Defined benefit scheme meaning

Legislation safeguards the pension entitlements of members of occupational pension schemes and other employment‑related benefit arrangements, including workplace personal pension schemes that receive employer contributions, while they are away from work on statutory family leave. Statutory family leave encompasses: maternity leave paternity leave adoption leave parental leave shared parental leave parental bereavement leave carer’s leave Maternity leave Occupational pension schemes are taken to include a maternity equality rule requiring periods when a member is on maternity leave to be treated in the same manner as periods when they are not on maternity leave. This maternity equality rule applies to both paid and unpaid ordinary maternity leave (OML), as well as to paid additional maternity leave (AML). As a result, under this rule, time spent on OML and paid AML in a defined benefit (DB) scheme is recognised as pensionable service...

THIS CHECKLIST APPLIES TO OCCUPATIONAL PENSION SCHEMES This checklist highlights the key actions involved in bringing an occupational pension scheme to a close—whether a defined benefit (DB) or defined contribution (DC) arrangement—and aligns with winding-up guidance from the Pensions Regulator (TPR). For fuller detail on these steps, see Practice Notes: Winding up a defined benefit (DB) occupational pension scheme; Winding up a defined contribution (DC) occupational pension scheme; and Winding-up an occupational pension scheme—statutory disclosure from 6 April 2014, reporting and record-keeping requirements. Data cleansing and reconciling records Once trustees decide to wind up the scheme, they should carry out a thorough data cleansing exercise. As this can be lengthy, it should, where practicable, be completed before formal winding-up starts. Where trustees cannot control the timing of the wind-up, cleansing and planning should begin as early as possible within the winding-up process. As part of the data cleansing exercise, trustees should: Check and reconcile member records. Where the scheme is a former contracted-out...

Statutory right to cash equivalent Individuals in defined benefit workplace pension schemes have a legal entitlement to transfer the cash equivalent of their scheme benefits to certain other pension arrangements. From 30 November 2021, using this right requires meeting one of two conditions set out in the Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021, SI 2021/1237, designed to protect members from fraudulent schemes. The stated cash equivalent is guaranteed for a three‑month period. This statutory entitlement takes precedence over any conflicting terms in the scheme’s trust deed and rules. The right applies where a member’s pensionable service has ended at least one year before normal pension age and the member has accrued rights under the scheme. Members who continue in service after pensionable service ends only acquire a...

What is the background to the call for evidence? Following Chancellor of the Exchequer Jeremy Hunt’s Mansion House address the night before, the DWP launched the call for evidence. Issued in tandem with several other DWP publications, these materials covered a broad spread of topics affecting UK pension schemes. Their shared aim was to boost investment in UK productive finance whilst shielding members’ benefits and giving precedence to a resilient, diversified gilt market. The Chancellor characterised the proposals across the various papers as the ‘Mansion House reforms’. The DWP placed the Response alongside further papers pertinent to DB pension schemes, including: the Autumn Statement 2023, which confirms that the Government will reduce the authorised surplus payments charge, currently payable on a return of surplus to a scheme employer, from 35% to 25% from 6 April 2024; and Call for evidence outcome: Pension trustee skills, capability and culture What was the outcome? ...

Aon plc, the British‑American management consultancy, said it would ‘naturally’ give company directors more sway over a scheme if trustees of defined benefit plans were obliged to obtain the sponsor’s agreement to a new ‘statement of strategy’, as outlined by TPR earlier in March 2024. TPR also stated that managers of defined benefit retirement schemes must lodge the strategy alongside their routine valuation documents from 22 September 2024. A defined benefit pension delivers a guaranteed income each year for life, determined by a worker’s final or average salary...

TPR stated that its refreshed corporate plan for 2024 to 2027 will press ahead with policy measures aimed at safeguarding consumers’ funds and interests as the industry evolves. This involves bringing in new rules on pension scheme funding, trailed by the government in January 2023, intended to permit greater flexibility for investing in higher‑risk assets to help stimulate UK economic growth. The regulator added it will keep building the value‑for‑money framework, while making sure that new defined benefit (DB) consolidators, which combine smaller schemes, act to protect savers. The framework aims to move attention away from price and towards long‑term value for defined contribution (DC) pension savings. The government also intends to reshape the Pension Protection Fund as a public sector consolidator as the sector undergoes changes in the UK over 2024 to 2027 as well...

The Pensions Regulator (the Regulator) The Regulator is an arm’s-length public body set up under the Pensions Act 2004 (PeA 2004). Its authority to impose contribution notices and financial support directions appears in PeA 2004, ss 38–50. Although the Act does not use the label, these provisions are widely known as the Regulator’s ‘moral hazard’ powers. Their purpose is to counter the ‘moral hazard’ arising from the Pension Protection Fund (PPF): the possibility that corporate groups might organise their structures so as to heighten exposure within their pension schemes, comfortable that the PPF would intervene if the employer entered insolvency. The principal moral hazard tools—and the only ones exercised so far—are the power to issue a contribution notice (CN) and the power to issue a financial support direction (FSD). A CN compels the recipient to pay a specified amount into a defined benefit occupational pension scheme. A CN can be issued where the criteria in PeA 2004, s 38 are satisfied. These mechanisms exist to deter behaviour that would...

A risk with employment cessation events is that they can be set off unintentionally, for example because the last remaining active member of an employer in a multi-employer defined benefit scheme has left. The Employer Debt Regulations, SI 2005/678 were amended with effect from 6 April 2008 to introduce grace periods, a device intended to help employers deal with accidental employment cessation events. For further information on employment cessation events and other section 75 triggers, see Practice Note: When is a section 75 debt triggered? When can a grace period be used? When can a grace period be used? An employer in a multi-employer defined benefit scheme may notify the trustees that it wishes to enter a grace period (by giving a grace period notice) if: that employer ceases to employ active members at a time when at least one other employer still employs active members, thereby creating an employment cessation event, and it intends to employ at least one individual who is an...

This Practice Note sets out the principal steps for properly bringing to an end a defined contribution (DC) occupational pension scheme—also described as a money purchase occupational pension arrangement or a trust-based defined contribution plan. Throughout this Practice Note, this type of arrangement is termed a ‘DC scheme’. The guidance applies across a range of DC schemes, including trusts that sit outside the authorised master trust framework and small self-administered pension schemes (SSASs), although the latter may, in certain cases, be excluded from particular statutory obligations or requirements. This Practice Note does not cover the winding-up of any: an ‘authorised master trust’ under the Pension Schemes Act 2017 (PSA 2017)—for further detailed information, please see Practice Note: The authorisation and supervisory regime for master trusts, contract-based DC arrangements (eg group personal pension arrangements)—for further details and guidance, see Practice Note: Winding up of personal pension schemes Statute makes distinct and specific provision for hybrid schemes (combining defined benefit (DB) and DC...

This template has been prepared on the basis that the writer is acting for the buyer, and that the target company (the Company) is a subsidiary of the Seller. It is strongly recommended that a pensions expert is engaged at the earliest opportunity. 1 Definitions For purposes of paragraphs 2 to 9 inclusive, the following apply: Employee means any present or former employee, officer, or director of the Company [ or of any Group Company ] [ and includes any other person participating in the management of the Company’s affairs ] ; Pension Scheme [ s ] mean [ s ] [ [ name(s) of scheme(s) ] OR an arrangement or practice for the payment of, or for contributing towards, an annuity, pension, lump sum, gratuity, or a similar benefit to be provided upon retirement, ill-health, death, or a change in service status, or in compliance with a pension sharing order, in relation to the service or historic service of an Employee or any...

THE [ insert name of pension scheme ] PENSION SCHEME This statement of investment principles takes effect from [ insert date ]. 1 Statement of investment principles 1.1 Purpose of statement This document outlines the principles that guide decisions on investing the assets of the [ insert name ] Pension Scheme (the Scheme). The Trustees of the [ insert name ] Pension Scheme (the Trustees) issue this document to meet the requirements of section 35 of the Pensions Act 1995. 1.2 Review The statement will be reviewed each year. The Trustees may conduct a special review at any time if they consider there has been a material change in investment policy or any other circumstances affecting the Scheme. 1.3 Advice The Trustees have received and considered written advice on the contents of this statement in a letter from [ insert name of investment consultant or actuary ]. [ insert name ] have confirmed to the Trustees that, through practical expertise in financial...

[ insert full name of Trustee ] as trustee of the [ insert full name of the employee benefit trust ] [ insert full address of trustees ] [ insert date of letter ] Dear Trustee(s) [ name of the employee benefit trust ] ( EBT ) We write in your capacity as trustee of the EBT (the Trustee). We refer to the trust deed establishing the EBT, dated [ insert date of trust deed ], executed by you, as Trustee, together with [ insert name of settlor of EBT ] (the Company and the Trust Deed). There are no assets and liabilities in the EBT It is our understanding that the EBT now holds no assets or liabilities and, as a result, is no longer constituted as a trust. Nonetheless, the EBT’s termination must be formally acknowledged and HMRC notified. We therefore propose that you execute the enclosed deed of termination. This deed records the exercise of your...

We proceed on the basis that the pension scheme in question is a defined benefit scheme and that the former MND is a member. Whether the former MND should first contest the outcome of the MND election through the pension scheme’s internal dispute resolution procedure, or complain straight to the Pensions Regulator, depends on the nature and seriousness of the breach...