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Time is running out to preserve powers to repay surpluses to employers

Pension pay advice slip Print publication

16/11/2015

Most defined benefit pension schemes allow repayment of a funding surplus to the employer in various circumstances. Section 251 of the Pensions Act 2004 allows schemes with a pre-existing power to pay surplus to employers to continue to be able to do so, provided that an appropriate trustee resolution is passed before 6 April 2016. Time is now running out to pass the relevant resolution.

Has a section 251 resolution been passed?

Trustees should check whether or not they have already passed a section 251 resolution. If they have, and it was done correctly, no action is required. If they have not, time is running out. This ebrief explains what trustees need to do.

Which surplus repayment powers are affected?

Section 251 was only intended to apply to powers to pay surpluses from ongoing schemes. There is still some uncertainty over whether section 251 could apply to prevent payments to employers on wind-up. The prudent view is that section 251 may also apply to winding-up surpluses.

Is a section 251 resolution appropriate and in members’ interests?

In our view, it is appropriate for trustees to act to retain a power which they already have, and which is subject to strict legal conditions before it can be exercised.

Section 251 also arguably requires the trustees to be satisfied that the resolution is in members’ interests before they can sign it. It is in members’ interests to have an employer which is willing to fund the scheme in full to ensure that benefits are as secure as possible. If there is no possibility of recovering a surplus, this could affect the employer’s willingness to fund the scheme.

What trustees need to do

The trustees must give three months’ prior notice before the effective date of the section 251 resolution to:

  • all scheme employers; and
  • every active, deferred and pensioner member of the Fund.

As the resolution must take effect before 6 April 2016, this means that the notices must be received no later than 5 January 2016.

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