Minimum funding requirement
Encyclopedia
The Minimum Funding Requirement (MFR) was a part of United Kingdom
legislation
in the Pensions Act 1995
, and was introduced on 6 April 1997. The Pensions Act 2004
abolishes the MFR replaces it with new "statutory funding objective"; this came into force on 30 December 2005 for all pension schemes with a valuation date after September 22, 2005.
The aim of the Minimum Funding Requirement was to set a minimum amount of assets that a defined benefit pension scheme should hold in order to fund its promised benefits. If a scheme did not hold sufficient assets, the pension scheme was required to achieve the minimum level within a given time scale.
For a scheme with less than 90% of the assets required, the scheme had to pay the shortfall below 90% within three years. Where the scheme was between 90% and 100%, the period was ten years.
Although legislation set out the broad requirements of the Minimum Funding Requirement, the details of the methods and assumptions to use were specified in Guidance Note 27, issued by the Institute of Actuaries
and the Faculty of Actuaries
.
After the introduction of the Minimum Funding Requirement, there were several modifications to the assumptions to cope with perceived weaknesses in the original basis. However, the level of assets required by the MFR never proved sufficient to provide the benefits promised by the scheme which the MFR was supposed to fund. The Pensions Act 2004
abolished the MFR and introduced a new scheme funding objective hoped to adapt more flexibly to individual schemes' circumstances but at the same time protecting members' benefits.
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
legislation
Legislation
Legislation is law which has been promulgated by a legislature or other governing body, or the process of making it...
in the Pensions Act 1995
Pensions Act 1995
The Pensions Act 1995 is a piece of United Kingdom legislation to improve the running of pension schemes.-Background:Following the death of Robert Maxwell it became clear that he had embezzled a large amount of money from the pension fund of Mirror Group Newspapers...
, and was introduced on 6 April 1997. The Pensions Act 2004
Pensions Act 2004
The Pensions Act 2004 is an Act of the Parliament of the United Kingdom to improve the running of pension schemes.-Background:In the years following the introduction of the Pensions Act 1995, it was widely perceived that it was failing to offer the protection to pension scheme members that had...
abolishes the MFR replaces it with new "statutory funding objective"; this came into force on 30 December 2005 for all pension schemes with a valuation date after September 22, 2005.
The aim of the Minimum Funding Requirement was to set a minimum amount of assets that a defined benefit pension scheme should hold in order to fund its promised benefits. If a scheme did not hold sufficient assets, the pension scheme was required to achieve the minimum level within a given time scale.
For a scheme with less than 90% of the assets required, the scheme had to pay the shortfall below 90% within three years. Where the scheme was between 90% and 100%, the period was ten years.
Although legislation set out the broad requirements of the Minimum Funding Requirement, the details of the methods and assumptions to use were specified in Guidance Note 27, issued by the Institute of Actuaries
Institute of Actuaries
The Institute of Actuaries was one of the two professional which represented actuaries in the United Kingdom . The Institute was based in England, while the other body, the Faculty of Actuaries, was based in Scotland...
and the Faculty of Actuaries
Faculty of Actuaries
The Faculty of Actuaries in Scotland was the professional body representing actuaries in Scotland. The Faculty of Actuaries was one of two actuarial bodies in the UK, the other was the Institute of Actuaries, which was a separate body in England, Wales and Northern Ireland...
.
After the introduction of the Minimum Funding Requirement, there were several modifications to the assumptions to cope with perceived weaknesses in the original basis. However, the level of assets required by the MFR never proved sufficient to provide the benefits promised by the scheme which the MFR was supposed to fund. The Pensions Act 2004
Pensions Act 2004
The Pensions Act 2004 is an Act of the Parliament of the United Kingdom to improve the running of pension schemes.-Background:In the years following the introduction of the Pensions Act 1995, it was widely perceived that it was failing to offer the protection to pension scheme members that had...
abolished the MFR and introduced a new scheme funding objective hoped to adapt more flexibly to individual schemes' circumstances but at the same time protecting members' benefits.