The DWP is consulting until 23 December 2003 on proposals for implementing the EU Occupational Pensions Directive. As we noted in our previous article, two of the main options for discretionary exercise by Member States are

1. the choice as to whether specified articles of the Directive should apply to life offices' occupational retirement provision business (Article 4); and
2. the extent to which the Directive should apply to pension schemes with fewer than 100 members (Article 5).

The Government sees no need to exercise the first option, as the distortion of competition between pension schemes and insurance companies that Article 4 is intended to avoid is not considered to be a problem in the UK context. Neither does the Government imagine that life offices themselves would see any benefits to be gained, but welcomes views either way.

The Government is less certain about the other option (to exempt from the scope of the Directive schemes with fewer than 100 members, ie the vast majority of UK occupational pension schemes). This is partly because it is unclear whether it is possible to exempt only some types of scheme with fewer than 100 members, or whether the exemption's operation requires that all schemes under 100 members must be exempted. As the additional compliance issues which would result from not exercising the option would impact on the already overburdened Opra, as well as acting as one more deterrent to UK occupational scheme provision, it seems prima facie that this option surely should be exercised.

The other main issue to be grappled with is Article 16 (funding of technical provisions), which requires schemes to have "at all times", "sufficient and appropriate" assets to cover its technical provisions (taken to be the actuarial value of the accrued liabilities of the scheme based on the actuary’s assumptions on matters such as future investment returns, future wage growth and life expectancy).

The Government had intended under scheme-specific funding to require full actuarial valuations to be carried out at least every three years. In order to comply with the Directive, the Government now proposes to require full actuarial valuations every year. However, schemes would be allowed to do such a valuation every three years, where they send scheme members in the intervening years a report reflecting the adjusted development of the amount of the accrued liabilities of the scheme and changes in the risks covered since the most recent full valuation. The Government intends that this report should be combined with the annual funding statement required under the second paragraph of Article 11(4)(d).