Sections

The Pensions Regulator

Codes of practice

Codes of practice

Code of practice 03
Funding defined benefits

Approaching the valuation process

Timings

First scheme funding valuation

  1. The effective date of a scheme's first actuarial valuation under Part 3 depends on whether it was established before 30 December 2005 and if so whether it was previously subject to the MFR. The following table sets out the broad position:45
Scheme status Must have first valuation under Part 3:
A scheme which was subject to the MFR on 29 December 2005. with an effective date not later than three years after the effective date of the scheme's last MFR valuation.
A scheme which was previously exempted from the MFR but is subject to Part 3. with an effective date not later than one year after 30 December 2005.
A scheme established on or after 30 December 2005. with an effective date not later than one year after being established.

Subsequent valuations

  1. If the trustees obtain actuarial reports for the years between valuations then subsequent actuarial valuations must have effective dates no more than three years from the effective date of the previous actuarial valuation.46
  2. If the trustees do not obtain actuarial reports for the years between valuations then subsequent actuarial valuations must have effective dates no more than one year from the effective date of the previous actuarial valuation.47

Deadline for completion

  1. The valuation process is complete when a schedule of contributions certified by the scheme actuary is in place. There is an overall deadline of fifteen months (eighteen months for some transitional cases) from the effective date of each actuarial valuation for completing the process.48

Action plan for the valuation process

  1. The trustees are responsible for managing the valuation process. Consequently, they should draw up an action plan setting out who will need to do what and by when. They should consider drawing up the plan in advance of the valuation's effective date. Timings will need to be agreed with all those from whom actions are required under the plan. The trustees should circulate the final plan and any subsequent amendments to all relevant parties.

Features of an action plan

  1. In drawing up the action plan, trustees should:
    • aim to complete the whole valuation process leading to an agreed schedule of contributions well within the deadline, to allow for slippage;
    • allow time for considering actuarial and other relevant advice and reaching agreement with the employer on the preparation (or revision) of the statement of funding principles, any recovery plan and the schedule of contributions;
    • take into account the timescales of advisers and any insurance company;
    • take into account the actuary's data requirements;
    • aim to have let the actuary have all necessary valuation data early in the process to enable initial calculations of solvency and technical provisions to be available for consideration by the trustees and discussion with the employer;
    • bear in mind that audited scheme accounts are needed before the actuary can sign the valuation and certify the calculation of technical provisions;49
    • allow time for drawing up and agreeing a recovery plan in case the valuation reveals a shortfall; and
    • consider the possible need for a modification of future accrual of benefits which would require the employer to consult with affected members.50

45 See paragraph 3 of Schedule 4.
46 See sections 224(1)(a) and 224(3).
47 See sections 224(1)(a) and 224(3)(b).
48 See regulation 9(1) and also see paragraph 3 of Schedule 4 for transitional arrangements.
49 The audited scheme accounts must be obtained within seven months of the scheme year-end, under section 41(2)(a) of the Pensions Act 1995 (as amended) and regulation 2(1) of the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996 (SI 1996/1975) (as amended).
50 See paragraphs 109 to 113 for more details.
Schemes with fewer than 100 members
Cross-border schemes
Trustee/employer agreement