Today the DWP announced their proposals for amending the statutory priority order when a defined benefit scheme subject to the MFR is wound up. The objective, initially proposed in last December's Green Paper, is to share the assets more fairly between pensioners and non-pensioners. This is to be achieved by

1. promoting non-pensioners' non-contracted-out accrued rights above pension increases;
2. combining them, for priority purposes, with contracted-out rights; and
3. dividing the total accrued rights into two priority categories. In the first, each member will have N/40ths of their accrued rights, where N = years of scheme membership; in the second (ranking immediately below and on the same level as refunds for members with less than two years pensionable service who are not entitled to accrued rights) the balance.

The plan is to replace reg 3 of the Occupational Pension Schemes (Winding Up) regulations 1996 (SI 1996/1847) by a new regulation which amends section 73 (3) of the Pensions Act 1995 in a different way. The draft Amendment Regs also bring forward the expiry date of the current "transitional period" from 5 April, 2007 to a date in 2004 to be announced (likely to coincide with the date the new regs come into force).

Additionally, the Draft Regs appear to extend the basis for calculating the MFR minimum for cash equivalent transfer values to include all the member's accrued rights. (The list is defined by reference to the statutory priority order; the only 'preferential liabilities' omitted in the Draft from the MFR specification are deferred annuities, pensions already in payment, and increases thereon.) Presently, the relevant law (SI 1996/1847 Reg 7 (3)(b)(iv)) specifies inclusion of only AVCs, contracted-out rights, and liabilities for increases to deferred annuities and pensions already in payment.