The Pensions Regulator

AbandonmentAbandonment of defined benefit pension schemes

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Technical provisions

51. In general, a scheme’s technical provisions and any recovery plan should reflect the covenant of the employer. If the covenant changes as a result of any proposed transaction, trustees should review the adequacy of both the technical provisions and the recovery plan.
52. It is expected that there will be a significant change in covenant as a result of any abandonment arrangement. Trustees should ascertain, as far as they can, any potential change to the technical provisions taking account of the change in covenant. They should consider this in the light of the form and type of mitigation being offered as part of the arrangement.
53. Trustees should ensure that a situation does not arise where it would not be possible for the scheme to meet its technical provisions using any reasonable recovery plan, given the covenant of the replacement employer.
54. Following on from this, trustees should be critical of any claim, that if the scheme does not have a deficit on an accounting basis (namely Financial Reporting Standard 17 or International Accounting Standard 19), then the abandonment will not be financially detrimental to the scheme.
55. Trustees are reminded that our current clearance guidance states in paragraph 53:

    "Where there are reasonable doubts that the employer will continue as a going concern, where the scheme is in wind-up, or the event may result in scheme abandonment, then the s75 basis applies."

56. If, following any abandonment arrangement, the required technical provisions and the covenant of the employer are such that no recovery plan that would meet the appropriate technical provisions is affordable to the new employer, then the arrangement will be detrimental to the security of members’ benefits. Trustees should ensure that any mitigation and structure of the scheme going forward prevents such a situation from arising.
57. Similarly, trustees should also consider the costs of paying the Pension
    Protection Fund levy. Where possible, they should try to assess the likely effect of the arrangement on the levy, and satisfy themselves that the scheme will have adequate funds or funding to meet this outcome.

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