The Pensions Regulator

AbandonmentAbandonment of defined benefit pension schemes

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The mechanism by which the link to the current employer covenant is reduced or removed

25. Trustees should do the following:
    • Establish whether the mechanism crystallises a s75 debt. If a debt is crystallised the trustees' negotiating position may be significantly strengthened.
    • Understand whose debt has been crystallised and why this has happened, just as they had to establish who is responsible for making up funding shortfalls before obtaining the first actuarial valuation under part 3 of the Pensions Act 2004, as was set out in paragraph 24 of the Code of practice: Funding defined benefits.
    • Appraise the ability of all the employers involved in the arrangement to pay any debt which may fall due from them. If trustees are asked to agree to a reapportionment of any actual or contingent debt, they should carefully consider the value of the debt that is being reapportioned and the impact that any request for them to agree to a reapportionment has on their negotiating position.
    • Check whether past employers are truly past employers and that they paid their debt when they left.
    • Consider, where a s75 debt crystallises, the issue of whether the transaction results in a compromise and whether the transaction will have any effect on eligibility for entry into the Pension Protection Fund.
    • Consider the interaction of the proposed arrangement with the scheme's governing documents, and whether trustees' agreement to the arrangement is required. If their agreement is not required then trustees may wish to consider other powers they have which may improve their negotiating position, for example wind-up powers, powers to request a new funding valuation and investment powers.

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