Clause 180 - Statement of funding principles

Part of Pensions Bill – in a Public Bill Committee at 11:00 am on 23rd March 2004.

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Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions 11:00 am, 23rd March 2004

The clause requires that trustees prepare and keep under review a statement of funding principles. That important new document will be one of the key elements of the new scheme funding arrangements.

The statement will set out the trustees' strategy for ensuring that their scheme is appropriately funded. Subsection (2) requires that it shows the trustees' decisions about what methods and assumptions the scheme actuary should use when calculating the scheme's technical provisions, and about how, and over what period, any funding deficits will be corrected. Regulations under subsection (1) will specify certain other key information underpinning the funding of the scheme that will need to be included in the statement. That could include whether, and under what conditions, funding surpluses may be paid to the employer. As with other clauses in this part of the Bill, the regulator may impose penalties for breaches of the requirements or for unreasonable failure to comply.

The statement will play an important role in improving the transparency and understanding of the funding of defined benefit pension schemes. Our main purpose is that it should set a framework for the parties involved in the funding of the scheme—the trustees, the sponsoring employer and the scheme actuary—to develop an appropriate funding strategy, but we also intend to require trustees to send a copy of the statement to any scheme member who wants to see it.

Committee members will know that schemes are already required to prepare a statement of investment principles. Complementary information about funding is a logical and consistent step. Trustees will be able to

combine those two documents if they consider it appropriate for their scheme. As hon. Members will see when we consider later clauses in this part of the Bill, trustees will need to obtain the advice of the scheme actuary and the agreement of the sponsoring employer when preparing the document. The statement will, for the first time, set out clearly and transparently how the funding of each scheme will operate.

The hon. Member for Eastbourne asked about the time period. Regulations will specify minimum review requirements for the statement. It is intended that, as a minimum, trustees will be required to review the statement in line with each full three-yearly actuarial valuation, but they will also be able to review it at any other time that they consider appropriate. I think that that answers his question. He is right to say that we have been through a period of fluctuation. We do not want to impose a more regular requirement, such as an annual requirement, but what I have said about the importance of trustees being able to review it is an important qualification.

Question put and agreed to.

Clause 180, as amended, ordered to stand part of the Bill.