UK: The Pensions Act 2004: Issues for Pension Schemes

The Pensions Act 2004 (the "Act") received Royal Assent on 19 November 2004. This Act will make a large number of changes in relation to pension schemes. As well as the creation of the new Pensions Regulator (the "Regulator") with wider powers than the present regulatory authority (OPRA) which it replaces, and the creation of the Pension Protection Fund to provide funding for schemes with insolvent employers, the Act will have a substantial impact on the administration of pension schemes. This article sets out the administrative issues for pension schemes and employers.

These provisions are expected to be brought into force from April 2005.


Under the Act, it will no longer be possible to opt out of the procedure for electing member nominated trustees or member nominated directors of a trustee company. However, the procedures for nominating and electing member nominated trustees and directors are much less prescriptive than the previous arrangements and, within certain guidelines, trustees will be able to devise their own arrangement for nominating and electing member nominated trustees. The Act also allows the Secretary of State for Work and Pensions to issue regulations to ensure that at least one half, rather than one third, of trustees or directors are member nominated.

The Act also requires that all trustees and any individual who exercises any function of a corporate trustee have knowledge and understanding of the pension scheme documents and issues relating to the law, the funding and the investments of assets of pension schemes.

Valuations and funding

The trustees of a pension scheme must put in place and review regularly:

  • a statutory funding objective;
  • a statement of funding principles;
  • a schedule of contributions; and
  • if the scheme is underfunded, a recovery plan.

The employer’s agreement is needed to all these documents and a failure to agree must be reported to the Pensions Regulator.

Each defined benefit scheme will be required to produce an annual actuarial report on developments since the last valuation with valuations still produced triennially. New regulations are proposed, but have yet to be finalised, relating to the statement of investment principles and restrictions on the scheme’s power to borrow.

Levies on schemes

The Pension Protection Fund will be financed by a levy on all pension schemes. A Pension Protection Board will set the levy each year based on the solvency of each scheme and the size of the scheme. It may require a scheme to submit a valuation in order to calculate the levy. A second levy to fund the Fraud Compensation Fund will also be charged on some or all schemes.

Protection for members

Amendments to a pension scheme’s terms, presently governed by section 67 of the Pensions Act 1995, will be further restricted by a replacement of that section. The new section will cover a wider range of amendments with different requirements for different types of amendments. There is also provision for certain matters not to be amended without employee consultation.

Schemes will also have to provide deferred members with options for transferring their pension benefits into another scheme if they have at least three months’ service in the scheme. Previously, deferred members with less than two years’ service only had a right to a return of their contributions, unless the scheme documentation gave them other options.

A scheme’s internal dispute resolution procedure will be required to cover non-members who have an interest in the scheme, such as prospective members and dependants of a deceased member.


Each scheme will need to be registered on the Register of Occupational Pension Schemes and Personal Pension Schemes operated by the Regulator. It is likely that previous registration with the existing register will be transferred but further information may be required from schemes already registered. The Regulator will also issue returns to be completed by schemes, and there will be a list of notifiable events which the trustees and employer will be required to report to the Regulator.

The Act includes an obligation on all individuals involved in the administration of the pension scheme, including the trustees and the employer and all their professional advisers, to notify the Regulator of any material breach of any legal obligation by any party in relation to the pension scheme. In addition, the Regulator may request reports on specific issues to be provided by and/or paid for by the scheme or its employer.

Under regulations that have yet to be issued, employers will be obliged to provide a combined pension forecast to employees showing their total forecast pension on both state and private pension provisions and the employer may be obliged to provide financial advice (presumably through an intermediary) to employees on their pension provision.

Any notification or document that is required to be sent to any person under the Act can only be sent by e-mail if their prior consent to receiving e-mail notifications has been received. Employers or trustees who communicate with scheme members through e-mail may find it useful to obtain written consent to sending notifications this way in order to ensure that notifications under the Act to employees can be validly e-mailed.

Overseas benefits

Contributions will be able to be received directly from an employer of members in any other EC country. However, the Regulator will have to authorise trustees to receive these contributions and approve them in relation to each specific employer. The trustees will also have an obligation to comply with the rules of that EC country in relation to pension provision and may be required to "ring-fence" benefits for employees in other EC countries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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