The Pensions Regulator

Scheme funding code laid before Parliament

Ref: PN05-35
12 December 2005

The Pensions Regulator's code of practice on the new scheme funding requirements for defined benefit schemes has today been laid before Parliament.

The code provides practical guidance on meeting the requirements of the scheme funding legislation and sets out the standards of conduct and practice expected.

The new scheme funding provisions include requirements for trustees to:

• prepare a statement of funding principles reflecting the particular circumstances of their scheme;
• obtain regular actuarial valuations and reports;
• put in place a recovery plan addressing any funding shortfall; and
• keep scheme members informed about their scheme's funding position by issuing regular summary funding statements.

The regulations were laid before Parliament on 9 December 2005 and will come into force on 30 December 2005. They will apply to valuations completed on or after 30 December 2005 which are based on a date (known as the effective date of the valuation) on or after 22 September 2005. Transitional arrangements will apply to schemes currently subject to the minimum funding requirement (MFR).

A joint response from the Pensions Regulator and the Department for Work and Pensions to the consultation on the code of practice and the new regulations on scheme funding has also been issued.

Additional guidance for those schemes moving to the new funding arrangements, including the transitional arrangements, will be issued by the Pensions Regulator in the next few weeks. Specimen funding documents designed to assist trustees and their advisers will also be published at the same time.

The Pensions Regulator also launched a 12-week consultation on 31 October 2005, outlining how it plans to regulate these new scheme funding requirements. Following this consultation the Pensions Regulator intends to issue in 2006 a statement on its regulatory approach and use of its powers in relation to these new requirements.

To view the Pensions Regulator's funding defined benefits code of practice, the joint response to the consultation on the code of practice, the new regulations and the 31 October 2005 consultation visit: www.thepensionsregulator.gov.uk

The scheme funding regulations should be available from the OPSI website: www.opsi.gov.uk within the next few days.

Editor's notes

1. The code laid before Parliament has been approved by the Minister of State for Pensions Reform, on behalf of the Secretary of State for Work and Pensions. There will be a period of 40 days at the end of which, if no representations are made, the code will be brought into force. Although the code may not be the final version it does contain the Pensions Regulator's expectations which have been accepted by the Department for Work and Pensions. Therefore, trustees and employers can be confident they can start to act in accordance with the guidance contained in the code.
2. Codes of practice are not statements of the law. However, they do have evidential value, meaning they will be taken into account by a court or tribunal where relevant.
3. The new scheme funding requirements are part of wider reforms set out in the Pensions Act 2004. Elements of the scheme funding provisions take account of the funding requirements in Directive 2003/41/EC on the activities and supervision of institutions for occupational retirement provision.
4. The DWP regulations introducing the new scheme funding requirements to replace the MFR come into force on 30 December 2005. The new requirements will apply to valuations based on an effective date on or after 22 September 2005 and which are completed on or after 30 December 2005. These requirements are, however, subject to transitional arrangements which allow trustees to comply in line with the scheme's existing MFR actuarial valuation cycle. The arrangements allow those schemes with valuations based on an effective date on or after 22 September 2005, but before 30 December 2005, and which are completed on or after 30 December 2005 to have 18 months to complete the valuation and put in place an updated schedule of contributions, instead of the usual 15 months.
5. The Pensions Regulator intends to issue in 2006 a statement on its regulatory approach and the use of its powers in relation to these new scheme funding requirements. Consultation on a draft of the proposed statement ends on 26 January 2006.
6. 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:
7. • 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
8. The Pensions Regulator is 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.