UK: 6 April 2005 – what you need to know

Last Updated: 14 July 2005
Article by Karen Mumgaard

A number of the provisions of the Pensions Act 2004 went live on 6 April 2005. Those involved with pension schemes need to be aware of some of the key changes.


Opra has been replaced with a tougher Pensions Regulator with much more far-reaching powers. Some of the key issues to be aware of in relation to the new Regulator are:

  • Whistleblowing obligations have been extended and now apply to trustees, anyone involved in the administration of the scheme (e.g. a pensions manager or third party administrators), employers and anyone providing advice to the trustees. Reports should be made where a person has reasonable cause to believe that there has been a breach of a duty imposed by law relating to the administration of the scheme which is likely to be of material significance to the exercise of the Regulator’s functions. A code of practice and guidance have been issued providing guidance on when reports should be made and what the Regulator might view as being of material significance. The Regulator expects those affected to be aware of their obligations.
  • Trustees and employers of schemes providing any final salary benefits which were not in wind-up before 6 April 2005 will need to notify the Regulator when certain events occur. Details of the events are set out in Regulations, a code of practice and directions issued by the Regulator. The range of events which the Regulator requires notification of is fairly wide and trustees and employers should ensure that they are aware of them as failure to comply with the obligation could lead to fines.
  • The Regulator has inherited all of Opra’s powers but has some quite far-reaching additional powers. It can issue contribution notices and financial support directions where a debt owed to the scheme is being avoided or may not be recovered or an employer is "insufficiently resourced" – these can be issued against those associated or connected with the employer (which may include other companies in the employer’s group and shareholders). The Regulator can also issue improvement notices or third party notices where someone is in breach of any of the requirements of pensions legislation, wind-up a scheme (as could Opra) and freeze the scheme whilst considering winding it up.
  • The Regulator has already issued a variety of codes of practice and will continue to issue more general guidance on how it expects certain areas of the Pensions Act 2004 to be complied with. Trustees, and where relevant, employers, are expected to be familiar with these codes of practice and although they are not legally binding, they will be admissible as evidence of good practice in court proceedings.

Copies of the Regulator’s publications are available at

Pension Protection Fund

The PPF went live on 6 April 2005. It will provide a safety net for those members whose employer becomes insolvent and whose scheme is unable to pay a certain minimum amount of benefits to them. There has already been an extensive raft of Regulations on how the PPF will work and the powers the PPF Board will have.

Because the Regulator has a statutory duty to minimise claims on the PPF, the existence of the PPF will have an impact not only on those schemes which end up relying on it, but on the majority of ongoing final salary schemes as the Regulator will want to monitor their activities in the context of the PPF.


From 6 April 2005, the Pensions Act 2004 introduced a new statutory priority for the distribution of final salary scheme assets when the scheme is being wound up. Under the new provisions, scheme assets must be used to secure benefits in the following order:

  • benefits covered by certain contracts of insurance taken out before 6 April 1997 which cannot be surrendered
  • all other benefits not exceeding the corresponding PPF liabilities
  • benefits from AVCs
  • all other benefits under the scheme.

Any money purchase benefits in the scheme, and the assets which relate to them, are treated entirely separately. One of the effects of this is that AVCs paid on a money purchase basis have effective priority as they are treated separately. However, AVCs that have been used to secure extra final salary benefits e.g. added years, will lose their priority and instead come below any benefits that would be secured up to the PPF level.

Pension increases

The requirements in relation to pension increases have also been changed. As before, no statutory increases are required for pensions relating to service before 6 April 1997, or in the case of money purchase schemes, contributions relating to service before 6 April 1997. For pensions in respect of service or contributions on or after 6 April 1997, the Act provides that pensions which relate to service/contributions:

  • after 6 April 2005 must increase by at least RPI up to 2.5%
  • before 6 April 2005 (but on or after 6 April 1997) must increase by at least RPI up to 5%.

The requirement for compulsory indexation is removed completely in respect of money purchase benefits where the pension comes into payment after 6 April 2005.

These provisions only permit schemes to reduce the cap on inflation-proofing pensions. Therefore, where trustee consent is required to any relevant scheme amendments, trustees will usually need to consider the merits of any proposals to reduce the level of pension increases.

Not yet in force

The provisions of the Act on scheme specific funding are not due to come into force until September this year. The provisions in relation to trustee duties, member-nominated trustees and scheme amendments are not likely to come into force before next year.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 27/06/2005.

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