Posted by Roger Burtenshaw on 03 November 2000 at 16:20:27:
I asked OPAS to confirm/deny my understanding that an employer could not take a contribution holiday without improving retiree benefits first. My understanding was clearly wrong in detail.
However. Paragraph 2 is interesting.
If it can be shown that IBM took back money from the C Plan, in order to pass it to the M Plan.
Then:-
1. The trustees/company could only do this if the surplus was greater than the limits laid down in legislation.
2. The trustees were required to increase pension by the lower of RPI / 5% first. This would of course apply to all years from 1997 onwards.
Dear Mr Burtenshaw
Thank you for your e~mail of the 16th October 2000.
I note that you have read somewhere that before a company providing an occupational pension scheme can take a contribution holiday it must increase the benefits to scheme members by 5%. Unfortunately, this is not true, any company operating an occupational pension scheme that has a surplus can reduce the surplus by taking a contribution holiday, and this can be done without offering any improvement to scheme benefits, provided the decision is based on advice given by the scheme actuary.
I think what you are referring to is in a situation where the company pension scheme has a substantial surplus and in order to reduce the surplus to limits laid down in legislation, a refund of the surplus can be paid to the employer. In such circumstances, this can only be done, if all pensions in payment are increased with effect ftom 5th April1997 by 5% or the increase in the retail prices index if lower. The Pensions Act 1995, the main provisions of which came into force on 6th April 1997 lay down the procedure that the scheme must follow if such a refund is to be paid to the employer.
I hope that this is helpful to you.
Yours sincerely
Muriel Sime (Mrs) Assistant Technical Specialist