The Occupational Pension Schemes (Payments to Employer) Regulations 2006 (SI 2006/802) have been laid and come into force on 6 April.

From A-Day, HMRC's legislation relating to the requirement for the reduction of pension fund surpluses to a prescribed level before any payment to the employer is repealed. DWP legislation will govern instead: s.250 PA 2004 substitutes a new section 37 into the Pensions Act 1995 to allow payments to the employer provided certain conditions are met. These regulations specify key conditions.

The regs apply to ongoing defined benefit schemes that are subject to the new scheme funding requirements which replaced the MFR. The trustees will only be able to authorise a payment to an employer if they have obtained an actuarial valuation to show that the scheme's assets are above the level which should be sufficient to ensure that all the accrued rights of the scheme members could be secured through the purchase of annuities and deferred annuities from an insurance company (ie. "full buy-out"). In addition, trustees must be satisfied that any payment to the employer is in the interests of scheme members.

From 5 January to 1 February 2006 the Government carried out a short consultation exercise to obtain the views of interested parties on draft regs; seventeen responses were received. Six of the seven respondents who commented on the provisions for defined benefit schemes considered that the full buy-out requirement for ongoing schemes was too high and might deter some sponsoring employers from agreeing to stronger funding targets. The DWP's response [PDF] is to re-state the intention to require a 'full buy-out' funding level made clear by Ministers during the passage of the Act through Parliament. "The Government does not consider that the relatively low number of consultation responses would justify such a change to the previously announced approach at this stage. However, the Government intends to keep the situation under review."

The regulations cover money purchase schemes only where each member's benefits are held in a separate insurance policy or contract, or where the scheme benefits are secured by a 'global' insurance policy or contract, which earmarks specific payments to specific members. A payment may be made where all potential liabilities relating to a specific member have been discharged in full and there remain excess assets.

Transitional powers have also been introduced in s.251 PA 2004 to allow trustees to amend existing scheme rules in order to take into account the new provision in the Pensions Act 2004 and HMRC's tax simplifications.

The existing Occupational Pension Schemes (Payments to Employers) Regulations 1996 (SI 1996/2156) are revoked.

Meanwhile today the DWP launched a new consultation on draft Occupational Pension Schemes (Winding up Procedure) Regulations 2006, to run until 25 April 2006.

These regulations are required to implement into UK legislation the provisions contained in Article 16.2(c) of European IORP Directive 2003/41/EC. Art. 16.2 permits Member States to allow occupational pension schemes to have insufficient assets to cover technical provisions for a limited period of time. In such circumstances a scheme must have a recovery plan. Most of Art. 16.2 has been implemented in the legislation on scheme funding in PA 2004 and the Occupational Pensions Schemes (Scheme Funding) Regulations 2005 (SI 2005/3377). The outstanding part is Art. 16.2(c) which applies where a scheme that has a recovery plan begins to wind up.

Article 16.2(c) provides as follows:
"in the event of termination of a pension scheme during the period referred to above in this paragraph (ie the period in which a scheme has insufficient assets to cover the technical provisions) the institution shall inform the competent authorities of the home Member State. The institution shall establish a procedure in order to transfer the assets and the corresponding liabilities to another financial institution or a similar body. This procedure shall be disclosed to the competent authorities of the home Member State and a general outline of the procedure shall be made available to members or, where applicable, to their representatives in accordance with the principle of confidentiality."

These regulations introduce a new section 231A into the Pensions Act 2004 which contains requirements for a winding up procedure in these circumstances.

In another, unusual, development today the DWP announced [PDF] it would not be proceeding with the draft Occupational Pension Schemes (Exemption) Regulations 2006, on which a consultation [PDF] ended on 16 December 2005.

Section 253 PA 2004 requires occupational pension schemes (OPSs) with their main administration outside the member States of the EU to be established as irrevocable trusts if they are to receive contributions from either employers based in the UK (wherever their employees work) or from employers in respect of their employees who work in the UK. This ensures that the assets of such schemes are separate from the sponsoring employer and that UK resident members of these schemes are protected if the sponsoring employer becomes insolvent.

Certain OPSs with their main administration outside the member States which do not have UK resident members are currently exempt from provisions of the pensions legislation, because there is no UK interest in these schemes. Section 1 of the Pension Schemes Act 1993 (as substituted by s.239 PA 2004) defines certain pension schemes with their main administration outside the member States as OPSs from 6 April 2006. The regulations were intended to ensure that OPSs with their main administration outside the member States which are not tax registered and have no UK resident members continue to be outside the jurisdiction of UK pension legislation, by exempting such schemes from the trust requirement and other requirements of pensions legislation.