So far, I have concentrated on various aspects of discrimination within pensions, including discrimination on the grounds of sex, sexuality and age. Now I intend to move on to the protection offered to members of final-salary schemes and the possible implications of winding up such schemes. The background to this thorny issue lies in a number of high profile and very disturbing scheme wind-ups including, notably, the Maxwell Group, ASW and a variety of other companies which, although not in financial difficulty, chose to wind up their underfunded final-salary pension schemes. In the Maxwell case, the employer (who was also to all intents and purposes the pension scheme trustee) used a large proportion of the pension fund to shore up the company’s ailing finances to the great distress of scheme members. In the case of ASW, a steelworks in Wales, the company went into liquidation (with no suggestion, to the best of my knowledge, of any fraudulent dealings or intent) and could not therefore meet its obligations to rectify a serious underfunding in the pension scheme. All the scheme members subsequently received only a small fraction of the value of the benefits they had been promised. A significant number of companies have in recent years decided to wind up their underfunded final-salary pension schemes, with no liability on the solvent employer – subject to relatively undemanding actuarial requirements – to ensure all members’ promised benefits can be secured. In all these cases, existing pensioners (those already drawing their benefits) have tended to suffer less than active scheme members (those still in the company’s employment at the time of the wind-up) and deferred members (those with preserved pensions who left employment some time before the date of wind-up). Some of the members in the latter two categories finished up with virtually nothing from their scheme. As a quick but very important example of the implications of these issues, being an active and passionate adviser on the advantages and disadvantages of pension transfers, I have ensured that deferred final-salary members are made aware that, although at risk of investment performance if they transfer their benefits to a money-purchase scheme, they could be at risk of a pension scheme wind-up if they leave their benefits with their former employer’s scheme. Regulators have rightly urged us not to overstate the possibility of this risk but I have for a long time feared advising a deferred member not to transfer benefits and then discovering that some or even most of those benefits have been lost during a scheme wind-up. The detrimental implications of final-salary wind-ups for scheme members have long been understood by Governments, leading eventually to the current situation which, as I will outline and discuss, although by no means perfect for scheme members, is much improved. The issues can be divided into four categories:Funding requirements for pension schemes.Transfers of undertakings, where employees and, in effect, their pension rights, are transferred from one employer to another.The priorities of various cat-egories of member on a pension scheme wind-up.The forthcoming Pension Protection Fund. First, on funding requirements, it has historically been a requirement that a final-salary scheme’s assets must be sufficient to meet the value of all the benefits promised to members. Fairly simple and obvious, one might think, but a core assumption in the actuarial calculation and confirmation of this requirement has been that the employer will continue trading with the same turnover of staff as has previously been the case. Furthermore, the required fund has been calculated on the basis that the scheme remains in force on the same basis and using other consistent assumptions. Fundamentally, this traditional method of funding thereby assumes that young employees will continue to be recruited to the scheme with relatively very low funding levels which, in effect, subsidise the very expensive cost of providing additional accrued benefits for older employees – the circle of life for pension schemes. But what happens where an employer reduces its manpower? If the flow of young blood ceases but existing employees continue to accrue benefits, the circle of life comes to an end. The funding level of the scheme rises as the average age of members increases, meaning that a greater fund is required to meet the cost even of the benefits which have been previously promised, let alone those which accrue thereafter, unless the scheme is closed. Thus, even if a scheme is apparently and even technically fully funded on established actuarial grounds, it can become underfunded if the flow of young employees is not maintained or if the scheme closes to new members (same effect) or to further accruals (again, the same effect) or, indeed, if the scheme is wound up. This misery is compounded if any of these events happens at a time when the scheme is suffering poor investment returns or the cost of the scheme benefits is increasing, for example, due to falling interest rates or increasing life expectancy. The forthcoming Pensions Act replaces the minimum funding requirement basis of calculating a scheme’s required level of funding with a statutory funding objective, which aims to address some of the concerns I have outlined above. In essence, the SFO requires a greater level of input from trustees into the actuarial assumptions which must be used in calculating the funding level for their own scheme. The trustees must adhere to regulations and actuarial guidance but, in particular, must take into account the particular circumstances of the individual scheme, in contrast to the MFR approach which tended to use a more broad approach to assumptions which might have been appropriate to final-salary schemes generally. As an example, variations in funding levels from one scheme to another might under SFO principles be caused by different investment strategies or trends in employment levels. Overall, the SFO introduces what is therefore known as scheme-specific funding levels. It should be noted that this part of the Pensions Act only provides the basic principles and framework within which the SFO will operate, leaving detailed regulations to be issued. These are anticipated towards the end of the year but I am informed that it is expected that these will lead to increased funding levels for many schemes, perhaps providing even greater impetus for even more final-salary scheme closures. The problem for employers wanting to close schemes is that closure by definition means an ageing scheme membership in future years. Under scheme-specific SFO principles, this leads to a much higher level of required funding. Similar implications apply to scheme wind-ups. Thus,employers are caught between the proverbial devil and the deep blue sea. Add to all this last year’s changes to actuarial guidance note GN9 on funding defined benefits, which I will outline in my next article, and we can start to observe some of the issues which should be discussed with members or invitees of final-salary schemes. Perhaps even more obviously, these issues have a huge impact on the advice which should be given to deferred members of these schemes who are considering transferring the value of their preserved benefits. I will bring all these considerations more into focus in my next article, in which I will link scheme funding requirements with the other issues that I have listed above.