The Pensions Regulator

Code of practice 03
Funding defined benefits

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Using the code

Legislative requirements and code guidelines

20. In this code, legislative requirements are indicated by 'must', and code guidelines by 'should'.

Legislative and other references

21. In this code (and the footnotes) unless stated otherwise all references to:
22. • 'sections' and 'Parts' are to those from the Pensions Act 2004;
    • 'regulations' and 'Schedules' are to those from the Occupational Pension Schemes (Scheme Funding) Regulations 2005 (SI 2005/3377); and
    • 'Guidance Notes' are to professional guidance issued by the UK's actuarial profession.²²

Terminology

22. In this code certain terms have the following meanings:

    Trustees and managers
    The legislation refers to the duties imposed upon a scheme's 'trustees or managers'. All the references to 'trustees' should be taken to be references to trustees or managers.

    Statutory funding objective
    Every scheme is subject to the statutory funding objective which is to have sufficient and appropriate assets to cover its 'technical provisions'.

    Technical provisions
    The 'technical provisions' are an estimate, made on actuarial principles, of the assets needed at any particular time to make provision for benefits already accrued under the scheme. These include pensions in payment (including those payable to survivors of former members) and benefits accrued by other members which will become payable in the future.

    Actuary
    Except where the text indicates otherwise the term 'actuary' is used in this code to refer to the actuary either appointed²³ or authorised²⁴ by the trustees, and who fulfils the statutory functions under Part 3.

    Actuarial valuation
    An actuarial valuation is a comparison by the actuary of the value placed on scheme assets with the technical provisions and an assessment of any future contribution requirement. Calculations of the technical provisions will usually be based on full member-by-member data.

    Actuarial report
    An actuarial report is the actuary's estimate of changes to the funding position of the scheme since the last actuarial valuation. Unlike the actuarial valuation it will not usually be based on such detailed member-by-member calculations.

    Effective date An actuarial valuation or an actuarial report considers the funding of a scheme as at a particular date, known as the effective date. The effective date will be earlier than the date on which calculations are done.

Flags used in this code

23. Flags occur at relevant places in the text to indicate where the legislative provision in respect of those schemes identified by the flag in question is different to that described. The relevant differences are set out under each flag description below:

    Trustee/employer agreement

24. • Trustees must normally reach agreement with the employer on certain key scheme funding matters. However, the legislation requiring the employer's agreement is modified for schemes where the rules give someone other than the employer the power to determine the contribution rate. The table opposite summarises these modifications.

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