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 United Kingdom (UK), officially the United Kingdom of Great Britain and Northern Ireland, is a sovereign country located off the north-western coast of the European mainland. The United Kingdom includes the island of Great Britain, the north-eastern part of the island of Ireland, and many smaller islands. Northern Ireland is the only part of the United Kingdom that shares a land border with another sovereign state, the Republic of Ireland. Apart from this land border, the United Kingdom is surrounded by the Atlantic Ocean, with the North Sea to the east, the English Channel to the south and the Celtic Sea to the south-west, giving it the 12th-longest coastline in the world. The Irish Sea lies between Great Britain and Ireland. With an area of 242,500 square kilometres (93,600 sq mi), the United Kingdom is the 78th-largest sovereign state in the world. It is also the 22nd-most populous country, with an estimated 66.0 million inhabitants in 2017.
Legislation is law which has been promulgated by a legislature or other governing body or the process of making it. Before an item of legislation becomes law it may be known as a bill, and may be broadly referred to as "legislation", while it remains under consideration to distinguish it from other business. Legislation can have many purposes: to regulate, to authorize, to outlaw, to provide (funds), to sanction, to grant, to declare or to restrict. It may be contrasted with a non-legislative act which is adopted by an executive or administrative body under the authority of a legislative act or for implementing a legislative act.
The Pensions Act 1995 is a piece of United Kingdom legislation to improve the running of pension schemes.
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.
The Institute of Actuaries was one of the two professional bodies 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. While the Institute and Faculty of Actuaries were separate institutions, they worked very closely together, and their professional qualifications and actuarial standards were identical. On 25 May 2010, voting members of the Institute who took part in a ballot voted to merge the Institute with the Faculty, thus creating the Institute and Faculty of Actuaries, which came into being on 1 August 2010. The Institute of Actuaries ceased to exist on that date.
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. While the Faculty of Actuaries and the Institute of Actuaries were separate institutions, they worked very closely together, and the professional qualifications and professional standards for actuaries were identical in each of them. On 25 May 2010, voting members of the Faculty who took part in a ballot voted to merge the Faculty with the Institute of Actuaries, thus creating the Institute and Faculty of Actuaries which came into being on 1 August 2010, superseding the Institute of Actuaries which ceased to exist on that date.
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. Paul Myners report states on page 4: "I propose replacing the Minimum Funding Requirement, which distorts investment and fails to protect scheme members, with a long-term approach based on disclosure and openness instead of an artificial uniform yardstick."
The Pensions Act 2004 is an Act of the Parliament of the United Kingdom to improve the running of pension schemes.
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