Adviser > Technical Central > Pre simplification > Occupational > MFR Abolished? Not Yet!!
MFR Abolished? Not Yet!!
The content of this page is based on our understanding of how pensions worked before A-Day, the 6 April 2006, and is provided for reference only.
It has been three and a half years since the Government announced that the MFR (minimum funding requirement) was to be abolished. It hasn’t happened yet. Delays in implementing its replacement – Scheme Specific Funding (a part of the Pensions Bill) – have led to the DWP (Department for Work and Pensions) having to propose amendments to the current regime.
Why are amendments required?
The amendments are required as Regulations 11 and 12 of the original MFR regulations would come into force at the end of the transitional period. Currently, this is due to end on 31 December 2004. These regulations would impose additional requirements on schemes, which given that the MFR is to be abolished are unnecessary. For those of you who are interested in what regulations 11 and 12 would actually require, a link to the actual regulation is below:
What’s being proposed?
Extension of transitional period
The Government decided to extend the transitional period two years ago so that it would end with effect from 31 December 2004. The DWP now wants to extend that period to 5 April 2006 so that it ties in with when the new simplified tax regime is introduced.
Actuarial statement
When a MFR valuation is completed and the MFR is not met, it must be accompanied by a statement that details the extent to which the statutory priority liabilities on a wind-up are met. There has been some confusion over what priority order should be used for schemes that are not in wind-up. The DWP have taken the opportunity to clarify that the scheme actuary should use the priority order that would apply on the effective date of the valuation were the scheme to be wound up at this date, currently the 2004 priority order, and not as some actuaries have assumed the 'post 2007' priority order.
Deferral of MFR valuation
This is not part of the draft regulations. The DWP is suggesting that when the effective date of a MFR valuation falls between the date of Royal Assent of the Pensions Bill (expected to be 18 November 2004) and the date the new scheme funding requirements will be in force (planned for September 2005), it will be reasonable to allow the Trustees the option of deferring the date of the valuation by up to twelve months so that it can take place under the new scheme funding requirements.
Link to consultation document:
ConsultMFR
The DWP have sought views on this - the consultation period ended on 15 October 2004. The Government plan to issue a response by 15 January 2005.
The information provided is based on our current understanding of the relevant legislation and regulations, some of these regulations are subject to consultation and may change in the future.
Published 04 November 2004
For professional advisers only
