Early leavers code laid before Parliament

The Pensions Regulator’s Early leavers – reasonable periods code of practice has been laid before Parliament.

The draft code on early leavers of occupational schemes relates to new provisions due to be introduced from April 2006.

It outlines the rights of members leaving occupational pension schemes early (other than on death or normal retirement):

• with more than three months, but less than two years’ pensionable service; and
• without vested rights to benefits under the scheme;

to take a cash transfer sum or a refund of their contributions. It also explains the duties trustees and pension scheme managers will have under the new legislation to notify members of their rights, and to facilitate their chosen option.

The principal purpose of the Early Leavers – reasonable periods code, is to set out the regulator’s view as to what constitutes a reasonable time period within which:

• trustees/managers must notify members of their rights;
• members must respond to trustees/managers;
• trustees/managers must carry out members’ decisions; and
• trustees/managers must apply the default process, where a member does not respond to notification.

To view the draft code of practice visit: http://www.thepensionsregulator.gov.uk/doc-library/codes.aspx

1. The Occupational Pension Schemes (Early Leavers: Cash Transfer Sums and Contribution Refunds) Regulations 2006, were laid on 12 January 2006 and are due to come into force on 06 April 2006.
2. The Early leavers code of practice is expected to come into effect in May 2006. It was laid before Parliament on 14 March 2006.
3. For this purpose an “early leaver” is a member who leaves an occupational scheme other than on normal retirement or death, with more than three months of pensionable service but less than two years, and with no vested rights to benefits under the scheme. From 6 April 2006 legislation will give these early leavers the right to take either a cash transfer sum or a refund of their own contributions.
4. The Early Leavers code relates to new requirements for trustees and managers of pension schemes to notify early leavers of their rights, and to put those rights into effect. It also sets out the reasonable time periods within which the regulator expects trustees and managers to act, and for early leavers to reply to notification of their rights.
5. The code gives the following 'reasonable periods' in relation to early leavers:
   • to notify the member of their rights – 3 months from leaving service,
   • for the member to make his decision and tell the trustees – 3 months from the member being notified of his rights,
   • to carry out a member's decision – 3 months from the trustees being notified of the member's decision, and
   • to pay the member cash if he makes no decision – 1 month from the end of the period allowed for the member to reply to the trustees.
6. Early leavers of schemes in wind-up are entitled only to a refund of their contributions. For members of schemes that enter wind-up after they have left the pension scheme, the option of a cash transfer sum is still available to them.
7. Codes of practice are not statements of the law and there is no penalty for failing to comply with them. However, the codes do have legal effect and they must be taken into consideration by a court or tribunal if they are relevant to what is being decided.
8. The Pensions Regulator has been established as the new regulator of work-based pensions in the UK, with wider and more flexible powers under the Pensions Act 2004. It replaces Opra which has ceased to exist.
9. The new powers of the Pensions Regulator include the ability to:
   • collect more detailed scheme information;
   • issue improvement notices and third party notices, enabling the regulator to ensure problems are put right;
   • freeze a scheme that is at risk, while the regulator investigates;
   • prohibit trustees who are judged not fit and proper to carry out their duties; and
   • the Pensions Act 2004 also imposes a statutory obligation on 'whistleblowers' to report suspected breaches of the legislation to the regulator.

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