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UK defined benefit funding regulations released

UK – The Pensions Regulator has set out how the funding defined benefit pension plans is to be regulated.

The approach is scheme-specific and will be focused on schemes posing the greatest risk to members’ benefits, it said in a new consultation document. The document sets out how these schemes will be identified by the regulator.

Schemes will be regarded as being at risk when they hit certain triggers. The trigger points will be related to the Pensions Protection Fund and FRS 17 figures for typical schemes, with separate triggers for schemes with recovery plans longer than 10 years.

“Schemes will also generate our attention through clearance cases, notifiable events, whistle blowing and through issues raised in scheme returns,” the regulator said.

To ensure that appropriate funding arrangements are put in place, the regulator intends “to focus on the technical provisions and recovery plans agreed by trustees and employers along with cases where no agreement has been reached”.

The regulator will distinguish between schemes “where rapid elimination of the shortfall would have serious impact on the employer and those where employers could potentially afford to pay off the shortfall more quickly”.

“We want to help trustees and employers to resolve funding issues themselves without regulatory intervention,” the regulator said in the document.

But this will need new laws. “We need to establish a framework for dealing with scheme funding with the introduction of new legislation and the code of practice on funding defined benefits.”

The consultation period is to run 12 weeks, to be followed by a formal statement on the regulatory approach early in 2006.

“It is particularly important that trustees comment on and understand our approach, as they will have a key role in implementing the new regime,” said Charlie Massey of the Pensions Regulator office.



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