In the past week DWP has launched four major new public consultations.

(A) Funding Defined Benefits

This consultation package actually comprises five separate documents, and is a joint consultation with The Pensions Regulator (TPR); responses should be sent to TPR by 6 May 2005.

1) draft Occupational Pension Schemes (Scheme Funding) Regulations 2005

These draft regs

• require the calculation of a scheme’s "technical provisions" (s. 222(2) Pensions Act 2004) to use an accrued benefits funding method (the Projected Unit method widely-used in the UK is of this type);
• specify what the Statement of funding principles (s. 223 Pensions Act 2004) must include;
• set a time limit of 15 months for preparation of revision of a recovery plan (where required by s. 226 Pensions Act 2004);
• set a similar time limit of 15 months from the date of valuation, for preparation of the schedule of contributions;
• specify the content and certification of schedules of contributions;
• exempt most SSASs and schemes which are neither tax approved nor tax registered and have fewer than 100 members; and
• modify the application of the Pensions Act 2004 to various categories of scheme (as set out in Schedule 2 to the draft regs).

2) draft Code of Practice: Funding defined benefits

The code is aimed primarily at trustees of all occupational schemes (except wholly money purchase schemes, and schemes exempted by the regs above). In it, TPR poses sixteen questions, mostly asking about the adequacy of the draft Code.

3) draft Occupational Pension Schemes (Disclosure of Information) (Amendment) Regulations 2005

These are designed to comply with the European Pensions (IORP) Directive 2003/41/EC, and in particular Article 11 ("Information to be given to the members and beneficiaries"). The Directive must be implemented by EU Member States by 23 September 2005. The intended effect of these amendments is that an "annual funding statement" must be sent to all members, that further information is available on request, and that certain funding information is included in the scheme annual report.

4) a summary of proposals for transitional arrangements from the MFR to the new scheme funding requirements

Eventually these will appear in a draft Order, but this is not yet available. Apparently the DWP expects the transition to take over four years, which suggests we’ll be haunted by the MFR to the end of 2009. Trustees will be required to obtain their first actuarial valuation under the new system within three years of the effective date of the last MFR valuation preceding 23.9.05; they will then have 15 months in which to set up a schedule fo contributions.

5) a summary of proposals for the main consequential amendments

References to the MFR are contained in a number of other SIs.

(B) draft Occupational Pension Schemes (Investment) Regulations 2005

With effect from 22 September 2005, these draft Regulations are to replace, with amendments, the Occupational Pension Schemes (Investment) Regulations 1996 (SI 1996/3127), which are to be revoked.

The Regulations supplement changes made to the Pensions Act 1995 by the Pensions Act 2004. They include provisions to implement certain requirements of EC Directive 2003/41/EC, in particular of Articles 12 ("Statement of investment policy principles") and 18 "Investment rules").

The Regulations impose requirements on trustees of occupational pension schemes in relation to the statement of investment principles required under PA 1995 s. 35 and in relation to the choosing of investments. They impose restrictions on borrowing and the giving of guarantees by trustees and in respect of employer-related investments.

The existing exemptions for SSASs, particularly relating to the restrictions on employer-related investments, are maintained. The DWP also intends to take advantage of the exemption provided in Article 5 of the Directive to exempt schemes with fewer than 100 active and deferred members from much of the requirements, notably concerning investments and the prohibition on trustees borrowing and acting as guarantors.

This consultation closes on 20 June 2005.

(C1) draft Occupational Pension Schemes (Trustees’ Knowledge and Understanding) Regulations 2005

Section 247 of the Pensions Act 2004 introduces a requirement that individual trustees of a pension scheme:

• are conversant with the scheme documentation - the trust deed and scheme rules, any current statements of investment principles or funding principles, and other policy documents of the scheme; and
• have such knowledge and understanding of:
• trust and pensions law; and
• the principles underlying the funding and investment of assets for such schemes, appropriate for the proper exercise of their functions as a trustee.

The Act also requires that corporate trustees ensure that persons carrying out trustee functions on their behalf are conversant with relevant scheme documentation and have analogous knowledge and understanding.

The draft regulations disapply the requirements of s.247 for individual trustees (except independent trustees, professional trustees or trustees who hold themselves out as experts) for 6 months from the date on which they are appointed as a trustee. In other words, new "lay" trustees – in particular member-nominated trustees - are to be given a six-months "period of grace" before s. 247 applies to them.

Comments on these (short) draft DWP regs are requested by 26 May 2005.

(C2) draft TPR Code of Practice: Trustee Knowledge and Understanding ('TKU')

At the same time, guidance on the ‘TKU’ requirements in s.247 has been set out in a draft Code of Practice issued for consultation by TPR. This has been preceded by an extensive pre-consultation exercise with the industry. Some might be surprised to read that TPR thinks it should not take trustees long to come up to speed: "the learning which is required should be measured in days not weeks although trustees may take up to six months to complete it if they wish"

The draft Code contains a high-level summary of the knowledge required, with a link to the complete 'scope documents' on the TPR website.

This consultation closes on 10 June 2005.

(D) draft Civil Partnership (Amendment of Provisions relating to Contracted-out Occupational and Appropriate Personal Pension Schemes) (Surviving Civil Partners) Order 2005

This draft Order extensively amends provisions of the Pension Schemes Act 1993 and numerous SIs relating to contracting-out, in order to cater for the introduction of civil partnership via the Civil Partnership Act 2004, which comes into force on 5 December 2005, and to extend the provision of survivor benefits to civil partners.

Helpfully, the condoc also includes a set of questions and answers, explaining in particular why the Government changed its original policy to restrict civil partners’ entitlement to survivor pensions to post-5.12.05 service. This was widely perceived to be unfair. The subsequent decision to amend the contracting-out rules to require schemes to base survivor pensions for civil partners on contracted-out rights accrued from 1988 will bring increased cost to schemes as well as new complexities in the law.