Refund power: requirement for trustees' resolution

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01 December 2010

Other things being equal, we recommend that trustees wait for the amending legislation before passing a resolution to preserve a power to make payments to the employer.  The amended legislation will make a resolution unnecessary in some cases. But it would also be a reasonable option for trustees to go ahead with a resolution now if they have particular reason to.  

Refund power: requirement for trustees' resolution

Other things being equal, we recommend that trustees wait for the amending legislation before passing a resolution to preserve a power to make payments to the employer.  The amended legislation will make a resolution unnecessary in some cases.  

But it would also be a reasonable option for trustees to go ahead with a resolution now if they have particular reason to.  

Reasons could include:

- to complete an exercise already announced to members,

- to deal with the issue before potentially difficult messages about CPI need to be communicated,

- if the employer's attitude in funding negotiations might otherwise harden,

- there would otherwise be an impact on the employer's accounts (which can be influenced by its ability to benefit from surplus).   

It is up to the trustees whether they pass a resolution.  Under the legislation, they can only do so if they think it is in the members' interest and they have given them three months' notice.  The trustees can expect the employer to make its case to them but it cannot oblige them to pass a resolution.

The government has recognised that the current legislation is too widely drafted and is going to amend it so it applies to fewer schemes and fewer types of payment (excluding, for example, routine administrative payments to the employer).  It will also extend the deadline for a resolution by five years to April 2016.  But there is no timetable for the amended legislation; it could well not come into force until after the April 2011 deadline under the current legislation.  In some cases, this might make the last two reasons (above) for going ahead more pressing.            

As the legislation stands today, nearly all occupational pension schemes need a trustees' resolution to preserve any power to pay money to the employer that existed before A Day (6 April 2006).  If no resolution is passed by 5 April 2011, the power to make such payments will lapse (though the amending legislation will change this).  To allow for the three months' notice trustees have to give members, any exercise going ahead now needs to start by early January at the latest.

If you would like more detail, please read on.

Details  

Both options - waiting and going ahead now - involve the same risk: that the legislation will not be amended adequately.  The degree of risk is equally low for both options.  Having received a lot of comment on the current legislation, the government will be keen that the amendments fit the bill.  

The changes have to be made by Act of Parliament, which is generally a slow process.  They might be included in the Pensions and Savings Bill announced in the Queen's Speech but, even if that happens, there is no certainty when they will become law.  It could well be after April 2011.      

The current legislation (s.251 Pensions Act 2004) was an attempt to be helpful.  The aim was to allow schemes to amend their powers to refund surplus by removing 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.

For our original August briefing on this, please click here.

For our October update when the Government announced its intention to amend the legislation, please click here.

If you would like more information, please get in touch with your regular contact in our pensions team or with Marcus Hellyer on 0117 902 7789 or marcus.hellyer@burges-salmon.com.

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