A surplus arising in a UK pension plan probably seems less likely than England winning the cricket world cup!  However, trustees of UK pension plans need to take action now if they wish to preserve the ability to repay surplus to the plan’s employers if and when such a surplus arises in the future.  If trustees fail to take action, the ability to make payments to an employer will be lost forever.

Section 251 of the Pensions Act 2004 provides that no payment can be made out of the funds of a pension plan unless the trustees pass a resolution under section 251.  As originally drafted, the resolution needed to be passed by trustees no later than 6 April 2011.  In response to industry pressure, section 251 was amended so that trustees were given a longer period in which to pass the necessary resolution.  The deadline is now 6 April 2016.  Failure to pass the resolution by this date will mean that no funds can be paid to the employers of the pension plan.  This could have implications for the administration of the plan, the willingness of an employer to fund the plan if it thinks that any surplus may become trapped and may impact on a company’s pension accounting numbers.

If trustees wish to retain the power to make payments to the plan’s employers then they will need to start taking action now due to the procedural requirements of section 251.  Trustees should:

  • Review their files to check whether they previously passed a resolution under section 251 – if so, no further action is required;
  • If no resolution has previously been passed, 3 months’ written notice must be given to all members and employers of the trustees’ intention to pass a resolution under section 251 and, once the notice period is expired, the trustees can then pass the resolution.

Whilst the deadline of 5 April 2016 may seem a long time away, it will come around very quickly particularly when the 3 month notice period and quarterly meetings are factored in.  Trustees should therefore take immediate steps to ensure that they don’t lose their ability to make payments to employers.  This should also be added to the trustees’ annual business plan.  Similarly, employers should check/engage with their plan trustees to ensure that a section 251 has or will be passed in advance of the deadline.