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16.0 Introduction

This section provides a basic outline of:

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trust documents and statutory priorities

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deficits and surpluses and buying out benefits

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the basic role of the Statutory Independent Trustee

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closed and frozen schemes

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making amendments and duty to consult, and

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powers of The Pensions Regulator.


Comment

Guidance on winding up

The process of winding up a pension scheme involves confirming liabilities, settling benefits, dealing with authorities (particularly if the scheme has been contracted-out at any time), communicating with members (which may involve tracing members via the DWP) and then working towards dissolving the trust. The end process is usually the confirmation of the settlement of members’ benefits (or pension accounts), the closing audit and the trustees resolving that they are discharged of their responsibilities under the trust.

The largest number of specific requirements apply in respect of Defined Benefits schemes, where calculations have to be performed to divide up a pooled fund and secure benefits in accordance with the rules. For Defined Contribution schemes the division of assets is usually more straightforward, being essentially giving effect to funds already allocated in respect of individual members. If a scheme has both Defined Benefit and Defined Contribution sections held under the same trust, it is important to ensure that the Defined Contribution funds are ring-fenced from the Defined Benefit section, so that in the event of the funding of the Defined Benefit liabilities falling short, members’ Defined Contribution funds cannot be utilised towards plugging that deficit.

The Pensions Regulator has issued guidance Winding up. This outlines suggestions for ‘good practice’ enabling the key areas of scheme management to be completed ‘as soon as reasonably possible and certainly within two years’ [see 16.1.3(Note) for the key areas].

Return of funds to employer

Trust monies are not normally available to the creditors of any insolvent participating employer during winding up. The opportunity to return monies to participating employers will be governed by the wording of the trust deed and rules after the statutory requirements have been fulfilled. If the deed is silent on this issue (or, indeed, on any issue), an application to the court might be necessary for a determination. Alternatively, consideration could be given to resorting to the scheme’s standard practices to resolve issues, subject, of course, to the scheme’s lawyer confirming the action to be taken.

Statutory Independent Trustee

Where, in a Defined Benefit scheme, winding up is triggered by the insolvency of the company (rather than being the consequence of other reasons), The Pensions Regulator has powers to appoint the Statutory Independent Trustee [see 4.6.3]. A claim on the Pension Protection Fund (PPF) might also be a possibility in such cases, though insolvent as well as solvent employers are required to be responsible for the full buy-out costs of the liabilities of the scheme on winding up.

Guidance via e-learning

For trustees with little or no experience of winding up a scheme (most trustees in practice), the Regulator has produced an e-learning module on its Trustee Toolkit covering the winding-up process for both DC and DB schemes.

The Pensions Ombudsman has also set out some general principles to be observed by trustees when acting in the members’ best interest [see 16.1.2].

Some tips

  (i) 

Read your rules carefully when it comes to winding up.

  (ii) 

Always seek advice before taking any action on winding up.

  (iii) 

Go about things in the right order. Start by drawing up an action list. Get the list confirmed as being a legally safe approach. Attempt to put a timescale on the work needing to be done. Don’t forget the involvement of statutory and regulatory bodies when mapping out the time plan.

  (iv) 

Keep members informed during the winding-up process. Tell them about the treatment of their benefits, the timescale for settlement and any other changes being made, e.g. appointment of new trustees, etc.

  (v) 

Minute all trustee decisions without fail.

  (vi) 

Keep control of progress. The Pensions Regulator will become involved if winding up is delayed. It has powers to speed up the winding-up process of schemes and expects reports from schemes in winding up. [See 16.4]

  (vii) 

Where trustees fail to review their investment policy in the light of the changing circumstances of their scheme (becoming paid up, membership changes, etc.), the Regulator will regard this as a serious matter.

  (viii) 

The potential complexities in this area make legal advice essential in most cases.













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