The Pensions Regulator

Contingent assets

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What are contingent assets?

16. Contingent assets are assets on which a claim by the pension scheme would exist on the occurrence of one or more specified future events ('the contingent event') such as an employer insolvency or the failure to achieve a specified funding level. In other circumstances they are not available to the trustees to meet members' benefit payments. In particular, until the contingent event occurs, they cannot be included as scheme assets for the purpose of assessing whether a scheme meets its statutory funding objective (ie that assets are sufficient to cover technical provisions).
17. However, the term 'contingent assets' as used in this guidance means more than just the asset itself. It is used as a label to include the agreement covering the events or circumstances when a contingent asset would become available to the scheme.
18. Contingent assets may take a number of basic forms. They may be classified according to (i) the type of asset involved; and (ii) whether or not the party currently owning the asset is connected to the scheme sponsor.

    Under (i):

    • some may provide for cash to be paid to the scheme if the contingent event occurs;
    • some may provide for property, in the form of land and/or buildings, to be passed to the scheme if the contingent event occurs; or
    • some may provide for other types of asset to be passed to the scheme if the contingent event occurs.

    Under (ii):

    • the contingent asset may be provided by a third party such as a bank (eg letter of credit);
    • the contingent asset may be provided by a sponsoring employer (eg a property owned by the sponsoring employer); or
    • the contingent asset may be provided by a company associated with the sponsoring employer (eg a parent company guarantee).
19. Before accepting contingent assets as part of a scheme's funding strategy, the trustees should consider whether their inclusion is appropriate in the scheme's particular circumstances. However, trustees should start from the position that cash in the scheme will usually be preferable.

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