You are here:

• home
• services
• pensions
• winding up

Winding up

Overview

Winding up a pension scheme is a complex and often lengthy process. Once it has been decided to wind-up a scheme, there are a number of issues that need to be addressed, including:

• communicating with members
• assessing the scheme's funding position and whether it is eligible to enter the PPF
• recovering any debt that is due from the employer
• ensuring that benefits for men and women have been equalised correctly
• determining the order in which members' benefits should be secured (if the scheme is underfunded) and securing those benefits
• resolving any outstanding disputes, and
• ensuring that the trustees are appropriately discharged from the scheme.

How we can help

We have advised trustees and employers in connection with the winding-up of a large number of pension schemes. Therefore, we have extensive experience of handling scheme wind-ups and in advising on the often complex legal issues which they can give rise to (including PPF eligibility). We also have hands-on experience through our independent trustee company, Bridge Trustees Limited, which has been appointed to act in a number of wind-up situations.

Employer Debt

The challenge for employers and trustees

An employer whose scheme is winding up is required to pay a debt (commonly known as a 'section 75 debt') to the scheme on the demand of the trustees or on the occurrence of an insolvency event in respect of the employer (whichever occurs first). The debt will be equal to the amount of any deficit in the scheme calculated on a buy-out basis, which can be very expensive.

Therefore, before a scheme starts to wind up the employer and the trustees should seek legal advice to determine when any debt will be payable and to understand their respective rights and obligations. Trustees will also need to seek legal advice, where the employer is insolvent, on enforcing the debt, on any proposals to rescue the company and on the scheme's eligibility to enter the PPF.

How we can help

Our pensions team has advised a number of employers and trustees on the circumstances in which a section 75 debt will be payable and on their respective legal rights and duties. Working alongside our corporate recovery team we have also been involved in a number of successful corporate rescue situations. We have also advised a number of schemes which are eligible to enter the PPF or where the members are entitled to receive compensation from the financial assistance scheme.

The Pension Protection Fund

The challenge for trustees

The Pension Protection Fund (PPF) is a statutory body that pays compensation to members of eligible schemes where the employer is insolvent and the scheme has insufficient assets to pay benefits equivalent to those that would be provided by the PPF.

Before the Board of the PPF accepts responsibility for a scheme, the scheme will enter into an assessment period, during which the Board will assess the eligibility of the scheme. The management of the scheme is restricted during this period.

Trustees of a scheme with an insolvent employer should seek legal advice regarding the eligibility of the scheme to enter the PPF and (if appropriate) they will need ongoing legal advice throughout the assessment process.

How we can help

We have guided the trustees of a number of schemes through the PPF assessment process. We work with the trustees to ensure that they understand the process and their legal duties and to ensure that the PPF receives the technical legal information that it needs about the scheme. We can also help ensure that members are fully informed about what is happening to their benefits.