Revised Section 50 guidance

The Pensions Authority issued revised statutory guidance regarding the notification requirements with which trustees must comply when making an application to the Pensions Authority under section 50 of the Pensions Act 1990

Before making an application for a section 50 direction, trustees must notify all members of the scheme (including any other person in receipt of benefits under the scheme) and any authorised trade union representing members.  In addition, trustees must notify any group that represents at least 50% of deferred members or members who are in receipt of benefits under the scheme or members who have reached normal pensionable age.  The representative group must have notified the trustees in advance that they represent such members.

Comment

In a section 50 process, trustees must notify not just members and authorised trade unions but may also have to notify a representative group.  This change will involve increased communication and negotiation between the trustees and any representative groups. 

Financial management guidelines for trustees of DB schemes

The Pensions Authority also issued financial management guidelines for trustees of defined benefit (DB) schemes to help trustees manage their funding and investment responsibilities.

The guidelines recommend that trustees keep scheme data up to date and review scheme data at least once a year.  Scheme data includes scheme asset value, investment return relative to set benchmarks and targets, investment allocations relative to strategy, scheme solvency position and costs. The guidelines state that trustees are expected to schedule meetings regularly and, if appropriate, delegate responsibilities. Trustees should engage with advisers such as the scheme actuary and legal advisers and should have a clear understanding of the statement of investment principles, their investment powers and the contribution provisions under the trust deed and rules of the scheme. To manage their funding and investment responsibilities efficiently, trustees are expected to review and analyse all processes such as investment strategy, funding adequacy, risk management, contributions, investment management performance and costs.

Comment

According to the guidelines, the key two questions that trustees should consider when looking at financial management are (1) whether the scheme contributions are adequate to provide the benefits under the scheme in the short and long term; and (2) what is the risk that the benefits cannot be paid.  Financial management is responsibility of trustees and, if necessary, they should take and consider professional advice before making their decisions.