The Definition of Money Purchase Benefits
The DWP has published a consultation paper setting out transitional and supplementary measures in relation to the commencement of section 29 of the Pensions Act 2011.
Section 29 introduced a new definition of money purchase benefits following a Supreme Court decision in the Bridge Trustees case. This decision stated that benefits subject to a guaranteed interest rate and money purchase benefits that had been converted into a pension paid from the scheme were to be considered as money purchase benefits. This meant that it was possible for a money purchase scheme to have a deficit, as the benefits were not solely derived from contributions paid in.
Section 29 now ensures that benefits are only money purchase benefits if they are calculated solely by reference to the assets, such that the assets must always be sufficient to meet the liabilities. Consequently benefits of the sort in the Bridge Trustees case would be considered to be defined benefits.
This provision is not currently in force, but it is intended that it will be brought in together with regulations including the transitional and supplementary measures outlined in the consultation, from 6 April 2014.
The aim of the measures is to give section 29 retrospective effect from 1 January 1997, to ensure that schemes which have treated benefits of the type ruled on in the Bridge Trustees case as defined benefit schemes will have that past treatment validated.
However, the measures will also limit the impact of the retrospective effect by providing that in some situations the new provisions will not apply until 28 July 2011 (ie the day after the Bridge Trustees ruling).
Schemes that previously were considered to be DC schemes, but under the new definition would now be DB schemes, will need to submit a scheme funding valuation by 31 March 2015 and pay Pension Protection Fund ("PPF") levies from 2015/16 (though members will not qualify for PPF compensation before 1 April 2015).
Additionally, they will have to calculate employer debts on any employer exits on or after 28 July 2011, and apply the new definition for any wind-ups that commenced on or after that date.
The consultation on the 55 pages of proposed regulations dealing with this issue closed 12 December 2013 and regulations are expected to be in place from April 2014.
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.