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The Pensions Regulator

Codes of practice

Codes of practice

Code of practice 03
Funding defined benefits

Introduction

To which schemes does the code apply?
  1. The scheme funding requirements of Part 3 and, therefore, the code apply to all occupational pension schemes providing defined benefits (ie those schemes not wholly money purchase13) unless exempted.14 Trustees of all occupational pension schemes will need to consider carefully the question of whether and to what extent the requirements apply to their scheme.
  2. Schemes will be subject to the requirements where the rules define some or all of the benefits independently of the contributions payable and these benefits are not solely related to the performance of the scheme's investments. Schemes are not wholly money purchase where:
    • the level of any of the benefits is guaranteed under the scheme provisions (as opposed to a guarantee under an investment contract) or where there is a minimum rate of accumulation; or
    • there is any form of underpin (for example, a scheme providing ostensibly money purchase benefits for employees who are or were contracted out of the state second tier pension - State Second Pension, formerly State Earnings Related Pension Scheme - under the Reference Scheme Test or by the provision of Guaranteed Minimum Pensions).
  3. However, schemes which are not wholly money purchase simply because they provide a defined death-in-service lump sum benefit (such as a benefit defined as a multiple of pay) are exempt from Part 3 if that benefit is fully insured.15
  4. Schemes which began to wind up before 30 December 2005 are not subject to Part 3. Schemes which begin to wind up on or after 30 December 2005 are subject to a limited requirement under Part 3, to obtain an annual estimate by their actuary of the solvency position of the scheme.16
Other relevant Pensions Regulator codes
  1. The code of practice on 'Reporting breaches of the law'17 sets out what is expected of trustees (and others) in reporting matters of material significance to the Pensions Regulator.18
  2. The code of practice on 'Notifiable events'19 explains the duty of trustees and employers to notify the Pensions Regulator about certain scheme-related and employer-related events.20
  3. The responsibilities to report matters under paragraphs 17 and 18 above are in addition to those specific matters that in some cases the trustees, and in other cases the actuary, must report to the Pensions Regulator under the scheme funding requirements.21
Northern Ireland

In this code of practice, references to the law that applies in Great Britain should be taken to include corresponding legislation in Northern Ireland. The Appendix to this code lists the corresponding references.

13 See section 318(1) and also section 181(1) of the Pension Schemes Act 1993 (as amended) for the definition of a 'money purchase scheme'
14 See section 221 and regulation 17.
15 See regulation 17(1)(j).
16 See regulation 18.4
17 Issued by the Pensions Regulator in April 2005.
18 See section 70.
19 Issued by the Pensions Regulator in June 2005.
20 See section 69.
21 See sections 225(3), 227(9), 228(2) and 229(5).