Hidden Pension Scheme Dangers in an Insolvency or MVL
by Cameron Conway | March 24, 2016
Occupational Pension Schemes present hidden dangers in an Insolvency or Members Voluntary Liquidation.
The recent changes to dividend taxation have meant that insolvency practitioners have been handling many more MVLs, so IPs need to be aware of the hidden dangers of Occupational Pension Schemes.
Statutory Obligations of Pension Trustees
Trustees of occupational Trust Based pension schemes with more than one member have a statutory obligation to register their pension scheme with the Pensions Regulator. This register can then be accessed by an Insolvency Practitioner when looking to submit an s120 notice online at ppf-forms.org.uk
Pension schemes such as Defined Benefit (DB) schemes or Hybrid schemes following an insolvency event enter Pension Protection Fund assessment if the sponsoring employer was the sole employer supporting that pension scheme. However, this is not the case for multi-employer pension schemes or schemes with a sponsoring employer that goes through a solvent Liquidation known as an MVL.
If a multi-employer pension scheme is found in an MVL, then the Liquidator and shareholders need to be mindful that the appointment of a Liquidator triggers an exit debt on the employer, in line with s75 of the Pensions Act 1995, and presents the Trustees with an opportunity to produce an s75 certificate (which becomes binding). Section 75 debts are often quite sizeable, as the pension scheme debt is calculated on the most expensive basis (buying out benefits with an Insurance Company) not the ongoing valuation (often witnessed in company accounts).
Pension Regulator Turning Attention to Defined Contribution Schemes
We have become familiar with the strict regulatory control of DB schemes by the Pensions Regulator (tPR), but Insolvency Practitioners (IPs) need to be aware that tPR is now turning its attention to Defined Contribution (DC) schemes, and in particular DC Governance. Since April 2015 DC Schemes are required by law to appoint a Chairman and produce an Annual Statement covering issues such as the range of investments, investment funds review, the default fund strategy, processes and transactions with running the Scheme, Trustee Knowledge and Understanding, etc.
The overall aim of DC Governance is to ensure that Trustees are providing best value for the pension scheme members. Trustees are expected to complete an online annual Scheme Return confirming the appointed Chairman and detailing the actions taken to comply with DC Governance. Failure by the Trustees to comply with this requirement can result in fines from tPR ranging from £500 to £2,000.
Increased Risks for Insolvency Practitioners
On occasion IPs will find themselves acting as an Employer Trustee by virtue of their insolvency appointment, which will present an immediate conflict of interest between creditors and pension scheme members. With the emergence of Auto Enrolment, DC Governance and the growing number of occupational pension schemes, IPs are now exposed to far greater reputational risk and fines from tPR resulting from pension schemes found in an insolvency or MVL. It is therefore of paramount importance that IPs have robust processes and checklists in place to identify pension schemes at a very early stage.
Clumber Consultancy have recently launched a Pensions & Insolvency Compliance Service to help IPs meet their obligations to occupational pension schemes. For further details, please click here or contact Darren Toms on01623 821549 for a no obligation quote.