Siemens issues resolution to prevent trapped surplus

'Trapped surplus' describes when contributions made to a pension scheme in surplus cannot be withdrawn again by the employer, despite not being needed by the scheme.

Employers often turn to asset-backed contributions or escrow accounts to fund schemes while ensuring contributions can be recovered.

Paul Waight, pension manager at Siemens UK, issued a letter to members of the Siemens Benefits Scheme in late December last year, announcing it would pass a resolution due to come into effect from April 5 2016.

The resolution can be issued under section 251 of the Pensions Act 2004, which states that “no payment to the employer may be made out of funds held for the purposes of the scheme except by virtue of a resolution of the trustees under this section”.

In a subsequent clarification note to the letter, a spokesperson said the trustees were passing the resolution because “if one is not passed before April 6 2016, because of a change in the law, the power to make a payment to the Siemens employers… would fall away”.

The powers allow the trustees to make payments to the scheme sponsors in certain circumstances, such as when the scheme is being wound up or is so well funded it more than covers all member benefits.

The note adds that this is not expected to be the case soon: “Currently, neither of these scenarios apply to the scheme and neither are expected to apply in the near future.”

Rush to consult with members

Steve Delo, chief executive of professional trustee company Pan Trustees, said schemes issuing resolutions was “not a big deal”.

“Quite a few schemes are doing this at the moment,” he said. “It has to be announced to members.”

Lesley Browning, partner at law firm Norton Rose Fulbright, said the original deadline for resolutions of April 2011 was delayed by the Department for Work and Pensions until April this year following confusion over the scope of section 251.

She said schemes have to start a consultation before the deadline approaches: “The reason there’s a rush [now] is before you enter the resolution you need to consult with members.”

However, in practice asset-backed contributions are more commonly used to prevent trapped surplus, as Browning said they are more tax efficient than section 251 resolutions, which are taxed.

She added that passing the resolutions was essentially a way of schemes “keeping their options open… the whole point is trying not to lose the opportunity”.