The Department for Work and Pensions (DWP) has launched a consultation on money purchase pension schemes.
The consultation, which is open to pension industry bodies, trustees or scheme managers, pension scheme members and employers, seeks to clarify the definition of money purchase included in section 29 of the Pensions Act 2011.
The consultation follows the Supreme Court’s July 2011 decision in the Bridge Trustees, which concluded that it was possible for certain benefits to be within the definition of money purchase benefits, despite there being a potential mismatch between assets and liabilities.
Under the proposals, schemes that would be regarded as defined benefit under the new definition and which were previously considered to be defined contribution, will be required to take the following steps:
- Submit their first scheme funding valuations by 31 March 2015.
- Calculate employer debts on any employer exits on, or after, 28 July 2011, the date of the Supreme Court judgment in Bridge Trustees (with certain exceptions).
- Pay Pension Protection Fund (PPF) levies from 2015/16, but note that members will not qualify for PPF compensation before 1 April 2015.
- Apply the new definition for wind-ups, which commenced on, or after, 28 July 2011.
The consultation will be open until 12 December 2013. The intention is that the new definition of money purchase benefits will come into force on 6 April 2014.
Penny Pilzer, DC policy consultant at the National Association of Pension Funds (NAPF), said: “The NAPF is pleased that the government is consulting on the way in which it plans to implement the new definition of money purchase benefits.
“We understand the government’s concern that, as a matter of EU law, most benefits that include an underlying guarantee should be in some way incorporated into the funding regime and protected by the Pension Protection Fund.
“However, changes should be limited to those required to comply with EU legislation, and should be prospective and selective.”
