Pensions Act update No.4

United Kingdom

This is the fourth update in our series on regulations and codes of practice issued under the Pensions Act 2004. Further explanation of the Act and related documents can be found in our Plain English Guide to the Pensions Act.

Many of the provisions in the Pensions Act 2004 have been included to comply with the provisions of the European Pensions Directive and as such are due to come into force on 22 September 2005. The Guide has been updated to reflect these provisions. However, the most significant legislation which was due to come into force in September relates to the new scheme specific funding requirement but this has now been delayed until 31 October 2005 (although it will have retrospective effect).

Some of the key changes that have been made to the Act since our last update are as follows:

Employer debts

Changes have been made to the Employer Debt Regulations with effect from 2 September 2005 to provide that an exiting employer in a multi-employer scheme will have to meet its share of the full buy-out deficit unless a “withdrawal arrangement” is put in place, which is approved by the Regulator.

A withdrawal arrangement must include various provisions. The exiting employer must pay its MFR debt (less certain bulk transfer payments). If the scheme starts to wind up, or there are no solvent scheme employers left, or the Regulator issues a notice requiring payment, guarantors must agree to pay a further sum. This further sum will, if the agreement provides, be the amount that would be due if the employer had exited when the scheme began to wind up. Alternatively, if the withdrawal arrangement is silent, the further sum will be the buy-out debt on withdrawal less any payments made reducing the debt (e.g. the MFR debt and any additional amounts paid by the employer).

An employer who has met its MFR debt ceases to be an employer for the purposes of Section 75 of the Pensions Act 1995 even if the guarantor has not paid any sum it is required to pay.


The Government has published draft regulations intended to replace the existing Occupational Pensions (Disclosure of Information) Regulations 1996 from April 2006. The purpose of the new regulations is to introduce:

  • a more proportionate regulatory requirement in relation to disclosure
  • a requirement that annual benefit information for non money-purchase benefits is provided automatically in respect of scheme years ending on or after 6 April 2007.

All specific time limits for the provision of information in the existing regulations are to be replaced with a requirement for information to be provided within “a reasonable period”. Reasonable time periods are set out in a draft code of practice and vary depending on the information to be provided (but are broadly similar to the time limits in the current regulations).

Internal controls
Draft regulations have been issued to amend the Pensions Act 2004 to include a requirement for trustees to establish and operate internal controls, which are

“adequate for the scheme to be administered and managed (a) in accordance with the scheme rules; and (b) in accordance with pensions legislation and any other relevant legislation”.

A draft code of practice has also been issued which attempts to elaborate on what internal controls are and the role of trustees in identifying and “managing and mitigating risk”.