Section 50 of the Pensions Act originally allowed the Pensions Board to direct the trustees of an underfunded scheme to reduce active members’ benefits to such an extent that the assets of the scheme would be sufficient to meet the reduced liabilities.

Recent amendments to this section mean that the Board can now also direct reductions in relation to both deferred members’ benefits and post retirement increases where, in the opinion of the scheme actuary, this is required in order for the scheme to meet the funding standard. The timing as to when a scheme must meet the funding standard following a direction by the Board depends on the circumstances in which the application is made.

The Board can direct trustees to reduce benefits in four circumstances:

• where an Actuarial Funding Certificate (AFC) has not been prepared within the statutory deadline;
• where there is a negative AFC, but no funding proposal has been submitted;
• where there is a negative AFC, and the trustees submit a funding proposal; and
• where the Board consents to the amendment of the scheme in accordance with Section 50A.

In practice, the Pensions Board has rarely put section 50 into use, and it remains to be seen whether there will be an increase in applications to the Board following the recent amendments.

As well as the changes to section 50, a new section 50A has been added which allows trustees, with the consent of the Pensions Board, to make such amendments to the terms of their scheme as they consider appropriate where they are ensuring that the wind up of the scheme will not be required by reason of the scheme having insufficient funds. As it would be quite unusual for a Trust Deed to provide that a wind up of a scheme is triggered where there are insufficient funds, it is thought that this section is likely to be of limited application.

The Pension Board has stated that as the reduction of benefits under section 50/50A has serious consequences for scheme members, it will only consent to an application under either section where it is satisfied that the proposed future operation of the scheme is robust enough to make any further application unlikely. The Board has also indicated that it will insist that scheme trustees obtain legal advice with regard to any proposed benefit changes, and that it will place a strong emphasis on member communication throughout any benefit reduction process.