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is going to rise by 2010 from 50 to
55, retirement will be more flexible
and can be combined with carrying
on working or be on a phased basis.
■ voluntary contributions require to
be reviewed.
■ the position of high earners
requires particular attention.
■ there is a lot of planning
needing done:
– financial planning to get the best
out of the rules, whether that has
to be done before or after A-Day;
– administrative planning to ensure
that the system can handle the
new regime and also store
historical data, which will still be
needed in future; and that staff
have the knowledge and training
to implement.
Pensions Act 2004
Significant parts of the Act came
into force on 6 April 2005, with
some parts intended to come in
later, particularly April 2006.The
past period has been one of
constant consultations over draft
www.journalonline.co.uk
regulations, the making of
regulations and consultations over
draft codes of practice.
The next part of this article looks at
some of the significant
developments following the coming
into force of the Act.
Corporate transactions
There have been a number of issues
on defined benefit schemes which
have a major effect in relation to
corporate transactions, although
these also affect companies even
when not having transactions and in
particular affect the trustees.
Following scheme wind-up or on
withdrawal from a scheme, an
employer can become liable for a
statutory debt of (or of its share of)
any deficit. Initially this was measured
by the now discredited minimum
funding requirement (MFR), which in
fact might provide as little as 40% of
the amount required to purchase
annuities to cover the benefits.This
was changed for schemes winding
up after 11 June 2003 by the
Occupational Pension Schemes
(Winding Up and Deficiency on
Winding Up etc) (Amendment)
Regulations 2004 (SI 2004/403),
which applied on a total winding up
with the employer solvent. Creeping
amendments culminating in the
Occupational Pension Schemes
(Employer Debt etc) (Amendment)
Regulations 2005 (SI 2005/2224),
now also catch partial
discontinuances, on or after 2
September 2005.
The net effect of this is that the
deficiency is now measured not on
the MFR basis but on the horrifying
annuity purchase basis.
Not only that, but the legislation has
some bizarre turns.Where all
employers cease involvement, the
date for assessment of the
deficiency is “the applicable time”
selected by the trustees.Where one
employer discontinues and another
carries on, the applicable time for
assessing the deficit is the date
when the ceasing employer ceases
to have employees in the category
of employment to which the
scheme relates. It will be seen that
that is a rather unhelpful definition
and can cause some bizarre results,
for example where the last member
of a scheme section with one of
several employers just dies.
Subject to requirements in the
regulations (including Regulator
approval), it is open to the parties,
including the trustees, to agree that
the deficit will be shared differently.
The requirements for this are set
out in the 2005 Regulations.
In the April article it was pointed
out that the Pension Protection
Fund is itself sought to be protected
by various provisions.To stop
corporate “jiggery pokery” there are
so-called “moral hazard” provisions
in the forms particularly of
contributions notices and financial
support directions, which could
enable the Regulator to require
contributions or other payments
from employers or other connected
persons (including indeed individual
shareholders) who are seeking to
escape a deficit. Clearly this has very
significant and indeed frightening
aspects for corporate transactions.
The Journal: December 2005 : 23