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Pension Scheme Failure or Rescue?

Date: 8th November, 2006   |   Author: Chris Laughton   |   Comments: 1

Filing s120 (Pensions Act 2004) notices with the Pension Protection Fund is now commonplace for insolvency practitioners. Where there is a defined benefit scheme, most go on to report scheme failure - or occasionally rescue. But what if there is no liability, perhaps because despite the employer's insolvency the scheme was exceedingly well funded (unlikely), or perhaps there was a compromise agreement for which The Pensions Regulator gave clearance?

There is something of a gap in the law, which appears to have been drafted on the assumption that all schemes have net liabilities. The problem is in regulation 9 of The Pension Protection Fund (Entry Rules) Regulation 2005.

In the examples given above where there is no liability, the company has not been rescued as a going concern and no other person has assumed responsibility for the employer liabilities, so on the face of regulation 9(1)(a) the IP has no duty to issue a rescue notice. On the other hand, because no-one has assumed or will assume responsibility for the employer liabilities, regulation 9(2)(a) suggests a duty to issue a failure notice.

Common sense says that to push a scheme with a net surplus into a PPF assessment period by submitting a failure notice must be wrong, given the restrictions that will be applied to scheme members' benefits during the assessment period. And is anyone going to challenge the IP who takes this view?

Probably not, especially as I gather the PPF doesn't see that sort of challenge as its role. But why should the IP be left having to interpret legislation liberally to overcome its deficiencies?

 

Discussion and Comments

By Vernon Holgate on Monday 4th February, 2008

Interesting point but I am not sure that the intention within the legislation was anything other than to create the need to enter the assessment period; irrespective of the scheme’s funding.  Increasingly schemes will in fact be funded to above section 143 levels and ‘exit’ the PPF at the end of the assessment period.  One of the early tasks, upon entry to the assessment period, is for the trustees to consider this issue of funding levels.  It will impact on a number of aspects of the scheme during the wind up.  Where the trustees are satisfied that PPF benefits are too low they can seek dispensation to pay higher benefits.  Personally I have never tried this to the point of conclusion but I suspect that a case can be made (supported by actuarial advice and lock-in on the investments).  To have to restrict benefits in a fully funded scheme would, as you point out, be perverse.

 

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