Xerox Final Salary Pension Scheme is planning a resolution allowing it to continue to make repayments to its sponsor, but legal experts are split on whether such a move is necessary or will even be effective.
The scheme’s trustees have decided to pass a resolution under section 251 of the Pensions Act 2004, in order to preserve powers to make payments to the employer in circumstances such as a wind-up, and to reimburse administrative expenses.
There is currently no power in the scheme’s rules to pay a surplus to the employer while the scheme is ongoing, according to its August newsletter.
Legal experts have said that even though the Pensions Act 2011 clarified some of the limits of these resolutions, such a move could fireproof schemes’ repayment powers and help them negotiate funding.
Under section 251 of the 2004 act, trustees were prevented from repaying surpluses to employers unless they passed a resolution by April 5 2011.
We still advise trustees and employers to pass a section 251 resolution to make sure that no power under the rules to pay surplus to the employer is lost
Stephen Richard, Allen & Overy
However there was a lack of clarity among trustees and employers over whether this applied to repayments made in circumstances other than when a scheme is ongoing, such as on a winding-up basis or for reimbursing administration expenses.
Mark Howard, partner at Clyde & Co, said: “You could say this catches anything, including administration payments or reimbursement to the employer due to a member’s fraud or negligence, and whenever that payment is made.”
The government sought to clarify the scope of the legislation via the Pensions Act 2011 and extended the deadline for trustees pass a resolution to April 6 2016.
This amended section 251 and stated it only applies to schemes to which section 37 of the Pensions Act 1995 also applies – this latter section related only to when a scheme is not winding up.
Rosalind Connor, partner at Taylor Wessing, said since the extension to the deadline to pass a resolution, it had not been a “necessary concern” for trustees.
“The reason you see it less now is because it is expected that it doesn’t cover things like employer loans and expenses [so] it’s a much harder thing for trustees to agree on,” she said.
But Stephen Richards, senior associate at Allen & Overy, said: “Even though the 2011 act has made it clear that section 251 does not apply to certain payments, we still advise trustees and employers to pass a section 251 resolution to make sure that no power under the rules to pay surplus to the employer is lost.”
He added such a resolution could help schemes in funding discussions. “You might find employers say to trustees, ‘We’re only going to pay the contributions if we know that if it turns out if we have put too much money in… then we can get some of that money back’.”
