Latest Blog - Pension Risks in a Trading Administration

I’ve worked with the insolvency market now for 19 years (yes, I’m that old!) and until recently I had only ever been out onsite to distressed businesses on 3 separate occasions. However, in recent weeks I have doubled that number and I therefore posed the question why?

The immediate answer is that the risks associated with pension schemes have now risen especially when an Insolvency Practitioner takes the decision to trade a business for a certain period of time. I would therefore like to share with you some of the associated risks that I stumbled across to demonstrate the value of having pension expertise onsite next time you are in a trading Administration situation:

1. Pension contributions – The Pensions Minister Amber Rudd has recently pledged to go after Employers that act irresponsibly with pension scheme contributions and their investment. Administrators must collect pension contributions in a timely manner, pay them over to the pension provider, and allocate them correctly to members pension funds by 22^nd of the following month. Administrators will also need to know how the members pension contributions are invested and offer less risky investments, particularly if the current investment policy is considered “too high risk.”
2. Re-enrolment – Every 3 years on the anniversary of the company’s Staging Date, for Auto Enrolment purposes, the Administrators (if in office at this stage) would need to re-enrol eligible employees back into the pension scheme and deal with any opt outs. The Administrators would need to complete an online Declaration of Compliance to the Pensions Regulator to avoid any potential fines.
3. Statutory Pension Increases – From April 2019 pension contribution levels increase from 3% employee and 2% employer currently to 5% employee and 3% employer. Administrators need to be mindful of the failure to pay the right level of pension contribution when they become due, because overlooking this increase could result in financial penalties against them.
4. Pension scheme audit – Certainly on one of my site visits the intention of the Administrators was to sell all or part of the business. In order to do this any interested purchasers needed to be aware of any potential pension scheme issues. Therefore, a pension scheme audit was crucial in this scenario.
5. Employee benefits – The Administrators need to ensure that employee benefits such as Group Life Assurance, Group Income Protection, Private Medical Insurance etc remain in place for employees and that premiums are being paid or have been paid to provide the right amount of cover. Should anything happen to employees whilst the company was in Administration and such cover had ceased then the Administrators would be liable. 
6. Auto Enrolment Providers – You need to know who the Auto Enrolment provider is! We dealt with NEST on one of these trading Administrations who upon receipt of the s120 notice started to close the pension scheme down as they see Administration as game over! To make matters worse they also wrote to all pension members advising of the company insolvency! We realised very quickly what NEST were doing and several complaints later we managed to save the pension account from being closed completely. Had the pension account been closed then we would have missed the 22^nd deadline for paying over pension contributions and risked receiving fines from the Pensions Regulator.

The above list is not exhaustive and there were other pension matters that we needed to consider. The key value of being onsite was ensuring that our client (the Administrators) were kept compliant. By obtaining all of the necessary pension scheme data on day one, we were able to complete our investigation for each scheme, and undertake any further tasks, in a much more efficient timescale, resulting in less member queries.

Should you have any upcoming or ongoing trading Administrations where any of the above might be an issue then please get in touch, we would be happy to help.