Notes on the Pensions Act 2004

by Roderick Ramage, BSc(Econ), solicitor,

first published (by distribution to professional contacts) on 29 December 2004



This article is not advice to any person and may not be taken as a definitive statement of the law in general or in any particular case. The author does not accept any responsibility for anything that any person does or does not do as a result of reading it.


The Pensions Bill received Royal Assent in November 2004 and will be brought into force in stages in 2005 and onwards.  Its aim is to simplify pension law, but it is likely to have the opposite effect:  the 2004 Act consists of 325 sections and 13 schedules (compared with 181 sections and 7 schedules in the 1995 Act).  It is said to contain about 250 references to regulations to be made by statutory instruments to flesh out the details.  Some of the main topics with a practical impact on employers and trustees are as follows.


new regulator (April 2005)

OPRA will be replaced by a new regulator with wider powers and more staff (and a bigger budget to be paid for by levies on pension schemes) and is likely to be more proactive than OPRA.  The regulator’s aims are to protect members’ interests and reduce the risk of claims on the PPF.  The so called “moral hazard” provisions, give the regulator powers in respect of final salary schemes (1) to require persons to pay a contribution to the scheme if they were party to an act or deliberate failure to act for the purpose of avoiding or minimising liability for a debt on the employer and (2) to make other companies in the same group liable to support a pension scheme if the scheme’s employer is insufficiently resourced (see my article on the Pensions Bill on  Even with the clearance procedures and other safeguards introduced by the government late in the Bill’s progress, corporate reconstructions and disposals are being inhibited by these provisions.


Pensions Protection Fund (PPF) (April 2005)

The PPF will provide pensions in the case of final salary schemes being wound up if their employers are insolvent.  It will be funded in part by the transfer of assets from the schemes being wound up and whose liabilities are to be adopted and partly by a levy on continuing final salary pension schemes.  Some commentators doubt whether the PPF can be financially viable without government support.


minimum funding requirement (MFR) (September 2005)

The MFR is to be abolished and replaced by a scheme specific “statutory funding objective”.  In view of the new regulator’s twin duties to protect pension scheme members and the PPF, it is likely that the new requirement will be more stringent than the MFR.


trustees (April 2006)

The present ability to opt-out of the requirement for member nominated trustees will cease, and all schemes will have to secure that at least one third of the trustees are member nominated (likely to be 50% from 2007).  Trustees will be expected to be conversant with the scheme’s rules and other provisions and have a sufficient knowledge and understanding of the law (as if trust law does not already require this!).


Transfer of Undertakings (Protections of Employment) Regulations (TUPE) (April 2005)

Where the transferor provided an occupational scheme for the employees who are transferred, the transferee will be required to provide a pension.  If the transferor's scheme is money purchase the transferee must either:

i)          provide an occupational scheme and pay to it “relevant contributions”, ie contributions of such amounts and for such period as are to be set out in regulations (draft regulations say matching employees’ contributions up to a maximum of 6% of pay); or

ii)        pay relevant contributions to a stakeholder scheme of which the employee is a member.

If the transferor’s scheme is final salary, the transferee’s scheme must either:

i)          satisfy the "statutory standard" referred to in the Pension Schemes Act 1993, ie to provide a pension broadly equivalent to or better than the pension which would be provided under the reference scheme test used to contract out of the State second scheme (a pension at age 65 of 1/80th of pensionable salary, ie 90% of earnings between lower and upper earnings limits (for 2004/5 £4,108 and £31,720) for each year of service); or

ii)        comply with such other requirement as are to be set out in regulations.


consultation (April 2006)

Employers will be required to consult with members and others about decisions to be made about pensions, although precisely who is to be consulted about what decisions is not yet known and will be in regulations.



Although the stated aim of the legislation is to protect members and their pensions, the likely result is that the present pressure on employers to close their final salary pension schemes will continue to increase.  This too has its hazards (see my article “Closing Pension Schemes – Some Hazards” also on  It is increasingly clear that there are cases where either closing a company’s pension scheme is not appropriate or closing it is appropriate but can result in higher costs than had been expected.

NB  This note is no more than my selection of topics restricted to two pages and does not deal many other important but relatively technical provisions.  For a comprehensive review of the Pensions Act 2004, visit the sites of any of the major “City” firms of solicitors.

For the Act itself go to


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