The Pensions Regulator

Scheme funding code of practice comes into effect

Ref: PN06-05
14 February 2006

The Pensions Regulator's code of practice on funding defined benefit pension schemes comes into effect tomorrow.

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

Strategic development director Charlie Massey said: "It is important that trustees understand their obligations - they will need to make key funding decisions negotiating with the employer to reach agreement, as well as obtaining and questioning professional advice".

"The code of practice will help trustees decide how best to meet funding requirements for their scheme and how they can comply with the overall standards expected of them."

Guidance for those schemes moving to the new funding arrangements, including the transitional arrangements, will be available on the Pension Regulator's website.

In addition to the code of practice, the regulator will publish examples of funding documents designed to assist trustees and their advisers.

The new scheme funding provisions include requirements for trustees to:

• Prepare a statement of funding principles specific to the circumstances of each scheme, setting out how the statutory funding objective will be met
• Obtain periodic actuarial valuations and actuarial reports
• Prepare a schedule of contributions
• Put in place a recovery plan where the statutory funding objective is not met

The Occupational Pension Schemes (Scheme Funding) Regulations 2005 (S.I. 2005/3377) came into force in December 2005.

To view the Pensions Regulator's funding defined benefits code of practice and guidance on moving to scheme funding visit:
www.thepensionsregulator.gov.uk/codeOfPractice

Editor's notes

1. Codes of practice are not statements of the law and there is no penalty for failing to comply with them. It is not necessary for all the provisions of a code of practice to be followed in every circumstance. Any alternative approach to that appearing in the code of practice will nevertheless need to meet the underlying legal requirements, and a penalty may be imposed if these requirements are not met. When determining whether the legal requirements have been met, a court or tribunal must take any relevant provisions of a code of practice into account.
2. 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.
3. The DWP regulations replaced the minimum funding requirement (MFR) and came into force on 30 December 2005. The new requirements apply to valuations based on an effective date of 22 September 2005 onwards but completed after 30 December 2005. Trustees beginning their valuation between 22 September and 30 December have 18 months to complete their valuation and put in place an updated schedule of contributions, instead of the usual 15 months. Guidance on the timings for actuarial valuations under the new scheme funding legislation can be found on the Pensions Regulator's website.
4. The Pensions Regulator is the regulator of work-based pensions in the UK, with wider and more flexible powers under the Pensions Act 2004. It replaced Opra which no longer exists.
5. The powers of the Pensions Regulator include the ability to:
   • collect more detailed scheme information;
   • 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.
   • The Pensions Act 2004 also imposes a statutory obligation on 'whistleblowers' to report suspected breaches of the legislation to the regulator.