The Pensions Regulator

AbandonmentAbandonment of defined benefit pension schemes

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Recognising arrangements that could result in abandonment

10. There are a number of ways in which an arrangement can be structured so that the end result is the abandonment of the pension scheme by the existing employers. Consequently, whether an arrangement will result in abandonment is best judged by reviewing the substance of the likely outcome for the scheme of any arrangement, rather than just the form or legal structure of the arrangement. In particular, mechanisms that could result in abandonment may be the same as those that would otherwise be considered normal commercial transactions, and trustees should be aware of this.
11. If the full amount necessary to insure affected members' benefits with a regulated insurer for the whole scheme (or affected section of the scheme) is paid up as part of any arrangement, or if the regulator has approved a withdrawal agreement, then the arrangement cannot be viewed as abandonment. It would be viewed, instead, as a settlement of the employer's obligations to the scheme, as paying such a debt should allow the scheme (or the relevant part of the scheme) to be bought out with a regulated insurer.
12. If the full amount necessary to insure affected members' benefits with a regulated insurer for the whole scheme (or affected section of the scheme) has not been paid up as part of any arrangement, or if the regulator has not approved a withdrawal arrangement, then trustees are expected to consider the substance of the outcome of any proposed arrangement to determine whether it may result in abandonment. This applies whether the arrangement relates to the scheme as a whole, a section of the scheme, or a portion of the membership of the scheme.
13. In particular, it is the substance of the employer sponsoring the scheme (or affected part of the scheme or membership) pre and post the arrangement that is important. If, as a result of the arrangement, an employer of substance is replaced by an employer currently not of substance, even if it could recover to one of substance (without any sum referable to the potential or actual section 75 debt of the scheme or the affected section of the scheme being paid), then the arrangement could result in abandonment of the pension scheme.
14. A nominal employer can be an employer whose principal activity directly relates to the pension scheme (for example, the administration of scheme benefits or management of scheme assets) or it could be an employer that has little or no value as a business, excluding the pension scheme. Where the employer does have some value, but the covenant is substantially weakened, this could be considered similar to abandonment.
15. If, following the above guidelines, trustees believe that any proposed arrangement could result in abandonment, or if they are unsure as to whether a proposed arrangement could result in abandonment, they are encouraged to follow our guidance when considering the merits of the arrangement and any mitigation offered to the scheme.

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