UK Insurance News

Who will be responsible for winding up a pension scheme, and how they will go about doing this, will be largely determined by the circumstances under which the employer decides they can no longer contribute to a pension scheme.

If a company is unwilling or unable to continue making contributions to a scheme because it cannot afford the contributions or because a merger has taken place and budgeting changes, the regular trustees will most likely be the ones to deal with the long process of winding up. However, if a company has become insolvent, more often than not independent trustees will be appointed, alongside the regular trustees. This is because under insolvency law, the insolvency practitioner in charge of dealing with a company’s administration must inform the Pensions Regulator where there is a scheme to be wound up.

The Pensions Regulator appoints independent trustees (usually companies, rather than individuals) to take care of all discretionary matters, alongside the original trustees of the scheme who will no longer make discretionary or judgement calls, but only assist with the smooth administration of the pension scheme as it is wound up. The trustees will be independent if they have no ties with the company, and no vested interest as to who the final pay outs of the trust are made to.

Trustees wind up a pension scheme by investigating how the investments and assets of the scheme have been managed, in order to determine what will become available to the beneficiaries of the trust (such as the employees of a pension scheme). Having assessed the situation, the trustees will move to ‘realise the value’ of trust property by selling off remaining property, and maintaining the profits throughout the winding up process by investing them. Investments made during this time will low risk, in order that no further losses are incurred.

The most recognisable part of all this will be the final pay outs of the pension scheme to members, in line with whatever rules were established to govern what beneficiaries receive when the trust was set up. It is the trustees’ duty to follow these rules as closely as they can, however difficult the circumstances and whatever the value of the assets remaining. In practice this will often mean that a priority order is followed, whereby members are paid in turn based on what kind of voluntary contributions they made or how they participated in the scheme.

It is worth noting however that further payments may be available notwithstanding the specific trust constitution, which the trustees can take into account under statute. These payments are made by the Pension Protection Fund to compensate and protect employees who contributed to pension schemes which eventually fail. This is particularly important in cases where a scheme was underfunded up until insolvency. Contributions to ill health pensions and survivors’ pensions for example are protected up to certain limited percentages of the policy’s value.