Welcome to our latest Pensions Update.
Since our last update, the Social Welfare and Pensions Act 2012 has been signed into law, the Pensions Board has published extensive statutory guidance for defined benefit pension schemes and has announced the new deadlines for submission of funding proposals to address deficits in such schemes. The statutory guidance is distinct from existing Pensions Board guidance and cannot be altered without the consent of the Minister for Social Protection. A breach of the statutory guidance will amount to an offence.
The headline issues include the following:
With effect from 1 January 2016, defined benefit pension schemes must hold a funding standard reserve (FSR) with the aim of acting as a buffer protecting against certain investment volatility. However, with effect from 1 June 2012, schemes must check whether they satisfy the FSR in addition to the minimum funding standard. Additionally, if a direction is sought under Section 50, the scheme must satisfy the FSR immediately unless combined with a funding proposal; The FSR is 15% of minimum funding standard liabilities less any holdings the scheme has of EU government bonds or cash PLUS the net effect on the scheme's funding position of a 0.5% fall in interest rates. Estimates indicate that meeting the FSR may increase the cost of funding defined benefit schemes by up to 15%. It is worth noting that the FSR may be changed by the Minister; Funding proposals must be submitted by the later of: 31 December 2012, and within 12 months of the last scheme year end falling on or before 31 May 2012 (NB if a Section 50 benefit reduction is incorporated into the funding proposal, the deadline is 28 February 2013); Schemes may be allowed until 2023 to make good their existing deficit; Where a scheme holds sovereign bonds or sovereign annuities, its actuary may, subject to certain requirements, give credit for these in...