Yesterday afternoon the Pensions Regulator (TPR) issued important new guidance based (it was thought - see update below) on DWP amendments (the Occupational Pension Schemes (Cross-border Activities) (Amendment) Regulations 2006) to the cross-border regs (SI 2005/3381). This is real last-minute stuff, because midnight tonight is the deadline for submission of outline applications from UK occupational pension schemes for authorisation and approval to accept contributions from European employers under s.287 PA 2004. The remaining details and documents must be provided by 15 May 2006.

Applications made after today cannot be considered as applications from pre-existing schemes; such applications would have to be from new schemes and, therefore, these schemes would have to demonstrate they were already "fully funded" (which of course, for practically all UK schemes is presently out of the question). The Pensions Regulator has set up an email address crossborder@thepensionsregulator.gov.uk for schemes wishing to apply or confirm applications by email. It is unlikely that TPR will receive many applications, except from schemes which decide they cannot avoid being caught by the regs.

The amendments are understood - they have not yet been published on the web - to result from expressions of concern by persons representing pension schemes, in particular about the status of deferred members. Would contributions to fund their benefits mean the scheme was going to be caught by the cross-border regs, or not? The question is vitally important, because in order to avoid the regs, many trans-national companies have been withdrawing their overseas staff from the pension scheme.

TPR considers that the term 'contributions', where it appears in the definition of 'European employer ' in Reg 3 of the cross-border regulations, may now be interpreted as including payments made for the future accrual of benefits only, and not payments in respect of deficits, payments in respect of section 75 (PA 1995, as amended by s.271 PA 2004) debt, or payments in respect of revaluation of benefits between deferment and settlement (provided these do not exceed the statutory minimum).

(This is subject to the familiar DWP disclaimer, viz. "this is of course only one possible interpretation, and trustees and managers of schemes should take their own advice and form their own view as to whether or not their scheme is subject to the cross-border provisions. Ultimately it is for the Courts to say what the legislation means.")

Accordingly, if all the members concerned were deferred members before authorisation and approval were required (which must be by 29 June 2006 at the latest), then payments on behalf of the deferred members, of the types noted above, would not cause the cross-border regulations to have effect in respect of those deferred members.

If the payment were in respect of increasing the benefit payable at settlement date due to the fact that the deferred benefits were still linked to increases in current salary, however, this could still be classed as a 'contribution' to which s.287 applies (a cross-border payment). The link to current salary increases would have to be broken in order to ensure that these contributions were not cross-border contributions.

Similarly, if a deferred member's benefits in relation to death-in-service are linked to increases in current salary, rather than to the member's salary at the time of deferral, then this too could be classed as an increase in benefits, and payments made to meet these increases could also count as 'contributions'. (But if any payments are made just to ensure the funding of the benefits at the frozen level, ie at deferral, then such payments would not count as 'contributions' under this position.)

If schemes have applied for authorisation and approval by the end of 29 March 2006, and then made the members who would have had cross-border payments made in respect of them into deferred members before authorisation and approval has been granted, they should notify TPR of these facts as soon as possible, and formally withdraw their applications, in order to avoid authorisation and approval being granted.

Once authorisation and approval have been granted, a withdrawal of an application is no longer possible. Schemes would need to consider applying for revocation of approval in these circumstances. TPR is unable to grant this while any European benefits remain in the scheme.

For further background on this topic, please see our earlier articles of 14 December 2005 and 3 March 2006.

Update 31 March

The amendment regs appeared on the OPSI website today (and came into force three days ago, on 28 March). The Occupational Pension Schemes (Cross-border Activities) (Amendment) Regulations 2006) do not, in fact, refer to the issue of deferred members at all.

They amend the Occupational Pension Schemes (Cross-border Activities) Regulations (SI 2005/3381), as amended by SI 2006/467), so that, provided an outline application is lodged by 29 March, any scheme wishing to apply for authorisation and approval to carry out cross-border activity may submit some of the information required later on, but no later than 15th May 2006. The original regs limited this 'concession' to section 615 schemes (ie schemes set up under s.615 ICTA 1988 to provide for UK expatriates working entirely outside the UK alongside the main occupational scheme).