35 7.70 59 9.11 83 4.30

36 7.91 60 9.01 84 4.07

37 8.09 61 8.89 85 3.84

38 8.26 62 8.76 86 3.61

39 8.41 63 8.62 87 3.38

40 8.55 64 8.46 88 3.16

41 8.67 65 8.30 89 2.95

42 8.79 66 8.13 90 2.75

43 8.89 67 7.96 91 2.58

44 8.98 68 7.77 92 2.43

45 9.06 69 7.58 93 2.28

46 9.15 70 7.38 94 2.14

47 9.22 71 7.17 95+ 2.00

48 9.29 72 6.96

179 PB


Use this table if

• the event giving rise to the liability for the premium occurred after 5 April 1988 and before 6 April 1993, and


- Section 148, or



Part 1 For GMP or parts of GMP built up before 6 April 1988


16 4.37 5.34 41 5.82 7.09

17 4.42 5.41 42 5.89 7.18

18 4.47 5.47 43 5.96 7.27

19 4.52 5.53 44 6.04 7.35

20 4.57 5.59 45 6.11 7.44

21 4.62 5.65 46 6.19 7.53

22 4.67 5.71 47 6.27 7.63

23 4.73 5.78 48 6.35 7.73

24 4.78 5.85 49 6.44 7.83

25 4.83 5.92 50 6.52 7.93

26 4.89 5.98 51 6.61 8.04

27 4.95 6.05 52 6.70 8.16

28 5.01 6.12 53 6.79 8.28

29 5.07 6.18 54 6.88 8.40

30 5.12 6.25 55 6.98 8.53

31 5.18 6.32 56 7.09 8.66

32 5.24 6.40 57 7.19 8.80

33 5.30 6.47 58 7.30 8.95

34 5.37 6.54 59 7.42 9.10

35 5.43 6.61 60 7.56 9.94

36 5.49 6.69 61 7.69 -

37 5.56 6.77 62 7.83 -

38 5.62 6.85 63 8.00 -

39 5.68 6.93 64 8.18 -

40 5.75 7.01 65 8.97 -

181180

Part 2 For GMP or parts of GMP built up after 5 April 1988 and before 6 April 1993


16 5.57 7.01 41 7.44 9.30

17 5.64 7.09 42 7.53 9.41

18 5.70 7.17 43 7.61 9.52

19 5.77 7.25 44 7.71 9.64

20 5.84 7.33 45 7.80 9.75

21 5.91 7.42 46 7.90 9.87

22 5.97 7.50 47 8.00 10.00

23 6.04 7.59 48 8.10 10.13

24 6.11 7.67 49 8.21 10.26

25 6.18 7.76 50 8.31 10.39

26 6.25 7.85 51 8.42 10.53

27 6.32 7.94 52 8.53 10.68

28 6.40 8.03 53 8.64 10.84

29 6.47 8.12 54 8.76 11.00

30 6.55 8.21 55 8.89 11.16

31 6.62 8.30 56 9.02 11.33

32 6.70 8.39 57 9.15 11.51

33 6.77 8.49 58 9.29 11.70

34 6.85 8.58 59 9.44 11.90

35 6.93 8.68 60 9.60 13.00

36 7.01 8.78 61 9.77 -

37 7.09 8.88 62 9.95 -

38 7.18 8.98 63 10.14 -

39 7.26 9.09 64 10.36 -

40 7.35 9.19 65 11.37 -

181 PB


Use this table if


• a LRP has already been paid.



16 1.60 2.13 41 3.64 4.83

17 1.66 2.21 42 3.76 5.00

18 1.72 2.29 43 3.88 5.17

19 1.78 2.37 44 4.01 5.35

20 1.84 2.45 45 4.14 5.53

21 1.90 2.53 46 4.28 5.71

22 1.96 2.61 47 4.43 5.91

23 2.03 2.70 48 4.58 6.12

24 2.10 2.79 49 4.73 6.33

25 2.17 2.88 50 4.89 6.56

26 2.24 2.97 51 5.06 6.79

27 2.31 3.07 52 5.23 7.03

28 2.38 3.17 53 5.41 7.28

29 2.46 3.27 54 5.60 7.55

30 2.54 3.38 55 5.80 7.83

31 2.62 3.49 56 6.01 8.12

32 2.71 3.61 57 6.22 8.43

33 2.80 3.73 58 6.45 8.76

34 2.89 3.85 59 6.69 9.10

35 2.99 3.97 60 6.95 9.94

36 3.08 4.11 61 7.22 -

37 3.18 4.25 62 7.52 -

38 3.29 4.39 63 7.83 -

39 3.40 4.53 64 8.18 -

40 3.52 4.68 65 8.97 -

183182

Part 2 For GMP or parts of GMP built up after 5 April 1988 and before 6 April 1993


16 2.05 2.79 41 4.63 6.33

17 2.13 2.90 42 4.79 6.55

18 2.20 3.00 43 4.95 6.77

19 2.28 3.11 44 5.11 7.00

20 2.35 3.21 45 5.28 7.24

21 2.43 3.32 46 5.46 7.48

22 2.51 3.43 47 5.65 7.74

23 2.59 3.54 48 5.84 8.01

24 2.67 3.65 49 6.03 8.29

25 2.76 3.77 50 6.24 8.58

26 2.85 3.90 51 6.46 8.88

27 2.95 4.03 52 6.68 9.20

28 3.05 4.16 53 6.90 9.53

29 3.15 4.29 54 7.14 9.88

30 3.25 4.43 55 7.38 10.25

31 3.35 4.58 56 7.64 10.63

32 3.46 4.73 57 7.91 11.04

33 3.57 4.89 58 8.20 11.46

34 3.69 5.05 59 8.51 11.90

35 3.82 5.21 60 8.83 13.00

36 3.94 5.38 61 9.17 -

37 4.07 5.56 62 9.54 -

38 4.20 5.75 63 9.94 -

39 4.34 5.94 64 10.36 -

40 4.48 6.13 65 11.37 -

183 PB

Table 10 - Pensioner’s Rights Premium (PRP) - Pensioner

Use this table if



Part 1 For GMP and parts of GMP built up before 6 April 1988


60 - 9.94 73 7.38 7.57

61 - 9.80 74 7.17 7.34

62 - 9.65 75 6.95 7.11

63 - 9.49 76 6.73 6.88

64 - 9.33 77 6.51 6.65

65 8.97 9.16 78 6.29 6.42

66 8.79 8.99 79 6.07 6.17

67 8.61 8.80 80 5.84 -

68 8.42 8.61 81 5.62 -

69 8.22 8.41 82 5.40 -

70 8.02 8.21 83 5.17 -

71 7.81 8.00 84 4.96 -

72 7.60 7.78

Part 2 For GMP and part of GMPs built up after 5 April 1988


60 - 13.00 68 10.48 10.75

61 - 12.74 69 10.17 10.43

62 - 12.48 70 9.86 -

63 - 12.21 71 9.55 -

64 - 11.93 72 9.24 -

65 11.37 11.64 73 8.92 -

66 11.08 11.35 74 8.60 -

67 10.78 11.05

185184

Table 11 - Pensioner’s Right Premium (PRP) - Widow

Use this table if


• a woman is entitled to receive a GMP in respect of her late husband’s service in contracted-out employment.

Part 1 For GMP parts of GMP built up before 6 April 1988


16-25 4.12 49 8.86 73 7.08

26 4.37 50 8.95 74 6.86

27 4.60 51 9.04 75 6.64

28 4.83 52 9.11 76 6.41

29 5.04 53 9.17 77 6.19

30 5.25 54 9.20 78 5.96

31 5.48 55 9.22 79 5.74

32 5.72 56 9.22 80 5.51

33 5.98 57 9.20 81 5.29

34 6.24 58 9.17 82 5.07

35 6.49 59 9.12 83 4.86

36 6.72 60 9.05 84 4.66

37 6.94 61 8.96 85 4.46

38 7.15 62 8.85 86 4.27

39 7.35 63 8.73 87 4.09

40 7.55 64 8.60 88 3.91

41 7.76 65 8.47 89 3.73

42 7.96 66 8.32 90 3.55

43 8.15 67 8.17 91 3.37

44 8.31 68 8.01 92 3.20

45 8.45 69 7.85 93 3.03

46 8.56 70 7.67 94 2.86

47 8.66 71 7.48 95+ 2.68

48 8.76 72 7.28

185 PB

Part 2 For GMP and parts of GMP built up after 5 April 1988


16-25 4.92 49 11.82 73 8.47

26 5.28 50 11.93 74 8.16

27 5.63 51 12.02 75 7.85

28 5.96 52 12.09 76 7.54

29 6.27 53 12.13 77 7.23

30 6.59 54 12.13 78 6.93

31 6.93 55 12.12 79 6.63

32 7.29 56 12.08 80 6.33

33 7.68 57 12.01 81 6.05

34 8.07 58 11.92 82 5.77

35 8.44 59 11.81 83 5.50

36 8.80 60 11.66 84 5.24

37 9.12 61 11.49 85 4.99

38 9.43 62 11.29 86 4.76

39 9.73 63 11.07 87 4.53

40 10.03 64 10.85 88 4.31

41 10.33 65 10.62 89 4.09

42 10.63 66 10.38 90 3.88

43 10.89 67 10.13 91 3.67

44 11.12 68 9.88 92 3.46

45 11.31 69 9.62 93 3.25

46 11.46 70 9.34 94 3.05

47 11.58 71 9.06 95+ 2.84

48 11.70 72 8.77

187186

Table 12 - Pensioner’s Rights Premium (PRP) - Widower

Use this table if

• the event giving rise to the liability for the premium occurred after 5 April 1989, and

• a man is entitled to receive a GMP on his late wife’s post 5 April 1988 service in contracted-out employment.


65 7.59 76 5.61 86 3.99

66 7.44 77 5.44 87 3.86

67 7.28 78 5.25 88 3.71

68 7.12 79 5.04 89 3.57

69 6.96 80 4.92 90 3.45

70 6.76 81 4.75 91 3.32

71 6.57 82 4.59 92 3.17

72 6.38 83 4.44 93 3.02

73 6.17 84 4.28 94 2.85

74 5.98 85 4.13 95+ 2.64

75 5.79

187 PB


Use this table if



- Section 148, or





16 3.84 4.65 41 5.61 6.77

17 3.90 4.72 42 5.70 6.87

18 3.96 4.79 43 5.79 6.98

19 4.02 4.87 44 5.89 7.09

20 4.08 4.94 45 5.98 7.20

21 4.14 5.01 46 6.07 7.32

22 4.20 5.08 47 6.17 7.44

23 4.27 5.16 48 6.26 7.56

24 4.34 5.24 49 6.36 7.68

25 4.41 5.32 50 6.47 7.80

26 4.47 5.41 51 6.58 7.93

27 4.54 5.49 52 6.68 8.07

28 4.61 5.57 53 6.79 8.20

29 4.68 5.65 54 6.90 8.34

30 4.75 5.73 55 7.02 8.49

31 4.82 5.82 56 7.14 8.65

32 4.90 5.91 57 7.27 8.81

33 4.97 6.00 58 7.40 8.99

34 5.04 6.09 59 7.54 9.17

35 5.12 6.18 60 7.68 10.01

36 5.19 6.28 61 7.84 -

37 5.27 6.38 62 8.01 -

38 5.35 6.47 63 8.18 -

39 5.44 6.57 64 8.37 -

40 5.53 6.67 65 9.18 -

189188

Part 2 For GMP or parts of GMP built up after 5 April 1988


16 4.93 6.12 41 7.20 8.90

17 5.00 6.21 42 7.31 9.04

18 5.08 6.31 43 7.43 9.19

19 5.15 6.41 44 7.54 9.33

20 5.23 6.50 45 7.66 9.48

21 5.31 6.60 46 7.78 9.63

22 5.40 6.70 47 7.91 9.78

23 5.48 6.80 48 8.03 9.93

24 5.56 6.91 49 8.16 10.09

25 5.64 7.01 50 8.29 10.26

26 5.73 7.11 51 8.43 10.43

27 5.82 7.22 52 8.56 10.60

28 5.91 7.33 53 8.70 10.78

29 6.00 7.44 54 8.85 10.96

30 6.09 7.55 55 9.00 11.15

31 6.18 7.66 56 9.15 11.35

32 6.28 7.78 57 9.31 11.57

33 6.38 7.90 58 9.47 11.80

34 6.47 8.02 59 9.64 12.04

35 6.57 8.14 60 9.82 13.13

36 6.66 8.26 61 10.02 -

37 6.76 8.38 62 10.23 -

38 6.87 8.51 63 10.46 -

39 6.98 8.64 64 10.70 -

40 7.09 8.77 65 11.73 -

189 PB


Use this table if


• a LRP has already been paid.



16 1.70 2.20 41 3.79 4.94

17 1.75 2.27 42 3.92 5.10

18 1.81 2.35 43 4.05 5.28

19 1.86 2.43 44 4.19 5.46

20 1.92 2.51 45 4.33 5.64

21 1.99 2.59 46 4.47 5.83

22 2.05 2.67 47 4.62 6.03

23 2.12 2.76 48 4.77 6.23

24 2.20 2.85 49 4.93 6.44

25 2.27 2.94 50 5.10 6.66

26 2.34 3.04 51 5.27 6.89

27 2.41 3.14 52 5.44 7.13

28 2.49 3.24 53 5.63 7.38

29 2.57 3.35 54 5.83 7.64

30 2.66 3.46 55 6.03 7.92

31 2.75 3.57 56 6.23 8.21

32 2.84 3.69 57 6.45 8.51

33 2.93 3.81 58 6.68 8.83

34 3.02 3.94 59 6.92 9.17

35 3.12 4.07 60 7.17 10.01

36 3.22 4.20 61 7.44 -

37 3.32 4.34 62 7.73 -

38 3.43 4.48 63 8.04 -

39 3.55 4.63 64 8.37 -

40 3.67 4.78 65 9.18 -

191190

Part 2 For GMP or parts of GMP built up after 5 April 1988


16 2.17 2.90 41 4.87 6.50

17 2.24 2.99 42 5.03 6.72

18 2.31 3.09 43 5.20 6.94

19 2.39 3.20 44 5.37 7.17

20 2.47 3.30 45 5.55 7.42

21 2.55 3.41 46 5.73 7.67

22 2.64 3.52 47 5.93 7.92

23 2.72 3.64 48 6.12 8.19

24 2.81 3.76 49 6.32 8.47

25 2.90 3.88 50 6.53 8.76

26 3.00 4.00 51 6.76 9.06

27 3.10 4.13 52 6.98 9.38

28 3.20 4.26 53 7.21 9.71

29 3.30 4.40 54 7.46 10.05

30 3.41 4.55 55 7.72 10.40

31 3.52 4.70 56 7.98 10.77

32 3.64 4.85 57 8.26 11.17

33 3.76 5.01 58 8.55 11.59

34 3.88 5.18 59 8.85 12.04

35 4.01 5.35 60 9.17 13.13

36 4.14 5.52 61 9.51 -

37 4.27 5.70 62 9.88 -

38 4.41 5.89 63 10.28 -

39 4.56 6.09 64 10.70 -

40 4.71 6.29 65 11.73 -

191 PB

Table 15 - Pensioner’s Rights Premium (PRP) - Pensioner

Use this table if





60 - 10.01 75 7.14 7.28

61 - 9.86 76 6.90 7.05

62 - 9.71 77 6.66 6.81

63 - 9.56 78 6.41 6.57

64 - 9.40 79 6.17 6.32

65 9.18 9.24 80 5.92 6.07

66 9.01 9.06 81 5.67 5.82

67 8.83 8.89 82 5.41 5.56

68 8.65 8.71 83 5.15 5.30

69 8.45 8.52 84 4.90 5.04

70 8.25 8.33 85 4.66 -

71 8.04 8.14 86 4.42 -

72 7.83 7.93 87 4.18 -

73 7.60 7.72 88 3.96 -

74 7.37 7.50 89 3.74 -

193192



60 - 13.13 70 10.22 10.32

61 - 12.88 71 9.90 10.01

62 - 12.61 72 9.58 9.70

63 - 12.34 73 9.24 9.38

64 - 12.07 74 8.91 9.06

65 11.73 11.79 75 8.57 -

66 11.44 11.50 76 8.23 -

67 11.14 11.21 77 7.89 -

68 10.84 10.92 78 7.55 -

69 10.54 10.62 79 7.21 -

193 PB

Table 16 - Pensioner’s Right Premium (PRP) - Widow or widower

Use this table if


• a woman is entitled to receive a GMP in respect of her late husband’s service in contracted-out employment or a man is entitled to a GMP in respect of his late wife’s post April 1988 service in contracted-out employment.


Age Female (£) Age Female (£) Age Female (£)

16-25 4.13 49 9.05 73 7.62

26 4.38 50 9.15 74 7.42

27 4.62 51 9.25 75 7.20

28 4.84 52 9.33 76 6.98

29 5.06 53 9.39 77 6.75

30 5.28 54 9.43 78 6.52

31 5.51 55 9.46 79 6.27

32 5.75 56 9.47 80 6.03

33 6.02 57 9.46 81 5.77

34 6.28 58 9.44 82 5.52

35 6.54 59 9.40 83 5.26

36 6.79 60 9.34 84 5.00

37 7.01 61 9.26 85 4.75

38 7.23 62 9.17 86 4.51

39 7.44 63 9.06 87 4.28

40 7.65 64 8.95 88 4.07

41 7.87 65 8.84 89 3.87

42 8.08 66 8.72 90 3.68

43 8.28 67 8.59 91 3.51

44 8.45 68 8.46 92 3.34

45 8.60 69 8.31 93 3.19

46 8.72 70 8.16 94 3.05

47 8.83 71 7.99 95+ 2.92

48 8.94 72 7.81

195194



16-25 - 4.95 49 - 12.18

26 - 5.31 50 - 12.30

27 - 5.67 51 - 12.41

28 - 6.00 52 - 12.49

29 - 6.32 53 - 12.54

30 - 6.65 54 - 12.56

31 - 6.99 55 - 12.55

32 - 7.37 56 - 12.52

33 - 7.76 57 - 12.47

34 - 8.16 58 - 12.40

35 - 8.56 59 - 12.29

36 - 8.92 60 - 12.16

37 - 9.36 61 - 12.01

38 - 9.59 62 - 11.83

39 - 9.90 63 - 11.64

40 - 10.22 64 - 11.44

41 - 10.55 65 7.97 11.23

42 - 10.86 66 7.88 11.02

43 - 11.15 67 7.78 10.80

44 - 11.40 68 7.66 10.57

45 - 11.60 69 7.52 10.33

46 - 11.77 70 7.37 10.08

47 - 11.91 71 7.20 9.82

48 - 12.05 72 7.03 9.54

(continued)

195 PB

Part 2 (continued)


73 6.84 9.25 85 4.20 5.35

74 6.64 8.95 86 4.01 5.05

75 6.43 8.63 87 3.82 4.77

76 6.21 8.31 88 3.65 4.51

77 5.97 7.99 89 3.48 4.27

78 5.74 7.66 90 3.31 4.04

79 5.50 7.33 91 3.16 3.83

80 5.27 6.99 92 3.01 3.64

81 5.05 6.66 93 2.87 3.46

82 4.83 6.32 94 2.74 3.30

83 4.61 5.99 95+ 2.61 3.15

84 4.40 5.66

196

Appendix 4

Tables - Contracted-out Money Purchase (COMP)

List of Tables

Table 1 Revaluation factors

Table 2 Composite divisors for tax years up to and including 1987-88

Table 3 Composite divisors for tax years from 1988-89

Table 4 Protected Rights Premiums - event after 5/4/88

Table 5 Protected Rights Premiums - event after 5/4/88 - Pensioner

Table 6 Protected Rights Premium - event after 5/4/88 - Widow

Table 7 Protected Rights Premium - event after 5/4/89 - Widower

Table 8 Protected Rights Premium - event after 5/4/93 - current member/early leaver

Table 9 Protected Rights Premium - event after 5/4/93 - pensioner

Table 10 Protected Rights Premium - event after 5/4/93 - widow or widower

198197

Table 1 - Revaluation factors

Use this table to revalue earnings factors for calculating the Contracted-out Deduction (COD):

198

Order made:

Table 2 - Composite divisors for tax years up to and including 1987-88

Use this table to obtain the divisor used to calculate the COD.


1-20 80 4160

21 84 4368

22 88 4576

23 92 4784

24 96 4992

25 100 5200

26 104 5408

27 108 5616

28 112 5824

29 116 6032

30 120 6240

31 124 6448

32 128 6656

33 132 6864

34 136 7072

35 140 7280

36 144 7488

37 148 7696

38 152 7904

39 156 8112

40 160 8320

41 164 8528

42 168 8736

43 172 8944

44 176 9152

45 180 9360

46 184 9568

47 188 9776

48 192 9984

49 196 10192

200199

Table 3 - Composite divisors for tax years from 1988-89

Use this table to obtain the divisor used to calculate the COD.


1-20 100 5200

21 105 5460

22 110 5720

23 115 5980

24 120 6240

25 125 6500

26 130 6760

27 135 7020

28 140 7280

29 145 7540

30 150 7800

31 155 8060

32 160 8320

33 165 8580

34 170 8840

35 175 9100

36 180 9360

37 185 9620

38 190 9880

39 195 10140

40 200 10400

41 205 10660

42 210 10920

43 215 11180

44 220 11440

45 225 11700

46 230 11960

47 235 12220

48 240 12480

49 245 12740

200

Table 4 - Protected Rights Premium (PROP)

Use this table if the event giving rise to the liability for the premium occurred after 5 April 1988.

Part 1 For parts of COD built up before 6 April 1988, ie where a transfer into a COMP scheme has occurred


16 4.37 5.34 41 5.82 7.09

17 4.42 5.41 42 5.89 7.18

18 4.47 5.47 43 5.96 7.27

19 4.52 5.53 44 6.04 7.35

20 4.57 5.59 45 6.11 7.44

21 4.62 5.65 46 6.19 7.53

22 4.67 5.71 47 6.27 7.63

23 4.73 5.78 48 6.35 7.73

24 4.78 5.85 49 6.44 7.83

25 4.83 5.92 50 6.52 7.93

26 4.89 5.98 51 6.61 8.04

27 4.95 6.05 52 6.70 8.16

28 5.01 6.12 53 6.79 8.28

29 5.07 6.18 54 6.88 8.40

30 5.12 6.25 55 6.98 8.53

31 5.18 6.32 56 7.09 8.66

32 5.24 6.40 57 7.19 8.80

33 5.30 6.47 58 7.30 8.95

34 5.37 6.54 59 7.42 9.10

35 5.43 6.61 60 7.56 9.94

36 5.49 6.69 61 7.69 -

37 5.56 6.77 62 7.83 -

38 5.62 6.85 63 8.00 -

39 5.68 6.93 64 8.18 -

40 5.75 7.01 65 8.97 -

202201

Part 2 For COD or parts of COD built up after 5 April 1988


16 5.57 7.01 41 7.44 9.30

17 5.64 7.09 42 7.53 9.41

18 5.70 7.17 43 7.61 9.52

19 5.77 7.25 44 7.71 9.64

20 5.84 7.33 45 7.80 9.75

21 5.91 7.42 46 7.90 9.87

22 5.97 7.50 47 8.00 10.00

23 6.04 7.59 48 8.10 10.13

24 6.11 7.67 49 8.21 10.26

25 6.18 7.76 50 8.31 10.39

26 6.25 7.85 51 8.42 10.53

27 6.32 7.94 52 8.53 10.68

28 6.40 8.03 53 8.64 10.84

29 6.47 8.12 54 8.76 11.00

30 6.55 8.21 55 8.89 11.16

31 6.62 8.30 56 9.02 11.33

32 6.70 8.39 57 9.15 11.51

33 6.77 8.49 58 9.29 11.70

34 6.85 8.58 59 9.44 11.90

35 6.93 8.68 60 9.60 13.00

36 7.01 8.78 61 9.77 -

37 7.09 8.88 62 9.95 -

38 7.18 8.98 63 10.14 -

39 7.26 9.09 64 10.36 -

40 7.35 9.19 65 11.37 -

202

Table 5 - Protected Rights Premium (PROP) - Pensioner

Use this table if


• a person is entitled to receive a COD in respect of their contracted-out employment.



60 - 9.94 73 7.38 7.57

61 - 9.80 74 7.17 7.34

62 - 9.65 75 6.95 7.11

63 - 9.49 76 6.73 6.88

64 - 9.33 77 6.51 6.65

65 8.97 9.16 78 6.29 6.42

66 8.79 8.99 79 6.07 6.17

67 8.61 8.80 80 5.84 -

68 8.42 8.61 81 5.62 -

69 8.22 8.41 82 5.40 -

70 8.02 8.21 83 5.17 -

71 7.81 8.00 84 4.96 -

72 7.60 7.78

Part 2 For COD and part of COD built up after 5 April 1988


60 - 13.00 68 10.48 10.75

61 - 12.74 69 10.17 10.43

62 - 12.48 70 9.86 -

63 - 12.21 71 9.55 -

64 - 11.93 72 9.24 -

65 11.37 11.64 73 8.92 -

66 11.08 11.35 74 8.60 -

67 10.78 11.05

204203

Table 6 - Protected Rights Premium (PROP) - Widow

Use this table if

• the event giving rise to the liability for the premium occurred after 5 April1988, and

• a woman is entitled to receive a COD in respect of her late husband’s service in contracted-out employment.



16-25 4.12 49 8.86 73 7.08

26 4.37 50 8.95 74 6.86

27 4.60 51 9.04 75 6.64

28 4.83 52 9.11 76 6.41

29 5.04 53 9.17 77 6.19

30 5.25 54 9.20 78 5.96

31 5.48 55 9.22 79 5.74

32 5.72 56 9.22 80 5.51

33 5.98 57 9.20 81 5.29

34 6.24 58 9.17 82 5.07

35 6.49 59 9.12 83 4.86

36 6.72 60 9.05 84 4.66

37 6.94 61 8.96 85 4.46

38 7.15 62 8.85 86 4.27

39 7.35 63 8.73 87 4.09

40 7.55 64 8.60 88 3.91

41 7.76 65 8.47 89 3.73

42 7.96 66 8.32 90 3.55

43 8.15 67 8.17 91 3.37

44 8.31 68 8.01 92 3.20

45 8.45 69 7.85 93 3.03

46 8.56 70 7.67 94 2.86

47 8.66 71 7.48 95+ 2.68

48 8.76 72 7.28

204

Part 2

For COD and parts of COD built up after 5 April 1988


16-25 4.92 49 11.82 73 8.47

26 5.28 50 11.93 74 8.16

27 5.63 51 12.02 75 7.85

28 5.96 52 12.09 76 7.54

29 6.27 53 12.13 77 7.23

30 6.59 54 12.13 78 6.93

31 6.93 55 12.12 79 6.63

32 7.29 56 12.08 80 6.33

33 7.68 57 12.01 81 6.05

34 8.07 58 11.92 82 5.77

35 8.44 59 11.81 83 5.50

36 8.80 60 11.66 84 5.24

37 9.12 61 11.49 85 4.99

38 9.43 62 11.29 86 4.76

39 9.73 63 11.07 87 4.53

40 10.03 64 10.85 88 4.31

41 10.33 65 10.62 89 4.09

42 10.63 66 10.38 90 3.88

43 10.89 67 10.13 91 3.67

44 11.12 68 9.88 92 3.46

45 11.31 69 9.62 93 3.25

46 11.46 70 9.34 94 3.05

47 11.58 71 9.06 95+ 2.84

48 11.70 72 8.77

206205

Table 7 - Protected Rights Premium (PROP) - Widower

Use this table if


• a man is entitled to receive a COD on his late wife’s post 5 April 1988 service in contracted-out employment.


65 7.59 76 5.61 86 3.99

66 7.44 77 5.44 87 3.86

67 7.28 78 5.25 88 3.71

68 7.12 79 5.04 89 3.57

69 6.96 80 4.92 90 3.45

70 6.76 81 4.75 91 3.32

71 6.57 82 4.59 92 3.17

72 6.38 83 4.44 93 3.02

73 6.17 84 4.28 94 2.85

74 5.98 85 4.13 95+ 2.64

75 5.79

206

Table 8 - Protected Rights Premium (PROP) - Current member/early leaver

Use this table if the event giving rise to the liability for the premium occurred after 5 April 1993.

Part 1 For COD or parts of COD built up before 6 April 1988

Age Male (£) Female (£) Age Male (£) Female £)

16 3.84 4.65 41 5.61 6.77

17 3.90 4.72 42 5.70 6.87

18 3.96 4.79 43 5.79 6.98

19 4.02 4.87 44 5.89 7.09

20 4.08 4.94 45 5.98 7.20

21 4.14 5.01 46 6.07 7.32

22 4.20 5.08 47 6.17 7.44

23 4.27 5.16 48 6.26 7.56

24 4.34 5.24 49 6.36 7.68

25 4.41 5.32 50 6.47 7.80

26 4.47 5.41 51 6.58 7.93

27 4.54 5.49 52 6.68 8.07

28 4.61 5.57 53 6.79 8.20

29 4.68 5.65 54 6.90 8.34

30 4.75 5.73 55 7.02 8.49

31 4.82 5.82 56 7.14 8.65

32 4.90 5.91 57 7.27 8.81

33 4.97 6.00 58 7.40 8.99

34 5.04 6.09 59 7.54 9.17

35 5.12 6.18 60 7.68 10.01

36 5.19 6.28 61 7.84 -

37 5.27 6.38 62 8.01 -

38 5.35 6.47 63 8.18 -

39 5.44 6.57 64 8.37 -

40 5.53 6.67 65 9.18 -

208207

Part 2 For COD or parts of COD built up after 5 April 1988


16 4.93 6.12 41 7.20 8.90

17 5.00 6.21 42 7.31 9.04

18 5.08 6.31 43 7.43 9.19

19 5.15 6.41 44 7.54 9.33

20 5.23 6.50 45 7.66 9.48

21 5.31 6.60 46 7.78 9.63

22 5.40 6.70 47 7.91 9.78

23 5.48 6.80 48 8.03 9.93

24 5.56 6.91 49 8.16 10.09

25 5.64 7.01 50 8.29 10.26

26 5.73 7.11 51 8.43 10.43

27 5.82 7.22 52 8.56 10.60

28 5.91 7.33 53 8.70 10.78

29 6.00 7.44 54 8.85 10.96

30 6.09 7.55 55 9.00 11.15

31 6.18 7.66 56 9.15 11.35

32 6.28 7.78 57 9.31 11.57

33 6.38 7.90 58 9.47 11.80

34 6.47 8.02 59 9.64 12.04

35 6.57 8.14 60 9.82 13.13

36 6.66 8.26 61 10.02 -

37 6.76 8.38 62 10.23 -

38 6.87 8.51 63 10.46 -

39 6.98 8.64 64 10.70 -

40 7.09 8.77 65 11.73 -

208

Table 9 - Protected Rights Premium (PROP) - Pensioner

Use this table if


• a person is entitled to receive a COD in respect of their contracted-out employment.

Part 1 For COD and parts of COD built up before 6 April 1988


60 - 10.01 75 7.14 7.28

61 - 9.86 76 6.90 7.05

62 - 9.71 77 6.66 6.81

63 - 9.56 78 6.41 6.57

64 - 9.40 79 6.17 6.32

65 9.18 9.24 80 5.92 6.07

66 9.01 9.06 81 5.67 5.82

67 8.83 8.89 82 5.41 5.56

68 8.65 8.71 83 5.15 5.30

69 8.45 8.52 84 4.90 5.04

70 8.25 8.33 85 4.66 -

71 8.04 8.14 86 4.42 -

72 7.83 7.93 87 4.18 -

73 7.60 7.72 88 3.96 -

74 7.37 7.50 89 3.74 -

210209

Part 2 For COD and parts of COD built up after 5 April 1988


60 - 13.13 70 10.22 10.32

61 - 12.88 71 9.90 10.01

62 - 12.61 72 9.58 9.70

63 - 12.34 73 9.24 9.38

64 - 12.07 74 8.91 9.06

65 11.73 11.79 75 8.57 -

66 11.44 11.50 76 8.23 -

67 11.14 11.21 77 7.89 -

68 10.84 10.92 78 7.55 -

69 10.54 10.62 79 7.21 -

210

Table 10 - Protected Right Premium (PROP) - Widow or widower

Use this table if


• a woman is entitled to receive a COD in respect of her late husband’s service in contracted-out employment or a man is entitled to a COD in respect of his late wife’s post April 1988 service in contracted-out employment.

Part 1 For COD and parts of COD built up before 6 April 1988

Age Female (£) Age Female (£) Age Female (£)

16-25 4.13 49 9.05 73 7.62

26 4.38 50 9.15 74 7.42

27 4.62 51 9.25 75 7.20

28 4.84 52 9.33 76 6.98

29 5.06 53 9.39 77 6.75

30 5.28 54 9.43 78 6.52

31 5.51 55 9.46 79 6.27

32 5.75 56 9.47 80 6.03

33 6.02 57 9.46 81 5.77

34 6.28 58 9.44 82 5.52

35 6.54 59 9.40 83 5.26

36 6.79 60 9.34 84 5.00

37 7.01 61 9.26 85 4.75

38 7.23 62 9.17 86 4.51

39 7.44 63 9.06 87 4.28

40 7.65 64 8.95 88 4.07

41 7.87 65 8.84 89 3.87

42 8.08 66 8.72 90 3.68

43 8.28 67 8.59 91 3.51

44 8.45 68 8.46 92 3.34

45 8.60 69 8.31 93 3.19

46 8.72 70 8.16 94 3.05

47 8.83 71 7.99 95+ 2.92

48 8.94 72 7.81

212211

Part 2 For COD and parts of COD built up after 5 April 1988


16-25 - 4.95 49 - 12.18

26 - 5.31 50 - 12.30

27 - 5.67 51 - 12.41

28 - 6.00 52 - 12.49

29 - 6.32 53 - 12.54

30 - 6.65 54 - 12.56

31 - 6.99 55 - 12.55

32 - 7.37 56 - 12.52

33 - 7.76 57 - 12.47

34 - 8.16 58 - 12.40

35 - 8.56 59 - 12.29

36 - 8.92 60 - 12.16

37 - 9.36 61 - 12.01

38 - 9.59 62 - 11.83

39 - 9.90 63 - 11.64

40 - 10.22 64 - 11.44

41 - 10.55 65 7.97 11.23

42 - 10.86 66 7.88 11.02

43 - 11.15 67 7.78 10.80

44 - 11.40 68 7.66 10.57

45 - 11.60 69 7.52 10.33

46 - 11.77 70 7.37 10.08

47 - 11.91 71 7.20 9.82

48 - 12.05 72 7.03 9.54

(continued)

212

Part 2 (continued)


73 6.84 9.25 85 4.20 5.35

74 6.64 8.95 86 4.01 5.05

75 6.43 8.63 87 3.82 4.77

76 6.21 8.31 88 3.65 4.51

77 5.97 7.99 89 3.48 4.27

78 5.74 7.66 90 3.31 4.04

79 5.50 7.33 91 3.16 3.83

80 5.27 6.99 92 3.01 3.64

81 5.05 6.66 93 2.87 3.46

82 4.83 6.32 94 2.74 3.30

83 4.61 5.99 95+ 2.61 3.15

84 4.40 5.66

214

Appendix 5 - Examples of calculations for Contracted-out Salary Related (COSR) schemes

List of examples

Example 1 Calculation of the Guaranteed Minimum Pension (GMP)

Example 1A Early leaver GMP - where the period of employment is entirely pre 6 April 1997

Example 1B Early leaver GMP - where period of employment spans 6 April 1997

Example 2 Calculating Accrued Rights/Pensioner Rights Premiums - scheme ceased on or before 5 April 1997

Example 2A Accrued Rights Premium (ARP)

Example 3 Contributions Equivalent Premium (CEP) - scheme ceased on or after 6 April 1997

Example 3A Certified Amount

Example 1- Calculation of the Guaranteed Minimum Pension (GMP)

1 To calculate the weekly Guaranteed Minimum Pension (GMP):

Formula

1 divide the total of the revalued earnings factor by the composite divisor appropriate to the employee’s working life, see Appendix 3, Tables 2 and 3 then

2 divide by 1000

2 Working life for this purpose is the period beginning with 6 April 1978, or, if later, the 6 April on or immediately before the employee’s 16th birthday, and ending with the 5 April before the date of State Pension age (SPA).

3 The resulting amount must be rounded to the nearest 1p, 0.5p or more being rounded up to the next whole penny.

4 If a GMP spans 6 April 1988 the calculation has to be split to take account of the different rate of accrual before and from 6 April 1988. The resulting amounts are rounded separately and then added together.

Note: If a period of contracted-out employment spans 6 April 1997 the earnings from and including the 1997-98 tax year are not included in the GMP calculation.

Earnings factors

5 The GMP is calculated from contracted-out earnings factors, not actual earnings.

Tax years up to and including 1986-87

6 For tax years up to and including 1986-87, the earnings factors are obtained from the employee’s contracted-out National Insurance contributions on earnings paid between the Lower and Upper Earnings Limits.

213

214

7 The contracted-out part of contributions before 6 April 1985 are rounded up to the next multiple of 10p, unless it is already a multiple of 10p. Any contributions paid in the 1985-86 and 1986-87 tax years are not rounded.

8 The earnings factor is calculated by dividing the contribution by the contracted-out percentage for that year. Since 6 October 1985, National Insurance contributions are payable at differing percentage rates depending on earnings. For the 1985-86 and 1986-87 tax years earnings factors are calculated as if contributions had all been paid at the maximum rate.

9 The result is rounded to the nearest penny, 0.5p is rounded up. The total earnings factor for each year is rounded to the nearest pound, 50p is rounded up.

Tax years from 1987-88 up to and including 1996-97

10 From the 1987-88 tax year up to and including the 1996-97 tax year, the earning factors used in the GMP calculations are derived from the earnings on which employee’s contracted-out National Insurance contributions have been paid between the Lower and Upper Earnings Limits. Column 1d of the contracted-out contribution tables shows the contracted-out earnings figure related to the employee’s gross earnings. The figure is in whole pounds and must be recorded on the P11(87) working sheet and on the P14 End of Year Summary.

11 The earnings factor is the total of column 1d of form P11(87) or column 1d of the P14 End of Year Summary.

12 If you use the exact percentage method to work out contributions, the methods of working out and recording earnings figures are slightly different. The exact amounts, which may include pence, of gross earnings on which employee’s contributions are payable and related contracted-out earnings must be used. At the end of the year, round down the totals to the nearest whole pound. The earnings factor is the total rounded contracted-out earnings figure.

13 An earnings factor held on the Inland Revenue National Insurance Contributions Office computer, in pence, for each tax year in which National Insurance contributions at the contracted-out rate have been paid by an employee. The GMP calculations uses these earnings factors.

Revaluation of earnings factors

14 Revalued earnings factors must be calculated using the revaluation factors in Appendix 3, Table 1.

15 For early leavers, use the order made in the tax year in which contracted-out employment terminated to revalue the contracted-out earnings factors for all tax years before the tax year of leaving. The earnings factor for the tax year of leaving is taken at face value. For fixed or limited rate schemes the resultant GMP should be revalued up to and including the tax year of scheme cessation.

16 In death or retirement cases either

• use the order made in the tax year before the tax year in which death occurred or SPA was reached

• apply revaluation to the contracted-out earnings factor for all tax years before the tax year in which the order was made

• take the earnings factor for the tax year in which the order was made at face value

• do not take into account the earnings factor for the tax year of death or in which pension age was reached, or

• use the order made in tax year of termination, then revalue the GMP up to SPA or death, using the appropriate revaluation rate.

216215

Example 1A - Early leaver GMP - where the period of contracted-out employment is entirely pre 6 April 1997

Sex: Male

Date of birth: 4 June 1942

Years in working life: 29

Scheme ceased: 1 January 1992

Period of employment: 5 January 1987 - 30 March 1989

Revaluation: Fixed rate

Weekly GMP

Formula Total Revalued Earnings Factor ÷ Composite divisor ÷ 1000

Pre 6/4/88 18229288 ÷ 6032 ÷ 1000 = £3.02

Post 5/4/88 13728000 ÷ 7540 ÷ 1000 = £1.82

Weekly GMP = £4.84 at termination

Weekly GMP at scheme cessation = £6.01 (ie including 3 years revaluation at 7.5% per annum)

Note 1: The earnings factors are rounded to the nearest £, eg. £0.50 or more is rounded up to the next £.

Note 2: For fixed or limited rate revaluation, both the total GMP and the post 5 April 1988 amount are revalued at the relevant rate from the tax year following termination up to and including the tax year of cessation. If revaluation uses Section 148 orders, the earnings factors are revalued, not the GMP.

Note 3: Details of both the Revaluation Factors and Composite Dividers are shown in Appendix 3.

Tax year Contracted-out Earnings Revaluation Revalued contributions/earnings Factor Factor Earnings Factor

1986-87 219.96x100/6.85 = 3211.09 = 3211 x 1168 = 3750448

1987-88 13320 x 1087 = 14478840

Total pre 18229288 6/4/88

1988/89 13728 x 1000 = 13728000

Total post 13728000 5/4/88

216

Example 1B - Early leaver GMP - where the period of contracted-out employment spans 6 April 1997

Use

• the contracted-out contributions/earnings which relate to the period of employment for all the tax years up to and including the 1996-97 tax year

• the Section 148 order made in the tax year of termination to revalue the contracted-out earnings factors

• earnings from and including the 1997-98 tax year are not to be included in the calculation of GMP.

Sex: Male

Date of birth: 29 March 38


Period of employment: 6 April 1995 - 30 March 1999

Scheme ceased: 1 June 2001

Revaluation: Fixed rate

Weekly GMP

Formula Total revalued Earnings Factor ÷ Composite divisor ÷ 1000

62300000 ÷ 6240 ÷ 1000

Weekly GMP at termination = £9.98

Weekly GMP at scheme cessation = £11.97 (ie including 3 years revaluation at 6.25%)

Note 1: Details of both the Revaluation Factors and Composite Dividers are shown in Appendix 3 (the revaluation factors used are assumed figures for the purposes of this calculation).

Tax year Earnings Revaluation Revalued Factor Factor Earnings

1995-96 21000 x 1500 = 31500000

1996-97 22000 x 1400 = 30800000

1997-98 23000 x 1300 = not taken into account


Total 62300000

218

Example 2 - Calculating Accrued Rights Premiums/Pensioner Rights Premiums - scheme ceased on or before 5 April 1997

1 To calculate the Accrued Rights or Pensioners Rights Premiums (ARP or PRP):

Formula

For GMP built up before 6 April 1988:

1 multiply together:

• weekly amount of GMP

• 52 (for the number of weeks)

• the Market Level Indicator (MLI)

• the amount from the appropriate Appendix 3 Table then

2 divide by 100

For GMP built up after 5 April 1988:


• weekly amount of GMP


• the MLI

• the amount from the appropriate Appendix 2 Table then

2 divide by the average MLI

If the rights were accrued before and after 6 April 1988, add together the two parts.

Calculation of MLI

2 The MLI

• ensures that the premium reflects the current yield on investments

• gives schemes protection against short-term fluctuations in stock market prices.

3 The MLI used is the average of the indicators for the first 5 working days on which the London Stock Exchange was open in the month in which the event giving rise to the liability for the premium occurred.

4 The average MLI is the average of the MLIs in all the months in the five years before the month in which the event giving rise to the liability for the premium occurred.

5 Until March 1993, the average MLI was the average of all the MLIs from April 1988 to the month preceding the one in which the event giving rise to the liability for the premium occurred. For April and May 1988, the average MLI was the MLI for April 1988.

217

218

Example 2A - Accrued Rights Premium (ARP) Calculation

Sex: Female Date of Birth: 28 April 1955 Date of scheme cessation: 13 July 1993 Age attained in tax year in which the scheme ceased: 38 Total GMP: £20.77 Post 88 GMP amount: £2.20

No LRP due

PRE 88 GMP

Amount: £18.57

Accrued rights factor: £18.57 x 52 = £965.64

Market Level Indicator (MLI) for July 1993: 118

Table amount for female aged 38: £6.47

Premium: (£6.47 x 118 x £965.64) ÷ 100 = £7372.28

Round up or down to the nearest 1p taking 0.5p or higher as the next whole penny above

POST 88 GMP

Amount: £2.20


MLI for July 1993: 118

Average MLI for July 1993: 104

Table amount for female age 38: £8.51

Premium: (£8.51 x 118 x £114.40) ÷ 104 = £1104.60


Total premium

Total Premium: £7372.28 + £1104.60 = £8476.88

Round up or down to the nearest 1p taking 0.5p or higher as the next whole penny above Note 1: MLI figures are assumed figures for the purpose of calculation

Note 2: Any incentive payments made for the employee are added to the ARP

Note 3: Any interest payable is added to the total premium

220

Example 3 - Contributions Equivalent Premium (CEP) - scheme ceased on or after 6 April 1997

The CEP amount is calculated using the contribution reduction, rate of contributions and the formulas shown below:

An example of a CEP calculation is as follows:

Period of employment: 6 April 1996 - 4 June 1998 Scheme ceased: 4 June 1998

Note 1: Round the calculation for each year up or down to the nearest 1p taking 0.5p or higher as the next whole penny above.

Note 2: Any incentive payments made for the employee are added to the Contributions Equivalent Premium (CEP).

Note 3: If the period of employment involves membership of a COMP scheme any age related rebates made for the COMP scheme are added to the CEP.

219

Tax Year Contracted-out Total Contribution CEP amount earnings reduction divided by rate of employees contributions

1987-88 11037 x 6.25 ÷ 100 = 689.81

1988-89 11241 x 5.8 ÷ 100 = 651.98

1989-90 11500 x 5.8 ÷ 100 = 667.00

1990-91 11700 x 5.8 ÷ 100 = 678.60

1991-92 11900 x 5.8 ÷ 100 = 690.00

1992-93 12000 x 5.8 ÷ 100 = 696.20

1993-94 12500 x 4.8 ÷ 100 = 600.00

1994-95 12600 x 4.8 ÷ 100 = 604.80

1995-96 12700 x 4.8 ÷ 100 = 609.60

1996-97 12800 x 4.8 ÷ 100 = 614.40

1997-98 12600 x 4.6 ÷ 100 = 579.60

Tax year Contracted-out Formula CEP amount earnings

1996-97 12600 x 4.8 ÷ 100 = 604.80

1997-98 3200 x 4.6 ÷ 100 = 147.20

Total 752.00

220

Example 3A - Certified Amount

The certified amount is calculated using the employee’s contribution reduction, total contribution reduction and the formulas shown below:

An example of a Certified Amount calculation is as follows:

Period of employment: 6 April 1996 - 4 June 1998

Note 1: Round the calculation for each year up or down to the nearest 1p taking 0.5p or higher as the next whole penny above.

Note 2: In tax years 2000/01 or later an employee no longer pays NI contributions (NICs) on earnings between the LEL and the Employee Earnings Threshold. However they continue to receive a contracted-out rebate (NIC Rebate) based on those earnings. The rebate is provided by offsetting against the NICs payable on the earnings above the Earnings Threshold. If an employee does not pay sufficient NICs to fully offset the NIC rebate, the excess would be available to the employer.

The Certified Amount provided on a CEP bill will always be calculated based on the assumption that the employee has benefited from the full NIC rebate. If this is not the case and the Certified Amount is to be recovered from the employee, the Certified Amount should be recalculated. See example at 3B.

Tax Year CEP Amount Employee’s Certified contributions amount reduction divided by total contribution reduction

1987-88 689.81 x 2.15 ÷ 6.25 = 237.29

1988-89 651.98 x 2 ÷ 5.8 = 224.82

1989-90 667.00 x 2 ÷ 5.8 = 230.00

1990-91 678.60 x 2 ÷ 5.8 = 234.00

1991-92 690.20 x 2 ÷ 5.8 = 238.00

1992-93 696.00 x 2 ÷ 5.8 = 240.00

1993-94 600.00 x 1.8 ÷ 4.8 = 225.00

1994-95 604.80 x 1.8 ÷ 4.8 = 226.80

1995-96 609.60 x 1.8 ÷ 4.8 = 228.60

1996-97 614.40 x 1.8 ÷ 4.8 = 230.40

1997-98 579.60 x 1.6 ÷ 4.6 = 201.60

Tax year CEP amount Formula Certified amount

1996-97 604.80 x 1.8 ÷ 4.8 = 226.80

1997-98 153.60 x 1.6 ÷ 4.6 = 53.43

Total 280.23

222

Example 3B - Certified Amount

Certified Amount (as calculated and notified on CA1620)

Employee has earnings of £77 for four weeks during the period of employment being bought back into SERPS.

Recalculated Certified Amount

Weekly

NIC rebate due on earnings between the LEL (£67) and Employee Earnings Threshold (£76) = £9.00 x 1.6% = £0.14

NIC payable on earnings above the Employee Threshold = £1.00 x 8.4% = £0.08

NIC rebate available to employee for offset against NICs payable = £0.08

NIC rebate available to employer for offset against overall NIC liability = £0.06

Total

The NIC rebate not enjoyed by the employee = £0.06 x 4 = £0.24

Recalculated Certified Amount = £361.60 - £0.24 = £361.36

Tax year CEP Amount Formula Certified Amount

1999-00 579.60 1.6 ÷ 4.6 = 201.60

2000-01 460.00 1.6 ÷ 4.6 = 160.00

Total £361.60

221

Earnings between Tax year LEL and UEL Formula CEP Amount

1999-00 12600 x 4.6 ÷ 100 = 579.60

2000-01 10000 x 4.6 ÷ 100 = 460.00

Total 1039.60

222

Appendix 6 - Examples of calculations for Contracted-out Money Purchase (COMP) schemes

List of examples

Example 1 Calculation of the Contracted-out Deduction (COD)

Example 1A Early leaver COD - where the period of employment is entirely pre 6 April 1997

Example 1B Early leaver COD - where period of employment spans 6 April 1997

Example 2 Protected Rights Premium (PROP) - scheme ceased on or before 5 April 1997

Example 2A PROP calculation

Example 1 - Calculation of the Contracted-Out Deduction (COD)

1 To calculate the weekly Contracted-Out Deduction (COD):

Formula

1 divide the total of the revalued earnings factor by the composite divisor appropriate to the employee’s working life, see Appendix 4, Tables 2 and 3 then

3 divide by 1000

2 Working life for this purpose is the period beginning with 6 April 1978, or, if later, the 6 April on or immediately before the employee’s 16th birthday, and ending with the 5 April before the date of State Pension age (SPA).

3 The resulting amount must be rounded to the nearest 1p, 0.5p or more being rounded up to the next whole penny.

4 If a COD spans 6 April 1988 (including periods of transferred in service), the calculation has to be split to take account of the different rate of accrual before and from 6 April 1988. The resulting amounts are rounded separately and then added together.

Note: If a period of contracted-out employment spans 6 April 1997 the earnings from and including the 1997-98 tax year are not included in the COD calculation.

Earnings Factors

5 The COD is calculated from contracted-out earnings factors, not actual earnings.

Tax years up to and including 1986-87

6 For tax years up to and including 1986-87, the earnings factors are obtained from the employee’s contracted-out National Insurance contributions on earnings paid between the Lower and Upper Earnings Limits.

7 The contracted-out part of contributions before 6 April 1985 are rounded up to the next multiple of 10p, unless it is already a multiple of 10p. Any contributions paid in the 1985-86 and 1986-87 tax years are not rounded.

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8 The earnings factor is calculated by dividing the contribution by the contracted-out percentage for that year. Since 6 October 1985, National Insurance contributions are payable at differing percentage rates depending on earnings. For the 1985-86 and 1986-87 tax years earnings factors are calculated as if contributions had all been paid at the maximum rate.

9 The result is rounded to the nearest penny, 0.5p is rounded up. The total earnings factor for each year is rounded to the nearest pound, 50p is rounded up.

Tax years from 1987-88 up to and including 1996-97

10 From the 1987-88 tax year up to and including the 1996-97 tax year, the earning factors used in the COD calculations are derived from the earnings on which employee’s contracted-out National Insurance contributions have been paid between the Lower and Upper Earnings Limits. Column 1d of the contracted-out contribution tables shows the contracted-out earnings figure related to the employee’s gross earnings. The figure is in whole pounds and must be recorded on the P11(87) working sheet and on the P14 End of Year Summary.

11 The earnings factor is the total of column 1d of form P11(87) or column 1d of the P14 End of Year Summary.

12 If you use the exact percentage method to work out contributions, the methods of working out and recording earnings figures are slightly different. The exact amounts, which may include pence, of gross earnings on which employee’s contributions are payable and related contracted-out earnings must be used. At the end of the year, round down the totals to the nearest whole pound. The earnings factor is the total rounded contracted-out earnings figure.

13 An earnings factor held on the Inland Revenue National Insurance Contributions Office computer, in pence, for each tax year in which National Insurance contributions at the contracted-out rate have been paid by an employee. The COD calculations uses these earnings factors.

Revaluation of Earnings Factors

14 Revalued earnings factors must be calculated using the revaluation factors in Appendix 4, Table 1.

15 For early leavers, use the order made in the tax year in which contracted-out employment terminated to revalue the contracted-out earnings factors for all tax years before the tax year of leaving. The earnings factor for the tax year of leaving is taken at face value. For Contracted-Out Money Purchase (COMP) schemes the earnings factors used in the calculation should be revalued by the Section 148 order made in the tax year of scheme cessation.

16 In death or retirement cases

• use the order made in the tax year before the tax year in which death occurred or SPA was reached

• apply revaluation to the contracted-out earnings factor for all tax years before the tax year in which the order was made

• take the earnings factor for the tax year in which the order was made at face value

• do not take into account the earnings factor for the tax year of death or in which pension age was reached

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Example 1A - Early leaver COD - where the period of contracted-out employment is entirely pre 6 April 1997

Sex: Male

Date of birth: 4 June 1942


Period of employment: 5 January 1987 - 1 January 1989

Scheme ceased: 30 March 1990

*No revaluation

Weekly COD

Formula Total Revalued Earnings Factor ÷ Composite divisor ÷ 1000

Pre 6/4/88 20205634 ÷ 6032 ÷ 1000 = £3.35

Post 5/4/88 15210624 ÷ 7540 ÷ 1000 = £2.02

Weekly COD = £5.37

Note 1: The earnings factors are rounded to the nearest £, eg. £0.50 or more is rounded up to the next £.

Note 2: Details of both the Revaluation Factors and Composite Dividers are shown in Appendix 4.

Note 3: The earnings factors are to be revalued by the S148 orders made in the tax year of scheme cessation.

Tax year Contracted-out Earnings Revaluation Revalued contributions/earnings Factor Factor Earnings Factor

1986-87 219.96x100/6.85 = 3211.09 = 3211 x 1294 = 4155034

1987-88 13320 x 1205 = 16050600

Total pre 20205634 6/4/88

1988-89 13728 x 1108 = 15210624

1989-90 1000*=

Total post 15210624 5/4/88

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Example 1B - Early leaver COD - where the period of contracted-out employment spans 6 April 1997

Use

• the contracted-out contributions/earnings which relate to the period of employment for all the tax years up to and including the 1996-97 tax year

• the Section 148 order made in the tax year of scheme cessation to revalue the contracted-out earnings factors

• earnings from and including the 1997-98 tax year are not to be included in the COD calculation

Sex: Male

Date of birth: 29 March 38


Period of employment: 6 April 1995 - 1 March 1998

Scheme Ceased: 30 March 1999

Weekly COD

Formula Total revalued Earnings Factor ÷ Composite divisor ÷ 1000

62300000 ÷ 6240 ÷ 1000

Weekly COD = £9.98

Note: Details of both the Revaluation Factors and Composite Dividers are shown in Appendix 4 (the revaluation factors used are assumed figures for the purposes of this calculation).

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Tax year Earnings Revaluation Revalued Factor Factor Earnings Factor

1995-96 21000 x 1500 = 31500000

1996-97 22000 x 1400 = 30800000


1998-99 1000 =

Total 62300000

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Example 2 - Calculating Protected Rights Premiums (PROPs) - scheme ceased on or before 5 April 1997

1 To calculate the Protected Rights Premium (PROP)

Formula

For Contracted-Out Deduction (COD) built up before 6 April 1988:


• weekly amount of COD


• the MLI and

• the amount from the appropriate Appendix 4 Table

2 divide by 100

For the COD built up after 5 April 1988:


• weekly amount of COD


• the MLI and

• the amount from the appropriate Appendix 3 Table

2 divide by the average MLI

If the rights were accrued before and after 6 April 1988, add together the two parts.

Calculation of MLI

2 The MLI

• ensures that the premium reflects the current yield on investments

• gives schemes protection against short-term fluctuations in stock market prices.

3 The MLI used is the average of the indicators for the first 5 working days on which the London Stock Exchange was open in the month in which the event giving rise to the liability for the premium occurred.

4 The average MLI is the average of the MLIs in all the months in the five years before the month in which the event giving rise to the liability for the premium occurred.

5 Until March 1993, the average MLI was the average of all the MLIs from April 1988 to the month preceding the one in which the event giving rise to the liability for the premium occurred. For April and May 1988, the average MLI was the MLI for April 1988.

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Example 2A - Protected Rights Premium (PROP) Calculation

Sex: Female

Date of Birth: 28 April 1955

Date of scheme cessation: 13 July 1993

Age attained in tax year in which the scheme ceased: 38

Total COD: £2.20

Post 88 COD: £2.20


MLI for July 1993: 118

Table amount for female age 38: £8.51

Premium: (£8.51 x 118 x £114.40) ÷ 104 = £1104.60


Total premium = £1104.60

Note 1: MLI figures are assumed figures for the purpose of calculation.

These notes are for guidance only and should not be treated as a complete

and authorative statement of the law.

Leaflet CA15 from February 2005. Prepared by Inland Revenue

National Insurance Contributions Office, Publications,Newcastle upon Tyne.

Documents

Cessation of Contracted-out Pension Schemes · Preserving the GMP rights within the scheme page 26, para 2.18 Transfers page 26, para 2.22 Purchase of annuities page 27, para 2.26