The Government has decided to proceed with the proposals for interim reform of the Minimum Funding Requirement (MFR), on which it consulted last September, subject to a few minor modifications. The three changes announced in the new Regs are

1. Extension of the deficit correction periods within which scheme funding must be made good from 1 and 5 to 3 and 10 years respectively. The original proposal is modified so that applies to all new schedules prepared following an MFR valuation which are certified after 19 March 2002 (the date the new Regs come into force*), irrespective of the date of the MFR valuation itself.

2. Removal of the current requirement for automatic annual recertification of schedules of contributions where a scheme was at least 100% funded on the MFR test - both at the effective date of the last MFR valuation and at the date by reference to which the subsequent schedule of contributions is certified. The original extra proposal to require out-of-cycle valuations under Reg 11 has been dropped after strong opposition.

3. Strengthening of the method of calculating a debt on a solvent employer when a scheme voluntarily winds up.

At the same time, the Government has accepted a September 2001 recommendation from the Faculty & Institute of Actuaries to lower the benchmark dividend yield in the equity market value adjustment (MVA) which applies to MFR calculations, from 3.25% to 3%. This change is being implemented (with effect from 7 March) via an amendment to the Guidance Notes (GN 27) for scheme actuaries issued by the Faculty & Institute, and does not require legislation.

A summary of the responses to last autumn’s consultation is available on the web, as is a regulatory impact assessment which explains the background to the Government’s decision, including a risk assessment and the alternative options considered.