It's dead, but it won't lie down. As far back as the March 2001 Budget, the Government accepted that the notorious MFR (officially, 'Minimum Funding Requirement') had to be abolished. That still hasn't happened, and from new draft Regs on which the DWP opened a six-week consultation today, it seems we may be stuck with it until April 2006.

Regulations 11 and 12 of the MFR Regs (SI 1996/1536) impose highly unwelcome valuation requirements on defined benefit schemes. After the end of a transitional period (originally 5 April 2002, but extended by SI 2002/380 Reg 2(2) to 31 December 2004), if at any stage in the actuary's opinion, an event has so significantly affected the funding as to create a serious risk that the MFR will not be met, a special MFR valuation must be obtained within 6 months. The same rule applies if when certifying the schedule of contributions, the actuary suspects that a valuation would show serious underfunding.

The Pensions Bill includes new scheme funding requirements to replace the MFR. However, although the DWP assumes the Bill will receive Royal Assent by November 2004, the necessary regulations detailing the new funding requirements are not expected to come into force before September 2005 (in line with the EC Pensions Directive 2003/41/EC). So the MFR will continue to apply, and to avoid triggering Regs 11 and 12 the transitional period will have to be further extended, well beyond 31.12.04. Some commentators will be pleased that the DWP's proposal is to align this with commencement of the new 'simplified ' tax regime, ie 6 April 2006.

The consultation addresses two other points. The draft Regs attempt to make it clear that when completing the actuary's statement to accompany each MFR valuation, indicating what each category of scheme member could be expected to receive if the scheme were to start winding-up at the effective date of the valuation, the scheme actuary must reflect the priority order that would apply on that date - not, as some have assumed, the "post-2007" priority order.

The second point is not part of the draft Regs. It concerns schemes whose next MFR valuation will have an effective date between Royal Assent on the Pensions Bill and the coming into force of the new scheme funding requirements (ie probably, between November 2004 and April 2006). The DWP is suggesting it would be reasonable to allow trustees the option of deferring the effective date by up to 12 months, so it can take place under the new scheme funding requirements (in which case elementary arithmetic surely would dictate a period of 17 or 18 months).