New DWP Regulations (SI 2005/72) laid this week apply where a scheme commences wind-up on or after 15 February 2005 and extend the buy-out basis for calculation of the debt on the sponsoring employer to insolvent as well as solvent employers. Up to now, the lower MFR basis has applied to insolvent employers. Solvent employers who choose to wind up a DB scheme have been liable for the full buy-out basis since 15 March 2004.

The buy-out basis will also apply where an employer participating in an ongoing multi-employer scheme experiences an insolvency event and the debt calculation is done on or after 15 February 2005. An employer which otherwise ceases to participate will for the time being continue to suffer only the lower MFR debt, although separate regs under s.75 PA 95 (inserted by s.272 PA 2004) are expected soon to toughen this to the buy-out level.

The new Regs also require trustees of a DB scheme in wind-up to accompany any transfer value quotation with a statement, telling the member that the value of their guaranteed cash equivalent may be affected by the wind-up, to think carefully and to consider taking independent financial advice before deciding to go ahead with the transfer.