The Pensions Regulator

The Pensions Regulator prompts debate on scheme abandonment

Ref: PN06-40
14 December 2006

• Concerns over pension scheme abandonment prompts discussion paper
• Regulator begins debate on ways to manage defined benefit scheme risk
• Draft guidance to help trustees consider such proposals also published

Industry debate about corporate deals which may lead employers to abandon their pension schemes was prompted today (Thursday) by the Pensions Regulator following the concerns it raised in October.

After proposals which seek to sever the link between employers and their defined benefit pension schemes were brought to its attention, the regulator has now issued a discussion paper, alongside draft guidance, to help trustees identify such proposals and consider their implications.

Chief executive Tony Hobman said: “We recognise that the definition of abandonment may not be clear cut in every case. That is why we believe guidance is needed. It will help trustees identify transactions that may result in abandonment, and guide them on the factors to assess when reviewing the merits of the transaction for scheme members.”

In its paper, the regulator has invited the industry and other interested parties to respond to key areas it has identified.

Hobman added: “Our position remains that, in most situations, the best means of delivering pension scheme members' benefits is for the scheme to have the continued support of an employer of substance which is capable of meeting the scheme liabilities.

“We encourage early discussion between those involved in any potential abandonment case and ourselves to identify whether abandonment is involved and what should be done to scrutinise the proposals.”

The deadline for responses to the discussion paper is 9 February 2007.

Editor's notes

1. The Pensions Regulator is keen to see innovative thinking being applied to the way pension schemes manage their funds so as to reduce risks to members and the sponsoring employer. It is aware that some market participants are considering products designed to do this and looks forward to seeing these ideas being put forward.
2. However, the regulator has become aware of proposed corporate transactions involving pension schemes where the primary intent behind the transaction is for the employer to abandon the pension scheme without paying the s75 debt. These transactions would transfer pension schemes to new vehicles involving a nominal sponsoring employer and effectively leave the scheme without the support of a substantive ongoing employer.
   
3. Comments on the discussion paper should be emailed to: DBpaper@thepensionsregulator.gov.uk by 9 February 2007.
4. The regulator will critically assess any such abandonment arrangements that come to our attention and review such cases in light of its powers.
5. The Pensions Regulator is the regulator of work-based pensions in the UK, with wide-ranging and flexible powers under the Pensions Act 2004.
6. The Pensions Regulator’s powers include the ability to:
   • collect detailed scheme information;
   • issue improvement notices and third party notices, enabling the regulator to ensure problems are put right;
   • freeze a scheme that is at risk while the regulator investigates;
   • prohibit trustees who are judged not fit and proper to carry out their duties; and
   • issue a contribution notice or financial support direction.
7. The Pensions Act 2004 also imposes a statutory obligation on 'whistleblowers' to report suspected breaches of the legislation to the regulator.