The Occupational Pension Schemes (Winding Up) Regulations 1996

Made: 11th December 1996

Laid before Parliament: 18th December 1996

Coming into force: 6th April 1997

The Secretary of State for Social Security, in exercise of the powers conferred on him by sections 97(1) and (2), 113(1)(d), 168, 181(1) and 182(2) and (3) of the Pension Schemes Act 1993 and sections 38(3)(b), 49(2)(b), (3) and (4), 68(2)(e), 73(3) and (7) to (9), 74(2), (3)(a) to (d) and (5)(b), 118(1)(a) and (b), 119, 124(1), 125(2) and (3) and 174(2) to (4) of the Pensions Act 1995 and of all other powers enabling him in that behalf, the Occupational Pensions Board having agreed that the proposals to make these regulations, to the extent that they are made under the Pensions Schemes Act 1993, need not be referred to them and the Secretary of State having consulted with such persons as he considered appropriate, by this instrument hereby makes the following regulations:—

Preliminary

Citation, commencement and interpretation

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• (1) These Regulations may be cited as the Occupational Pension Schemes (Winding Up) Regulations 1996 and shall come into force on 6th April 1997.

• (2) These Regulations do not apply to any scheme which has begun to be wound up before that date.

• (3) Unless the context otherwise requires—

• (a) expressions used in these Regulations have the same meaning as if they were used in Part I of the Pensions Act 1995; and

• (b) in these Regulations any reference to a section is a reference to a section of that Act.

• (4) In these Regulations—

• ...

• “the MFR Regulations” means the Occupational Pension Schemes (Minimum Funding Requirement and Actuarial Valuations) Regulations 1996;

• “pension credit” means a credit under section 29(1)(b) of the Welfare Reform and Pensions Act 1999;

• “transfer credits” has the meaning given by regulation 1(2) of the Pension Sharing (Pension Credit Benefit) Regulations 2000 (citation, commencement and interpretation).

• (5) References in these Regulations to FRC standards are to actuarial standards adopted or prepared, and from time to time revised, by the Financial Reporting Council Limited, which are relevant to the determination, calculation and verification of the amount or value of the liabilities of the scheme to which section 73 applies.

Commencement of winding up

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• (1) The time when a scheme begins to be wound up shall be determined for the purposes of these Regulations in accordance with this regulation—

• (a) if in accordance with section 124(3A) to (3E) the scheme began to wind up before 6th April 2005; or

• (b) if immediately before that date the scheme was treated by virtue of this regulation as having begun to be wound up for those purposes.

• (1A) See section 124(3A) to (3E) for the time when a scheme begins to wind up in any other case.

• (2) Subject to paragraphs (3) and (5), where the rules of the scheme require or permit the scheme to be wound up and the scheme is wound up under those rules, the scheme begins to be wound up—

• (a) either—

• (i) at such time as the rules provide that it does so, or

• (ii) if the rules make no provision as to that time, at such time as the trustees determine that the scheme shall begin to be wound up; or

• (b) as soon as there are no members who are in pensionable service under the scheme,

whichever is the later.

• (3) Where the rules of the scheme require or permit the scheme to be wound up, but the trustees determine in pursuance of section 38 or otherwise that the scheme is not for the time being to be wound up, then for the purposes of paragraph (2), in so far as any provision made by the rules of the scheme as to the time when it begins to be wound up is inconsistent with the trustees’ determination, that provision shall be disregarded.

• (4) Where under the rules of the scheme any person other than the trustees may determine that the scheme is to be wound up, or is not to be wound up for the time being, then the references in paragraphs (2)(a)(ii) and (3) to the trustees’ determination shall be taken, in a case where the winding up begins or is deferred by virtue of that other person’s determination, as a reference to his determination; and this paragraph applies where such a power is vested in the trustees jointly with another person, or in some but not all of the trustees, as it applies where such a power is vested only in a person other than the trustees.

• (5) Where—

• (a) a scheme is wound up in pursuance—

• (i) of an order of the Authority under section 11, or

• (ii) of an order of a court; and

• (b) the order makes provision as to the time at which the scheme is to begin to be wound up,

the scheme begins to be wound up at the time specified in the order or, if none is so specified, the date on which the order takes effect.

Preferential liabilities on winding up

Modifications of s. 73(3)

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• (1) Section 73(3) applies if the scheme begins to be wound up before 6th April 2005—

• (a) in all cases subject to the modifications mentioned in paragraphs (3) and (4);

• (b) in the case of a scheme which begins to be wound up on or after 10 May 2004 ..., subject to the modifications in paragraphs (5A) to (6).

• (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (3) After paragraph (a) of section 73(3) there shall be inserted—

(aa) where— (i) the trustees or managers of the scheme are entitled to benefits under a contract of insurance which was entered into before 6th April 1997 with a view to securing the whole or part of the scheme’s liability for any pension or other benefit payable in respect of one particular person whose entitlement to payment of a pension or other benefit has arisen and for any benefit which will be payable in respect of that person on his death, and (ii) either that contract may not be surrendered or the amount payable on surrender does not exceed the liability secured by the contract (but excluding liability for increases to pensions), the liability so secured

• (4) In section 73(3)(b)—

• (a) at the beginning there shall be inserted the words “ in a case not falling within paragraph (aa), ”; and

• (b) for the words “to dependants" there shall be substituted the words “ in respect ”.

• (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (5A) In paragraph (d) of section 73(3), for “(b) and (c)” there shall be substituted “(aa) and (b).”

• (5B) After that paragraph there is inserted—

(e) any liability for increases to pensions referred to in paragraph (c).

• (6) In the words following paragraph (e) of section 73(3) as inserted by paragraph (5B) for the words “paragraphs (b) to (d)” there shall be substituted the words “paragraphs (aa) to (e)”.

• (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (8) In the case of any scheme to which section 73(3) applies with the modifications mentioned in paragraphs (5A) to (6), regulation 7(3)(b)(iv) of the Occupational Pension Schemes (Transfer Values) Regulations 1996, has effect with the substitution for “(d)” of “(e)”.

• (9) Paragraph (8) does not apply where regulation 7(3)(b)(iv) of the Occupational Pension Schemes (Transfer Values) Regulations 1996 applies with the amendments in regulation 15 of the Occupational Pension Schemes (Winding up etc. ) Regulations 2005.

Calculation of amounts of liabilities

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• (1) The liabilities of a scheme to which section 73 applies and their amount or value must be determined, calculated and verified by the actuary of the scheme—

• (a) on the assumption that any questions relating to any person's entitlement to a pension or other benefit are to be determined as at the crystallisation date;

• (b) on the assumption that liabilities in respect of pensions or other benefits will be discharged by the purchase of annuities of the kind described in section 74(3)(c) (discharge of liabilities: annuity purchase) and include the expenses involved in discharging them;

• (c) subject to sub-paragraph (b) and paragraph (4), on the general assumptions specified in regulations 7(2), (3) and (7) to (10) and 8(2) of the MFR Regulations (determination and valuation of liabilities and further provisions as to valuation: methodology, assumptions, etc. ) so far as they relate to the calculation and verification of liabilities; and

• (d) otherwise in accordance with any relevant FRC standards.

• (2) For the purpose of paragraph (1)(b) the actuary must estimate the cost of purchasing the annuities.

• (3) A calculation of the value or amount of the liabilities of a scheme for the purposes of section 73 must be accompanied by a statement that it is in accordance with the guidance mentioned in paragraph (1)(d).

• (4) For the purposes of this regulation, regulations 7 and 8 of the MFR Regulations are modified as follows—

• (a) references in regulations 7(3), (7) and (8) and 8(2) of the MFR Regulations to the relevant date are to be taken as references to the date as at which the calculation is made (being a date not earlier than the crystallisation date or the commencement of winding up, if later);

• (b) in regulation 7(3) the words “subject to paragraphs (4) and (5)” are omitted; and

• (c) paragraph (i) of regulation 8(2)(a) is omitted.

• (5) Paragraph (6) applies if, when the assets of the scheme are applied in accordance with section 73(3) towards satisfying any liability of the scheme mentioned in section 73(4), that liability, as calculated in accordance with the rules of the scheme (without any reduction by reason of its falling within a class of liability which is to be satisfied after another class), is in the opinion of the actuary fully satisfied by applying assets of a value less than the amount of that liability calculated in accordance with paragraph (1).

• (6) If this paragraph applies the amount to be taken as the amount of that liability for the purposes of section 73(3) is to be reduced accordingly.

• (7) Paragraph (8) applies if, when the assets of the scheme are so applied, the liabilities mentioned in section 73(3), as calculated in accordance with the rules of the scheme (without any reduction by reason of their falling within a class of liability which is to be satisfied after another class), cannot in the opinion of the actuary be fully satisfied by applying assets of a value equal to the amount of those liabilities calculated in accordance with paragraph (1).

• (8) If this paragraph applies the amount to be taken as the amount of those liabilities for the purposes of section 73(3) is to be increased accordingly.

• (9) If section 73 does not apply to any liability by virtue of—

• (a) section 73B(6)(d) (which provides that the winding up provisions do not apply to liabilities the discharge of which is validated under section 136 of the Pensions Act 2004); or

• (b) regulation 10(2) of the Occupational Pension Schemes (Winding up etc. ) Regulations 2005 (which makes similar provision as respects liabilities discharged by virtue of regulations under section 135(4) of that Act),

the value of any corresponding assets is to be deducted from the value of the assets of the scheme for the purposes of section 73.

• (10) For the purposes of paragraph (9), “ the value of any corresponding assets ” means—

• (a) in a case where assets of the scheme at the crystallisation date are transferred from the scheme in consideration for the discharge, the value of those assets at that date; and

• (b) in a case where assets that are not assets of the scheme at that date are so transferred, the value of those assets at the date of the discharge.

• (11) Subject to paragraph (12), in this regulation “ the crystallisation date ” means––

• (a) in the case of a scheme where––

• (i) the trustees or managers determined (whether in pursuance of section 38 (power to defer winding up) or otherwise) that the scheme was not for the time being to be wound up, despite rules otherwise requiring it to be so;

• (ii) the time when the paragraph of section 73(4) into which the liability in respect of any person falls is determined is fixed under the provisions of the scheme; and

• (iii) that time falls on or after the date of the determination mentioned in paragraph (i) and before the date on which the scheme begins to be wound up,

the date when that time occurs; and

• (b) otherwise, the date on which the scheme begins to be wound up.

• (12) Where the trustees or managers of a scheme––

• (a) determined before 6th April 1997 that the scheme was not for the time being to be wound up, despite rules otherwise requiring it to be so; and

• (b) before that date determined a time (being a time before 6th April 1997) when the amounts or descriptions of liabilities of the scheme were to be determined for the purposes of any rule of the scheme requiring the assets of the scheme to be applied on winding up in satisfying the amounts of certain liabilities to or in respect of members before other such liabilities,

Modification of schemes to fix time for settling priority of liabilities on winding up

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• (1) The trustees of a trust scheme may by resolution modify the scheme with a view to fixing or providing for the fixing of the time when the paragraph of section 73(4) into which the liability in respect of any person falls is to be determined for the purposes of section 73(3) and (4) or of any priority rule of the scheme, in the event of a determination (whether in pursuance of section 38 or otherwise) that the scheme is not for the time being to be wound up, despite rules otherwise requiring it to be so.

• (2) That time must be—

• (a) on or after the date of the resolution and of any such determination to defer winding up, and

• (b) before the date on which the scheme begins to be wound up.

• (3) In paragraph (1) “priority rule" means a rule of the scheme requiring the trustees to apply the assets of the scheme on a winding up in satisfying the amounts of certain liabilities to or in respect of members before other such liabilities.

Discharge of liabilities by insurance etc.

Arrangements for discharge of liabilities under s. 74

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• (1) For the purposes of section 74(2), the arrangements with which the trustees or managers of a scheme must comply in providing for the discharge of a liability under that section are as follows.

• (2) Where the trustees or managers of a scheme propose to discharge a liability of the scheme to or in respect of a member—

• (a) they must give him or, if he has died, each beneficiary who is entitled to benefits in respect of him, notice in writing of that fact;

• (b) if they propose to discharge the liability wholly or partly—

• (ai) in the way mentioned in regulation 8(6)(b)(i)(aa) in a case where the proposed lump sum is an uncrystallised funds pension lump sum for the purposes of Part 1 of Schedule 29 to the Finance Act 2004,

• (i) in the way mentioned in section 74(3)(a) or (b), or

• (ii) in the way mentioned in regulation 8(5) in a case where sub-paragraph (a) of that regulation applies, then, subject to paragraph (4), they must obtain the written consent of the member or, as the case may be, the beneficiary to discharging the liability in that way; and

• (c) in the case of discharge in the way mentioned in regulation 8(5), any other requirements which apply to the making of a payment so mentioned must have been met.

• (3) A notice under paragraph (2)(a) must comply with the requirements of regulation 7.

• (4) In a case where regulation 11B or 12 of the Occupational Pension Schemes (Preservation of Benefit) Regulations 1991 (transfer of member’s accrued rights without consent) applies, no consent need be obtained to a discharge of liability in the way mentioned in section 74(3)(a).

• (5) Where—

• (a) the trustees or managers have complied with paragraphs (2) and (3); and

• (b) an election has been made under regulation 7(3)(a),

they may discharge the liability in pursuance of the election without complying with those paragraphs again.

Requirements applicable to notices of discharge under regulation 6

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• (1) A notice under regulation 6(2)(a) (“a discharge notice") must specify—

• (a) the sum which is available to be used to discharge the liability of the scheme to the member or, as the case may be, the beneficiary in respect of his rights under the scheme; and

• (b) if the full amount of that liability, as calculated in accordance with regulation 4, is greater than that sum, that amount and the reason for the difference.

• (2) A discharge notice must—

• (a) specify the way or ways in which it is proposed to discharge the liability;

• (b) if the proposed way or any of the proposed ways requires the consent of the member or, as the case may be, the beneficiary, state—

• (i) that his consent is so required,

• (ii) the period within which his consent must be given, being at least three months beginning with the date on which the notice is given, and

• (iii) the way or ways in which it is proposed to discharge the liability if he does not give his consent; and

• (c) if the proposed way is that mentioned in regulation 8(5), state any further requirements which must be met before discharge may be made in that way.

• (3) If there are any options available to the member or beneficiary, the discharge notice must specify them and state—

• (a) that if he wishes to elect that, instead of the liability being discharged in the proposed way, it should be discharged in one or more of the other ways mentioned in section 74(3) which are available in his case (or partly in the proposed way and partly in another such way), then he must give notice to that effect in writing to the trustees or managers, specifying—

• (i) the way or ways in which he wishes the liability to be discharged, and

• (ii) the name of the relevant provider;