Under section 251 of the Pensions Act 2004, trustees of defined benefit (DB) pension schemes must pass a resolution to preserve a power under their scheme rules to make payments out of a funding surplus to employers or they will lose that power. This requirement was introduced on 6 April 2006 as a result of the introduction of the new pensions tax regime which involved the repeal of the statutory surplus requirements contained in Schedule 22 to the Income and Corporation Taxes Act 1988.
The resolution has to be made before 6 April 2016 and, before it can be made, the trustees have to give at least three months’ notice to members and employers of their intention to do so. The trustees must also be satisfied that it is in the members’ interests to make the resolution. Where the trustees decide to make a resolution, they may set out the circumstances in which, and the conditions to be met before, the power can be used.
Trustees of DB schemes that are eligible to pass a resolution but have not yet done so should decide whether they wish to retain a power to allow payments of surplus to the employer. If they do, as well as having to comply with the requirements of section 251, they will have to allow for a minimum of three months’ notice before making the resolution. Passing the resolution before 6 April 2016 may prove a challenging deadline and the process should be started as a matter of urgency.
Some schemes may have already passed, or attempted to pass, a resolution before the expiry of the original statutory deadline in 2011. Trustees and employers of such schemes should review the status of any such resolution or actions with their advisers and consider whether a further resolution is now necessary.