Memorandum from the Department for Work
REGULATIONS 2002 (S.I. 2002/380)
1. The Committee has asked the Department to submit
an Explanatory Memorandum on the above mentioned Instrument dealing
with the following point:
Explain the general effect of the amendments made
by regulation 2 and why this is not explained in the Explanatory
Note to the instrument as required by paragraphs 2.73 and 2.74
of Statutory Instrument Practice.
2. Regulation 2 of S.I.2002/380 amends various provisions
of the Occupational Pension Schemes (Minimum Funding Requirement
and Actuarial Valuations) Regulations 1996 (S.I.1996/1536)
("the principal Regulations"). The principal Regulations
set out the detail of the statutory requirement imposed on certain
occupational pension schemes (known as "defined benefit schemes")
by the provisions of sections 56 to 60 of the Pensions Act
1995 ("the Act"). This statutory requirement is
called the Minimum Funding Requirement ("MFR"). The
legislation underpinning the MFR took effect in April 1997. The
MFR has effect in relation to any actuarial valuation of the assets
and liabilities of a scheme to which section 56 of the Act applies
taking place on or after 6th April 1997. The MFR legislation is
also subject to various modifications during a transitional period
which was due to expire on 5th April 2002.
3. The actuary to schemes to which the MFR applies
is required to test, using a prescribed method, whether the assets
held by the scheme are sufficient to meet the scheme's liabilities
to pay benefits that have already accrued to scheme members. Assets
and liabilities must be valued by the scheme actuary in accordance
with the detailed requirements of the principal Regulations and
in accordance with guidance prepared by the Faculty and Institute
of Actuaries and approved by the Secretary of State. The legislation
also imposes requirements on schemes that are underfunded by reference
to the MFR test to make good the underfunding within prescribed
periods known as "deficit correction periods".
General effect of amendments made by regulation
2 of S.I.2002/380
4. The principal measures introduced by regulation
2 of S.I.2002/380 are-
- an extension of the deficit correction periods
for underfunded schemes;
- removing the requirement on actuaries to fully
funded schemes to certify on an annual basis the adequacy of the
rates of contributions to the scheme which are set out in the
schedule of contributions for the scheme.
5. Regulation 2 of S.I.2002/380 also makes some other
changes to various provisions of the principal Regulations.
Paragraph (1) of regulation 2
introduces the changes made by regulation 2.
Paragraph (2) of regulation 2
extends the transitional period to 31st December 2004.
Paragraph (3) of regulation 2
makes it clear that a scheme's liabilities in respect of pure
money purchase benefits are not to be taken into account in determining
whether the scheme operates a gilts matching policy.
Paragraph (4) of regulation 2
requires the scheme actuary to carry out a funding calculation
by reference to the position 7 days before signing a certificate
of the adequacy of the scheme's schedule of contributions, rather
than being required to determine the funding position on the same
day that he signs that certificate. There are several references
to this date throughout the principal Regulations which are similarly
amended by paragraphs (5), (6), (7), (10), (11), (12), and (13).
Paragraph (5) of regulation 2
extends to 10 years the period within which schemes which are
underfunded on the MFR basis must reach 100% MFR funding.
Paragraph (6) of regulation 2
clarifies the payments and contributions which must be shown separately
on the scheme's schedule of contributions.
Paragraph (7) of regulation 2
removes the requirement for the adequacy of a scheme's schedule
of contributions to be actuarially certified on an annual basis,
provided that the scheme is not less than 100% funded on the MFR
basis both at the effective date of the scheme's last MFR valuation
and at the relevant date applying to the subsequent schedule of
contributions. This provision also removes the requirement for
certification of the schedule of contributions within a year of
the previous certification where a scheme has obtained a full
MFR valuation in the intervening period.
Paragraph (8) of regulation 2
extends to 3 years the period within which schemes less than 90%
funded on the MFR basis must reach 90% MFR funding.
Paragraph (9) of regulation 2
requires MFR failure reports to be prepared within 3 months of
the end of the relevant period.
Paragraphs (10) to (13) of regulation 2
contain various amendments reflecting the change to the effective
date of the scheme actuary's funding calculation in certifying
schedules of contributions, as referred to above (paragraph (4)).
Why an explanation of the general effect of the
amendments made by regulation 2 of S.I.2002/380 was not included
in the Explanatory Note to that instrument as required by paragraphs
2.73 and 2.74 of Statutory Instrument Practice.
6. The Department is aware of the requirements of
paragraphs 2.73 and 2.74 of Statutory Instrument Practice and
did consider the inclusion of an explanation of the general effect
of the amendments made by regulation 2 of S.I.2002/380 in the
Explanatory Note to that instrument. However, it was decided not
to include such an explanation in an effort to keep the Explanatory
Note brief and in view of the fact that regulation 2 contains
detailed amendments to technical requirements in the principal
Regulations which do not easily lend themselves to brief explanation.
7. However, the Department accepts the point made
by the Committee and agrees that the Explanatory Note did not
deal with the amendments made by regulation 2 as fully as it might.
The Department will arrange for the Note, as it will appear in
the Annual Volume, to be amplified accordingly.
25 March 2002