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Underfunding meaning

What does Underfunding mean?
Underfunding describes circumstances in which the assets of a scheme or fund are insufficient to meet its liabilities on the relevant funding or solvency basis. The term is descriptive rather than a single statutory definition, but in practice is most commonly used for defined benefit occupational pension schemes. In England & Wales and Scotland (with parallel provisions in Northern Ireland), the Pensions Act 2004 requires trustees to set “technical provisions” and test them by actuarial valuation. A deficit (underfunding) against the statutory funding objective must be addressed through a negotiated recovery plan and schedule of contributions, reported to The Pensions Regulator. The degree of underfunding is central to employer covenant assessment, investment strategy, contingent assets and benefit or rule changes, and is highly relevant to corporate transactions. An underfunded position also increases potential exposure to section 75 employer debt on a cessation or winding‑up, typically measured on a buy‑out basis. In Ireland, the Pensions Act 1990 Funding Standard performs a similar role. Where a scheme is underfunded, trustees generally must submit a funding proposal to the Pensions Authority to restore compliance within an approved period. Outside pensions, lawyers use underfunding more generally to denote a funding shortfall in trusts, charities or project...
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NEWS
House of Commons Justice Committee brands England and Wales County Courts ‘dysfunctional’ and calls for spring 2026 review amid delays, failed digitalisation, paper reliance and dilapidated court estate

The County Court system is 'dysfunctional' and has 'failed' adequately to deliver civil justice across England and Wales, was concluded in a report by the House of Commons Justice Committee dated 21 July 2025. Andy Slaughter, who chairs the cross-party committee, stated it is imperative that improving the County Court becomes a key priority for the Ministry of Justice, given the unacceptable delays affecting almost all categories of claims. The Labour Party MP said the inefficiencies and holdups stem from years of underfunding. 'Justice delayed is justice denied', Slaughter observed. The committee urged that a review of the County Court system should commence by spring 2026, describing its condition as dire and demanding urgent attention. It concluded the coronavirus (COVID-19) pandemic has added to the delays. He warned that delays are now increasing across most claim types...

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NEWS
England: Planning and Infrastructure Bill Part III—EDPs and Nature Restoration Levy; developer impacts, dual regime, 'overall improvement' test, viability-based charging, and Natural England CPO powers

Key provisions of Part III of the Planning and Infrastructure Bill Environmental Delivery Plans (EDPs) and a Nature Restoration Levy Part III proposes Environmental Delivery Plans and a Nature Restoration Levy to accelerate development by aggregating environmental mitigation. Rather than meeting bespoke ecological obligations for each project, developers would pay into a collective fund. Natural England would then deliver conservation actions using those monies. This marks a significant shift from the existing framework, which requires stringent case-by-case evaluations, consents tied to individual sites, and specific licensing for protected species. Approving EDPs—the ‘Overall Improvement’ test EDPs may relate to any defined land area and can address some or all environmental features within that boundary. To bring an EDP into force, the Secretary of State for Housing, Communities and Local Government must decide it satisfies an ‘overall improvement’ test—namely, that the conservation measures proposed are likely to outweigh the negative environmental effects of development occurring in the EDP area. Setting the Nature Restoration Levy Each EDP must...

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NEWS
Rethinking Health and Safety Prosecutions: How Court Backlogs and HSE Strategy Favour Targeted Action Against Wilful Breaches and Reward Early, Evidence-Led Engagement

Trials are now being timetabled for 2028. The backlog in the magistrates' courts, the entry point for all criminal matters, topped 300,000 last year. Chronic underfunding throughout the justice system causes and deepens the delays. The upshot is the worst of outcomes: cases falling apart, defendants and complainants enduring years before a hearing, and miscarriages of justice. Paradoxically, these strains may prompt better judgement in certain enforcement actions. Even diligent organisations can suffer incidents. Pursuing a prosecution is often out of proportion where an organisation has taken all reasonable steps to protect safety, notwithstanding a merely technical infringement. Legal context When the Robens report on workplace health and safety was finalised in 1972, a clear consensus emerged: criminal proceedings are not suited to most offences under health and safety law, and ought to be kept for breaches that are flagrant, wilful or reckless. The Health and Safety at Work Act 1974 (HSWA 1974) followed, shifting from prescriptive rules to broad duties, and establishing the Health and Safety Executive...

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View the related Practice Notes about Underfunding

PRACTICE NOTES
Implementing pension sharing and attachment orders on divorce/dissolution: practical guidance for trustees of occupational pension schemes in England and Wales

This Practice Note applies solely to occupational pension schemes and is intended for trustees; accordingly, it does not cover compensation sharing orders for schemes within the Pension Protection Fund. From 5 December 2005, following the Civil Partnership Act 2004, pension attachment and pension sharing orders were broadened to include the dissolution of civil partnerships for same-sex couples. Cohabiting partners are outside the scope of both orders, as cohabitation does not confer a right to obtain either. Throughout this Practice Note, any reference to an ex-spouse should therefore be read as including an ex-civil partner... Court orders which trustees may have to implement A married member’s pension entitlement may constitute the sole, or principal, asset built up during the marriage. When the marriage breaks down, the court may, as a result, redistribute between the parties the benefits arising from pension resources in situations where offsetting—by which the value of the pension resources is set against the value of other assets held between the parties—is not possible or not desirable...

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PRACTICE NOTES
UK DB occupational pensions: individual transfer rights and processes, CETV calculation/reductions, transfer conditions and scam flags, DB-DC advice checks, contracted-out rights, tax and recent reforms

FORTHCOMING CHANGE: Section 10 of the Finance Act 2022 will raise the normal minimum pension age (NMPA) from 55 to 57 on 6 April 2028, excluding members of the firefighters, police and armed forces public service pension schemes. The Finance Act 2022 also grants members of registered pension schemes a right to access benefits before age 57 if, on or before 4 November 2021, they satisfied one of the following: they already held an unqualified right to take benefits; or they were in the course of a substantive transfer to a scheme that, on or before 4 November 2021, offered an unqualified right to a protected pension age below 57. To rely on this new protection from 2028, the scheme’s rules must have contained, as at 11 February 2021, an unqualified right to take entitlement to scheme benefits before age 57. For further information, see Practice Note: Increasing the normal minimum pension age (NMPA) to 57—pensions impact. THIS PRACTICE...

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