Refund power: trustees' resolution under s.251 Pensions Act 2004

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19 October 2010

The Government is going to amend the legislation that requires a trustees' resolution before 6 April 2011 if a scheme is to retain an existing power to make payments to the employer.

We recommend that you put on hold any work towards a resolution and review the position again at the beginning of December.

It is not yet clear in detail how the legislation will be changed but the Government intends to narrow its scope so it does not apply to:

  • schemes that are winding up
  • trustees' power to make routine administrative payments to the employer or  
  • DC schemes (other than "earmarked schemes").

In addition, the deadline for a trustees' resolution will be extended by five years to 6 April 2016.

It might be that the DWP will find other ways to fine tune the legislation too.  Like lifting the requirement for a resolution altogether from schemes that are content with the wording of their refund rule, for example.  But this is speculation.  

Action

We recommend that you:

  • put on hold any work you are doing towards a resolution and
  • review the position at the beginning of December.

As the legislation stands today, trustees must give members three months' advance notice of their intention to pass a resolution to preserve their refund power.  Without a resolution by 6 April 2011, the power will cease to exist.  This makes December the deadline for deciding whether to go ahead under the current legislation, or to wait and see exactly what amendments the Government makes in the hope that a resolution will not be necessary.

The reason for keeping open the possibility of a resolution under the current legislation at this stage is that there is no guarantee the Government will be able to pass amending legislation in time.   This needs an Act of Parliament, which generally takes some time.  With a lot of other legislation in prospect, it is not certain the amendments will be made before January.

On the other hand, the Government knows it needs to act by the end of the year so there is a fair chance that it will.

At the very least, we hope there will be more news about the detail of the Government's plans - perhaps including draft legislation - by December.   

Even if a notice has already gone out to members telling them a resolution is planned, we think it is best to do nothing more for now and to take stock in early December.

Background

The current legislation (s.251 Pensions Act 2004) is trying to be helpful.  The aim was to allow schemes to amend their refund powers to remove onerous conditions based on the pre-A Day tax legislation (e.g. HMRC’s old definition of surplus).  But s.251 was drafted too widely and catches more schemes than intended.

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