Sections

The Pensions Regulator

Regulatory guidance

Regulatory guidance

Guidance for trustees

Scheme funding

One of your most important responsibilities is to make sure that the right money is paid into the scheme at the right time.

For schemes providing any form of defined benefit, this goes beyond the collection of employer and employee contributions – you also have to make sure that the contribution rates are sufficient to provide the benefits under the rules of the scheme.

This section of the guidance describes your responsibilities, as a trustee, in ensuring that contributions are paid on time, and are sufficient for the requirements of the scheme:

See also the Trustee toolkit – in particular the following modules: How a DB scheme works, Funding your DB scheme, DB schemes: Recovery plans.

Handling employees’ contributions

The law requires that employers must hand employees’ pension contributions over to the trustees within 19 days of the end of the calendar month when they were taken from member’s pay. This includes any additional voluntary contributions (AVCs) paid by employees. For example, pension contributions deducted from pay at any time during June must be handed over to the trustees by 19 July at the latest.

There are no exceptions to the 19-day rule. An employer who fails to hand over employee contributions within the 19-day period is breaking the law. Trustees must monitor and check that the correct contributions are paid, and that they are paid on time. If they are not, you may have to report this to the regulator.

Reporting late payments to the Pensions Regulator

The Pensions Regulator focuses its efforts on matters that pose a real risk to members’ benefits. Many late payments do not pose a risk because they are short-term administration errors which are corrected very quickly. This means that, as a trustee, we do not want you to tell us about every late payment. You should only contact us if you reasonably believe that the failure is of material significance.

Our codes of practice on reporting late payments of contributions to:

tell you more.

These explain the types of situation that we think are materially significant and how reports should be made.

Drawing up a schedule showing the contributions due

The trustees of most types of scheme must draw up a schedule showing:

  • the contributions that should be paid to the scheme; and
  • the dates when contributions should be paid.

A scheme with a defined benefit element must have a 'schedule of contributions'. A defined contribution scheme must have a 'payment schedule'.

Employers should pay the contributions set out in the schedule, including those deducted from their employee’s pay, by the due dates shown. Trustees must monitor and check that the correct contributions are paid, and that they are paid on time.

See also the Trustee toolkit.

The statutory funding framework

The existing statutory funding framework, which replaced the minimum funding requirement, came into force on 30 December 2005. 

Under the requirements each scheme must meet the ‘statutory funding objective’ to have sufficient and appropriate assets to cover its technical provisions. Technical provisions are an estimate, based on actuarial principles, of the assets needed to cover the schemes liabilities. Liabilities include pensions in payment, benefits payable to the survivors of former members and those benefits accrued by other members which will be payable in the future.

Technical provisions are calculated using an accrued benefits funding method and assumptions chosen by the trustees, after taking the actuary’s advice and usually obtaining the employer’s agreement.

Trustees’ responsibilities

The scheme funding provisions require the trustees to:

  • prepare a statement of funding principles;
  • 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.

Our code of practice - Funding defined benefits - tells you more.

Our guidance on moving to scheme funding sets out the timings for actuarial valuations under the scheme funding regulations.

See also the Trustee toolkit.

Powers of the regulator

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 requirement. This includes 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.

The regulator’s approach is to help trustees and employers understand the scheme funding requirements and equip them with the appropriate knowledge to carry out the funding process without regulatory intervention.