The Pension Protection Fund (Valuation) Regulations 2005

Made: 11th March 2005

Laid before Parliament: 16th March 2005

Coming into force: 6th April 2005

The Secretary of State for Work and Pensions, in exercise of the powers conferred upon him by sections 143(3) to (5) and (11)(a), 145(4), 179(1)(a), (2) and (3), 190(1), 315(2), (4) and (5), and 318(1) and (4)(a) of the Pensions Act 2004 , and of all other powers enabling him in that behalf, by this instrument, which contains regulations made before the end of the period of six months beginning with the coming into force of the provisions of the Pensions Act 2004 by virtue of which they are made , hereby makes the following Regulations:

Commencement, citation and interpretation

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• (1) These Regulations may be cited as the Pension Protection Fund (Valuation) Regulations 2005 and shall come into force on 6th April 2005.

• (2) In these Regulations—

• “the Act” means the Pensions Act 2004;

• “appropriate person”in the case of a section 143 valuation, means the person specified in section 143(11)(a)(ii) of the Act, in the case of a section 143 determination, means the Board and, in the case of a section 179 valuation means the actuary as defined in section 179(2) of the Act;

• “the assessment date” means the date on which the assessment period in relation to the scheme or section, or (where there has been more than one such assessment period) the last one, began;

• “commencement date” means the 6th April 2005;

• “contribution notice” means a notice issued under section 38 (contribution notices where avoidance of employer debt), 47 (contribution notices where non-compliance with financial support direction) or 55 (contribution notice where failure to comply with restoration order) of the Act;

• “eligible scheme” has the meaning given by section 126 (eligible schemes) of the Act;

• “employer”, in relation to—an occupational pension scheme which is not a multi-employer scheme; ora single-employer section of a segregated scheme,which has no active members, includes the person who was the employer of persons in the description of employment to which the scheme or section relates immediately before the time at which the scheme or section ceased to have any active members in relation to it;

• “employer”, in relation to a non-segregated scheme or a multi-employer section of a segregated scheme—in an assessment period, includes any person who before the assessment date has ceased to be the employer of persons in the description of employment to which the scheme or section relates unless condition A, B, C or D is satisfied where—condition A is that a section 75 debt became due from that employer and the full amount of the debt has been paid before the assessment date;condition B is that—such a debt became due;a legally enforceable agreement has been entered into the effect of which is to reduce the amount which may be recovered in respect of the debt; andthe reduced amount has been paid in full before the assessment date;condition C is that such a debt became due but before the assessment date it is excluded from the value of the assets of the scheme or section because it is unlikely to be recovered without disproportionate costs or within a reasonable time;condition D is that at the time at which any such person ceased to be the employer of persons in the description of employment to which the scheme or section relates the value of the assets of the scheme or section was such that no such debt was treated as becoming due;in any other case, includes any person who has ceased to be the employer of persons in the description of employment to which the scheme or section relates unless condition A, B, C or D is satisfied where—condition A is that a section 75 debt became due from that employer and the full amount of the debt has been paid;condition B is that—such a debt became due;a legally enforceable agreement has been entered into the effect of which is to reduce the amount which may be recovered in respect of the debt; andthe reduced amount has been paid in full;condition C is that such a debt became due but it is excluded from the value of the assets of the scheme or section because it is unlikely to be recovered without disproportionate costs or within a reasonable time;condition D is that at the time at which any such person ceased to be the employer of persons in the description of employment to which the scheme or section relates the value of the assets of the scheme or section was such that no such debt was treated as becoming due;

• “employment” means trade, business, profession, office or vocation;

• “external liabilities” means any liabilities which do not fall due to the members of the scheme;

• “financial support direction” means a direction issued under section 43 (financial support directions) of the Act;

• “non-segregated scheme” means a multi-employer scheme which is not a segregated scheme;

• “pension credit rights” has the meaning given by section 124(1) (interpretation of part I) of the Pensions Act 1995;

• “pre-6th April 1997 contract of insurance” means a contract of insurance that—falls within the definition of a relevant contract of insurance in section 161(8) of the Act;was taken out before 6th April 1997; andthe trustees or managers are, or should reasonably be, aware of;

• “registrable scheme” has the meaning given by section 59(2) (register of occupational and personal pension schemes) of the Act;

• “relevant accounts” means—audited accounts for the scheme which are prepared in respect of a period ending with the relevant time;if none are so prepared, the latest such accounts which are available at the relevant time; orif the appropriate person's opinion is that it is practicable to use them, the latest such accounts which are available on the date the appropriate person signs the section 143 or section 179 valuation;

• “relevant accounts” for the purposes of identifying and valuing the assets of a scheme, means audited accounts for the scheme which—contain the information specified in the Schedule;show a true and fair view of —the financial transactions of the scheme during the period to which the accounts relate (“the accounting period”);the amount and disposition of the assets at the end of the accounting period; andthe liabilities of the scheme, other than the liabilities to pay pensions and benefits, after the end of the accounting period;include a report by the auditor in writing as to whether or not in his opinion the requirements of paragraphs (a) and (b) above are satisfied; andare prepared in respect of a period ending with the relevant time of the valuation; “relevant time” for the purposes of section 179 of the Act, means the date in relation to which the assets and liabilities of the eligible scheme are calculated.

• “restoration order” has the meaning given by section 52 of the Act (restoration orders where transactions at an undervalue);

• “restricted information” has the meaning given in section 197 of the Act (restricted information);

• “section 143 determination” means a determination by the Board under section 143(2)(a) of the Act;

• “section 143 valuation” means an actuarial valuation under that section of the Act;

• “section 152 determination” means a determination by the Board for the purposes of section 152(2B) of the Act;

• “section 152(9) valuation” means a valuation obtained under section 152(9) of the Act;

• “section 152(10A) valuation” means a valuation under section 152(10A) of the Act;

• “section 158 determination” means a determination by the Board under section 158(3)(a) of the Act;

• “section 158 valuation” means a valuation obtained under section 158(3)(b) of the Act;

• “section 179 valuation” means an actuarial valuation under that section of the Act;

• “section 75 debt” means so much of the amount treated by section 75 of the Pensions Act 1995 (deficiencies in the assets) as a debt due from the employer to the trustees or managers at the applicable time.

• “segregated scheme” means a multi-employer scheme which is divided into two or more sections where—any contributions payable to the scheme by an employer in relation to the scheme or by a member are allocated to that employer’s or that member’s section; anda specified proportion of the assets of the scheme is attributable to each section of the scheme and cannot be used for the purposes of any other section;

Provision of actuarial valuation to determine scheme underfunding

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• (1) The trustees or managers of an eligible scheme shall provide the Board or the Regulator on the Board’s behalf with its first section 179 valuation—

• (a) in the case of an eligible scheme which is a registrable scheme prior to 6th April 2007—

• (i) within 15 months of the relevant time of that valuation; or

• (ii) by no later than 31st March 2008,

whichever is the earlier;

• (b) in the case of an eligible scheme which becomes a registrable scheme on or after 6th April 2007, within 15 months of the effective date of the first actuarial valuation obtained by them under section 224 of the Act (actuarial valuations and reports).

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

• (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (4) The relevant time of any subsequent section 179 valuation must not exceed a period of three years beginning immediately after the relevant time of the previous valuation provided to the Board or the Regulator on the Board's behalf.

• (5) Any subsequent section 179 valuation shall be provided to the Board or the Regulator on the Board's behalf within 15 months of the relevant time of that valuation.

Excluded assets

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There shall be excluded from the value of the eligible scheme's assets—

• (a) in the case of a section 143 determination or section 143 valuation, any amounts treated as a debt due to the trustees or managers which are unlikely to be recouped without disproportionate cost or unlikely to be recovered within a reasonable time; and

• (b) in the case of a section 179 valuation—

• (i) any amounts treated as a debt due to the trustees or managers under section 75 of the Pensions Act 1995 (deficiencies in the assets);

• (ii) any amounts treated as debt under section 228(3) of the Act (failure to make payments);

• (iii) any resources invested (or treated as invested) in contravention of section 40 of the Pensions Act 1995 (restriction on employer-related investments); and

• (iv) any amounts treated as a debt due to the trustees or managers which are unlikely to be recouped without disproportionate cost or unlikely to be recovered within a reasonable time.

• (c) in the case of either a section 143 determination or section 143 or section 179 valuation, an amount in respect of the value of any pre-6th April 1997 contract of insurance if—

• (i) the trustees or managers have taken all reasonable steps to obtain information concerning that contract of insurance (whether by searching the records of the scheme or otherwise); and

• (ii) the information that they provide concerning that contract of insurance is insufficient, in the opinion of the appropriate person, to conduct a valuation.

Contribution notices, financial support directions and restoration orders

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Subject to regulation 7(3) and (4), the prescribed requirement for any amount due under a contribution notice, financial support direction or restoration order to be regarded as an asset of the scheme is that the notice, direction or order was issued by the Regulator prior to the date that the determination is made or the valuation is approved.

Valuation of assets

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Subject to regulations 3 and 7, in determining the value of the assets of a scheme for the purposes of obtaining a section 143 valuation or a section 179 valuation, the appropriate person shall adopt the value given of the assets of the scheme stated in the relevant accounts... and that value shall be taken to be the value of those assets at the relevant time.

Valuation of protected liabilities

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• (1) Subject to regulation 7, in the case of protected liabilities the value of a protected liability shall be—

• (a) for a section 143 determination or section 143 valuation, the estimated cost of securing scheme benefits calculated in accordance with Schedule 7 to the Act (pension compensation provisions) to the member by means of an annuity purchased at the best value rate available in the market as estimated by the Board at the relevant time;

• (b) for a section 179 valuation, the estimated cost of securing scheme benefits in accordance with any guidance issued by the Board in accordance with section 179(4) of the Act, for the member by means of an annuity purchased at the best value rate available in the market as estimated by the Board at the relevant time.

• (2) Where regulation 3(c) applies, the amount representing the value of a protected liability in respect of the benefits secured by a pre-6th April 1997 contract of insurance shall be excluded from the valuation of the eligible scheme’s protected liabilities.

Alternative valuation of assets and protected liabilities in specific cases

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• (1) For the purposes of a section 143 determination or a section 143 or section 179 valuation, where arrangements are being made by the eligible scheme for the transfer to or from it, of accrued rights and any pension credit rights, until such time as the trustees or managers of the scheme to which the transfer is being made (“the receiving scheme”) have received assets of the full amount agreed by them as consideration for the transfer, it shall be assumed—

• (a) that the rights have not been transferred; and

• (b) that any assets transferred in respect of the transfer of those rights are assets of the scheme making the transfer and not of the receiving scheme.

• (2) For the purposes of a section 143 determination or a section 143 or section 179 valuation, in the case of a contract of insurance, the value shall be—

• (a) the value of the liability secured where the contract of insurance falls within the definition of a relevant contract of insurance in section 161(8) of the Act (effect of Board assuming responsibility for a scheme); or where this is not the case either—

• (b) the surrender value of the contract of insurance; or

• (c) where it appears to the appropriate person that the surrender value of the contract of insurance does not accurately reflect the actual value at the relevant time; then he shall adopt such a value as appears to him to be appropriate.

• (3) In the case of an asset to which regulation 4 applies, the appropriate person shall adopt as the value of the asset, the amount due to the scheme given in the notice, direction or order.

• (4) For the purposes of ...—

• (a) a section 143 determination or a section 143 valuation, where the appropriate person, in accordance with guidance issued by the Board in accordance with the statement issued by the Board under section 143(5C) of the Act or section 143(6) of the Act, holds the opinion that any section 75 debt falling due to the eligible scheme will be recouped in the future then he shall treat the proportion of the section 75 debt that he believes will be recovered as an asset of the scheme;

• (b) a section 143 determination or a section 143 valuation, where any section 75 debt is recouped between the relevant time and the date the determination is made under section 143(2)(a) of the Act or the date the valuation is approved under section 144(2) of the Act (approval of valuation), then the amount so recouped—

• (i) shall be treated as an asset of the scheme; and

• (ii) the section 143 determination or section 143 valuation shall be adjusted accordingly;

• (c) a section 143 determination or a section 143 valuation, where an amount is due under a contribution notice, a financial support direction or a restoration order, and

• (i) either none of the amount due or only a proportion of the amount due has been recouped; and

• (ii) the appropriate person, in accordance with a statement issued by the Board under section 143(5C) of the Act or any guidance issued by the Board in accordance with section 143(6) or section 179(4) of the Act as appropriate, holds the opinion that some or all of the payments due in relation to the notice or direction will not be recouped by the scheme; then

the appropriate person shall adjust the value of the asset contained in the notice or direction to the value recouped by the trustees or managers of the eligible scheme during the pre-approval period.

• (d) a section 143 valuation, if the appropriate person—

• (i) has been given notice; or

• (ii) holds the opinion;

that the value of any asset set out in the relevant accounts, that is not excluded from the actuarial valuation, is substantially different at the relevant time from that set out in the relevant accounts, then he shall adjust the value of the asset to the market value of the asset at the relevant time; or

• (e) a section 143 valuation, where the appropriate person—

• (i) has been given notice; or

• (ii) holds the opinion

in accordance with any Board guidance issued in accordance with section 143(6) of the Act , that there exists an asset of the scheme which is not listed in the relevant accounts, and which is not excluded from the actuarial valuation, then he shall adopt such a value for the asset as he considers is appropriate.

• (5) The appropriate person shall not make an adjustment to the value of an interest in real property unless the adjustment reflects a more recent valuation given by a chartered surveyor in accordance with any relevant practice statements and guidance notes issued by the Royal Institution of Chartered Surveyors current on the date that the valuation is signed.

Application of these regulations to multi-employer schemes

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In these regulations, in the case of a scheme which is a multi-employer scheme for the purposes of the Pension Protection Fund (Multi-employer Schemes) (Modification) Regulations 2005, where these regulations apply to a section or a segregated part of a scheme, which is for the purposes of Part 2 of the Act, an eligible scheme, for “eligible scheme” and “scheme” substitute “ section or segregated part of a scheme ”.

Form and content of section 143 valuation and notice

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