The Department for Work and Pensions launched a consultation in October 2013 to attempt to clarify the definition of money purchase included in section 29 of the Pensions Act 2011.
The consultation followed the Supreme Court’s July 2011 decision in Bridge Trustees vs Houldsworth, which concluded that it was possible for certain benefits to be within the definition of money purchase benefits, despite there being a potential mismatch between assets and liabilities.
The new definition means that some pension schemes will have to change the treatment of benefits, which they previously thought were money purchase benefits and will have to comply with scheme funding, Pension Protection Fund (PPF) levy requirements and the employer debt regime in relation to those benefits.
The key benefits affected by the change are final salary underpins, internal annuities and money purchase arrangements that provide for some form of guaranteed rate of return.
Scheme wind-ups commenced before the new regulations come into force or decisions in relation to section 75 debt calculations will not need to be revisited and the treatment of certain benefits as money purchase benefits will not need to be unravelled.
The amendments were laid before Parliament on 6 May 2014. It is intended that the revised definition will take effect from early July 2014, and will be retrospective to 1 January 2007.