Pensions Act Update

United Kingdom

Since the enactment of the Pensions Act 2004 in November last year, there has been a steady stream of regulations, draft regulations and codes of practice and this is likely to continue over the next 12 months.

To help keep you up to date with what is happening, we plan to issue regular updates on the progress of regulations and codes of practice under the Act. This Update looks at the key elements in what has been published so far. Further explanation of the provisions of the Act can be found in our Plain English Guide to the Pensions Act.

Further draft regulations are anticipated in the near future.

Codes of practice and the Regulator

Two draft codes of practice have been issued so far. The first deals with “whistleblowing” and reporting breaches of duty to the Regulator – it looks at when the Regulator will require reports and the factors which should be taken into account. The second code of practice looks at what events the Regulator requires notification of and sets out a list of such events.

The Regulator has also issued a number of documents setting out how it sees its role and that of employers and trustees.

Financial Assistance Scheme

The Government has indicated that to be eligible under the Financial Assistance Scheme, a scheme must have commenced winding up between 1 January 1997 and 5 April 2005. Government press releases also indicate that those within 3 years of scheme pension age on 14 May 2004 will receive benefits of up to 80% of their basic scheme benefit from the Financial Assistance Scheme. The Government so far have information on around 380 schemes which may be eligible for assistance and say that they will continue to accept notification of potentially eligible schemes for up to 6 months after regulations come into force.

Section 75 debts

The Act will introduce a new Section 75A to the Pensions Act 1995 to allow greater flexibility in calculating the Section 75 debt where an employer leaves a multi-employer scheme. According to the Government, this is designed “to avoid situations where… withdrawal from multi-employer arrangements leaves pension liabilities situated in a company which is substantially weaker than the rest/other parts of the group”. The detail of the new provisions is largely left to regulations and we understand that these regulations will be delayed until summer 2005 because of their complexity.


Draft regulations propose that the initial levy for the year from 6 April 2005 will be £15 per active, pensioner and dependent member and £5 for each deferred member. The administrative levy is proposed to be between £2.50 and 75p per member, depending on scheme size.


The Act provides some protection for employees’ pension benefits on business transfers. If the new employer provides a final salary scheme, it must meet the reference scheme test. Draft regulations permit an alternative method of providing benefits in a final salary scheme to that set out in the Act which requires that that the overall value of the new employer’s scheme is equal to that of the old employer. They also confirm that the minimum employer contributions required in a money purchase scheme will be matching the employee’s contributions up to a maximum of 6% of basic pay.


Draft regulations provide that no indexation will be required for pre April 1997 protected rights.


A variety of draft regulations have been issued in relation to contracted-out benefits, including regulations facilitating the transfer of deferred members’ protected rights and dealing with commutation of contracted-out benefits.

Member-nominated trustees

The Government have not yet indicated when they may exercise their Regulation making power under the Act to require 50% MNTs. It may be a number of years away. However, they have indicated that when this structure is implemented, they will allow schemes to use any provisions in their scheme rules for a chairman of trustees to have a casting vote.


Draft regulations set out what the trustees will be required to tell complainants when they notify them of decisions under the scheme’s IDR procedure and how disputes underway when the new provisions come into force (intended to be September 2005) should be dealt with.