Pensions Act 2004

Commentary on Sections

Part 5 – Occupational and Personal Pension Schemes: Miscellaneous Provisions

Annual increases in rate of pensions

Section 280: Power to increase pensions giving effect to pension credits etc

1132.Section 40 of the Welfare Reform and Pensions Act 1999 is concerned with pensions in payment derived from a pension credit where there has been a pension sharing order. It contains a power that enables the Secretary of State to make provision for pensions provided to give effect to eligible pension credit rights or safeguarded rights to be increased by the Retail Price Index not exceeding 5%. These requirements are modified in line with the changes being made under sections 278 and 279.

1133.Subsection (2) amends section 40(1) of the Welfare Reform and Pensions Act 1999 by replacing the reference to “5%” with “the maximum percentage”.

1134.Subsection (4) inserts new subsection (2A) into section 40 of the Welfare Reform and Pensions Act 1999 to ensure that subsection (2) of section 40 does not apply to pensions derived from money purchase benefits coming into payment on or after the “commencement day”.

1135.Subsection (4) also inserts new subsection (2B) into section 40 of the Welfare Reform and Pensions Act 1999 and this defines “the maximum percentage” as being:

• 5% for pensions in payment before the commencement day or where entitlement arose before that day;

• 2.5% where entitlement arose on or after the commencement day.

1136.Subsection (5) amends section 40(3) of the Welfare Reform and Pensions Act 1999 by defining the “commencement day” as being the day appointed for the coming into force of section 280. The terms “money purchase benefit” and “relevant pension credit” are also defined.