Pensions A-Z
Pensions A-Z is a collection of insights to help you further increase your awareness of pensions law.
Search the Pensions A-Z by selecting the first letter of your topic:
Winding-up: Initial steps for trustees
Closed scheme?
Once it has been identified that a winding-up trigger has occurred, a key issue will be whether the scheme is to be run as a closed scheme (whether pursuant to a power in the particular scheme rules or under section 38 of the Pensions Act 1995 which applies in certain limited circumstances prescribed by the legislation).
If a winding-up is to occur, the following issues will need to be addressed:
Will the amendment power survive?
Given that winding-up can often be complex and protracted, before a decision to wind-up a scheme is made, legal advice should be taken as to whether the scheme’s amendment power will survive the winding-up. If it will not, or if there is room for doubt, the position should be clarified by amending the scheme’s winding-up provisions to make it clear that the amendment power survives. This can help to ensure that legitimate steps in the winding-up are not hampered by the inability to amend the scheme once winding-up has commenced.
Taking and recording the decision to wind-up
If the Scheme is going to be wound-up rather than run as a closed scheme, the trustees must ensure that the decision to wind-up is properly taken and formally recorded.
The trustees must keep a written record of the determination to wind-up the scheme which specifies:
- the names of the persons making the determination; and
- the date on which the determination is made.
Statute also requires a written record of a decision as to the time from which steps for the purposes of the winding-up are to be taken (including a note of the date on which the first of those steps is taken).
Actuarial and investment issues
It is crucial for trustees to take actuarial and investment advice at the commencement of winding-up in order to ascertain what the scheme’s assets and liabilities are and to ensure, as far as possible, that they are matched. The scheme’s Statement of Investment Principles should be reviewed in accordance with section 35(5) of the Pensions Act 1995 as part of this consideration.
Failure by trustees of a defined benefit scheme to review their investment policy when a scheme begins to wind-up is a “red” reporting scenario under the Code of Practice: “Reporting breaches of the law” introduced by the Pensions Regulator.
Disclosure requirements
Once the decision to wind-up the scheme has been taken and recorded, the trustees must notify members:
- that they have commenced winding-up the scheme;
- give the reasons why;
- state the name and address of a person to whom further enquiries about the scheme should be sent.
That notification must be made as soon as practicable and in any event within one month of commencement of the winding-up. There are also additional requirements under the Disclosure Regulations such as informing active members whether death in service cover continues and notifying members and beneficiaries of what action is being taken to establish the scheme’s liabilities and to recover any assets.
Other issues
In an insolvent employer wind-up, any issue of member contributions deducted by the employer but not remitted to the scheme will need to be investigated and, where possible, a claim made for recovery of those contributions to the extent possible from the Redundancy Payments Service.
A detailed project timetable identifying the responsibility and timeframe for each step in the winding-up will also need to be produced.