Section 251 of the Pensions Act 2004 (Section 251) restricts payments of funding surplus to participating employers from pension schemes to which it applies. These pension schemes may not make such payments unless a resolution in the required form has been passed by the pension scheme's trustees. If the trustees decide to pass such a resolution (which they are not obliged to do), it must be passed before 6 April 2011; otherwise, the ability to make such payments will be lost completely.

Broadly, section 251 applies to pension schemes which were established before 6 April 2006 and immediately before that date:

Subject to the passing of a resolution, section 251 states that "no payment" may be made to participating employers from these pension schemes. A common sense interpretation of this restriction is that it only applies to payments of funding surplus to participating employers whilst the scheme is on-going. However, section 251 could be interpreted literally as restricting any payment to participating employers from the pension scheme. This literal interpretation could result in the restrictions applying to the payment of surplus on a winding-up or other amounts owed to the participating employers by the pension scheme.

Written notice of the proposal to pass the resolution must be provided to the pension scheme's members and participating employers at least three months before the resolution's effective date. Therefore, the latest date for giving notice is 5 January 2011. Trustees and participating employers should review their pension scheme's rules to establish whether they include provisions which are affected by section 251. If so, consideration should be given as to whether a resolution to maintain the status quo should be passed.