Originally published 19 April 2010
Keywords: Pensions Act, provision, surplus, payment, trustee resolution, ongoing schemes, winding-up,
A little known provision of the Pensions Act 2004 seemingly (the exact scope of the section being unclear) prevents any payment of surplus to an employer except where there has been an appropriate trustee resolution under section 251 Pensions Act 2004. Although the section is aimed at surplus in ongoing schemes, it arguably extends to surplus on winding-up as well.
The trustee resolution must be made by 6 April 2011 or the scheme may never in the future be allowed to make such a payment. The resolution does not authorise the immediate repayment of surplus, it just authorises repayment in the same circumstances as apply as at present. The power to make the resolution can be exercised only once. In addition, the trustees must satisfy certain disclosure requirements. Broadly, at least three months' notice must be given to the members and the employer before the resolution is made.
Although a repayment of surplus may seem unlikely at the moment, there may come a time when it might be possible for a return of surplus to be made. Failing to pass the requisite trustee resolution in time may be a problem in future. Accordingly, employers should now be discussing with the trustees of their schemes whether the trustees will pass such a resolution. Where scheme rules currently permit repayment of surplus it would seem reasonable for trustees to pass an empowering resolution to allow the provision to continue; but that is not to say that trustees must agree. However, passing the resolution may result in more generous funding from the employer, as the employer would be less concerned about surplus being trapped in an overfunded scheme.
Given that three months' notice must be given to members, to expire before 6 April 2011, any discussions on this issue should start sooner rather than later. In some cases, trustees might find the need to notify members awkward where future service benefits have been reduced due to affordability or volatility concerns.
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