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Start preparing now to meet scheme funding requirements

Ref: PN05-28
28 September 2005

Trustees, employers and advisers need to be prepared for scheme funding requirements which come into force next month.

Speaking today at the National Association of Pension Funds Trustee Conference - Pension Scheme Trusteeship, a Survival Guide - in London, the Pensions Regulator's Strategic Development Director Charlie Massey said:

"It is important that trustees take, and actively question, actuarial and other advice. They will need to make key funding decisions and negotiate with the employer to reach an agreement.
"Actuaries will need to ensure trustees are aware of options, prepare periodic valuations and reports and certify calculations and schedule of contributions. And employers will need to keep trustees informed."

Funding requirements for defined benefit occupational pension schemes, from Part 3 of the Pensions Act 2004, come into force on 31 October 2005. A publication explaining how the Pensions Regulator intends to monitor compliance with the new legislation, its powers, when it may intervene, and what action it may take in certain situations, will be issued as a draft for public consultation in October.

Under the new arrangements trustees will be required to take actuarial advice before making funding decisions and have in place a recovery plan where there is a shortfall. Schemes should start preparing now in order to meet these requirements, said Charlie Massey:

"Trustees should think about planning to ensure that, within 15 months of the effective date of valuation, the key issues are finalised: a statement of funding principles, a recovery plan and a schedule of contributions."

To help trustees meet the requirements set out in the 2004 Pensions Act the Pensions Regulator is developing a free e-learning programme comprising a series of stand-alone modules designed by e-learning and pensions experts. Units one and two of the syllabus, the responsibility of trustees in relation to trust law and pensions law, will be available in January 2006.

Editor's notes

1. To view slides accompanying this speech visit: www.thepensionsregulator.gov.uk/mediaCentre/

2. The Pensions Regulator has specific powers to intervene and help put matters right where the trustees or actuary are unable to meet their obligations under the scheme funding requirements, including the power to:

  • modify future accrual of benefits;
  • direct how technical provisions are to be calculated;
  • direct the period within which, and how, any failure to meet the statutory funding objective is to be remedied; and
  • impose a schedule of contributions.

3. The code of practice on Funding Defined Benefits, specimen funding documents and the consultation document will available on a dedicated page on the Pensions Regulator's website in October at www.thepensionsregulator.gov.uk Publication will be announced by press release and using the regulator's 'news by email' service. To sign up to news by email visit: www.thepensionsregulator.gov.uk/onlineServices

4. For more information on the Pensions Regulator's free e-learning programme, and to sign up for occasional email updates, visit the trustee page of the website: www.thepensionsregulator.gov.uk/trustees/

5. 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 has replaced Opra which no longer exists.

6. The new powers of the Pensions Regulator include the ability to:

  • collect more detailed scheme information;
  • impose a statutory obligation on 'whistleblowers' to report suspected breaches of the legislation to the regulator;
  • 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; and
  • prohibit trustees who are judged not fit and proper to carry out their duties.

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