The Finance Act 2004, and associated regulations, included transitional protections to give pension schemes time to adjust to the new regime and put updated documentation in place.

Most pension schemes also passed a deed of amendment on or shortly after 6th April 2006 to ensure that the benefit of those protections was incorporated into their schemes at that date. Many pension schemes have, since 6th April 2006, conducted a full review and update of their trust deed and rules and, for those schemes, no further action is required. However, for pension schemes who have not taken such action, it should be noted that the protections are due to expire, under the terms of the Finance Act 2004, on 6th April 2011.

At that time, a pension scheme’s trust deed and rules should still be compliant with the legislation. However, the key risk is that pension schemes relying on the transitional protections will lose any of the old Inland Revenue limits on which they currently rely. That could lead to, for example, a removal of the effect of the earnings cap which would most likely result in an immediate increase in a pension scheme’s liabilities.

For these schemes, a short deed of amendment should as a minimum be prepared and executed before 6th April 2011 which would retain explicitly the old Inland Revenue limits past 6th April 2011.