Revised statutory guidance
Thursday 27 March 2014: The Authority has issued revised statutory guidance, approved by the Minister, regarding applications to the Authority under sections 49 and 50 of the Pensions Act.
Section 49 of the Act concerns funding proposals that trustees of underfunded pension schemes must prepare.
The updated guidance introduces funding rules, as follows:
- Trustees who submit a funding proposal after this guidance comes into force must ensure their scheme be at least 50% funded and expect to be 70% funded by the commencement date of their 2017 annual scheme year.
- Trustees who submit funding proposals on or after 1 January 2017 must ensure their scheme be at least 70% funded.
- Funding proposals which are no longer on-track to meet the funding standard by their end date and which fall below 50% funding may not use a “two-year easement”. This is a flexibility option which gives schemes two additional years during which to recover.
The 50% and 70% funding requirements include all funding standard liabilities under section 44 of the Act, apart from additional voluntary contribution benefits and wind-up expenses.
There are some more technical additional changes introduced in the section 49 guidance, as follows:
- Trustees proposing to make section 50 benefit reductions as part of their funding proposal are permitted to calculate their contribution rate on the basis of a higher discount rate if they can demonstrate to the Authority that this supports the long-term stability and sustainability of the scheme. This aligns with the position under the Authority’s section 50 guidance.
- The assets which trustees must envisage holding in relation to pensions in payment are expanded to include all of the assets which schemes may use to reduce their risk reserve requirements under the Act.
Section 50 of the Act relates to the use of benefit reductions to resolve funding difficulties. The Authority’s guidance is being updated to reflect the fact that section 50 of the Act now permits pensions in payment to be reduced, subject to prescribed limits.
Revised section 49(3B) and section 50 application forms will be posted on the Authority’s website shortly.