The new definition of "money purchase benefit" came into force on 24 July. As outlined in my recent article, this has minimal impact in relation to past actions, but some schemes will have to change how they treat certain benefits going forward.
One area where schemes may have to take action is in relation to the annual valuation for Pension Protection Fund (PPF) purposes (generally referred to as the s179 valuation). Schemes affected are those eligible for the PPF which have previously treated benefits which now fall outside the money purchase definition as money purchase benefits (this will include internal annuities and any DC benefits with some form of guaranteed return) and thus excluded them from s179 valuations.
The PPF has power to require out-of-cycle valuations and has issued a statement confirming how it intends to proceed. It has confirmed that affected schemes are only required to produce an out-of-cycle valuation if the new treatment of benefits causes a decrease in surplus or increase in deficit that is more than 10 per cent in relative terms and more than £5m in absolute terms. These must be submitted by 30 March 2015 (unless the relevant s179 valuation already takes the new definition into account).
The PPF has issued new valuation guidance which includes clarification on how the "new" benefits should be valued. The PPF will be writing to all eligible schemes to explain their new policy. Schemes affected by the change in money purchase definition should take actuarial advice to establish whether this will have a material affect on their s179 valuation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
