The Pensions Regulator

AbandonmentAbandonment of defined benefit pension schemes

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Factors trustees should not treat as primary benefits of abandonment

70. There are a number of factors that parties to the deal may present to the trustees of the scheme as reasons to agree to any proposed abandonment arrangement.
71. Trustees should be wary of treating certain factors as primary arguments for agreeing to any proposed abandonment arrangement.
72. In deciding whether any factor is a primary argument for allowing an abandonment arrangement, trustees should determine whether they would be able to achieve the proposed benefit of this factor without breaking the link with the current employer. If the scheme could access the benefit outlined without breaking the link with the employer, then trustees may not wish to give great weight to that particular benefit in reaching any decision.
73. Examples of factors that trustees should be wary of treating as primary reasons for agreeing to abandonment include the following:
    • Access to improved investment management. The new employer group may offer promises of access to better and newer asset management techniques that improve management of risk and promise better asset returns. It is likely that trustees will still be able to negotiate access to alternate investment managers and investment products if they do not break the link with the employer. In all cases, trustees should fulfil their trust duties in relation to investment at all times.
    • Access to improved scheme administration. The new employer group may offer access to improved administration of the pension scheme, for example through record cleaning, use of more up-to-date information technology, or introducing economies of scale to reduce costs. While some administration providers may not make pure administration services available to a scheme as a free-standing service, it is likely that trustees could come to a commercial agreement with a provider without breaking the link to the employer.
    • Access to more knowledgeable and experienced advisers. The advisers to the trustees should act in the best interests of their clients at all times. It is unlikely that an un-conflicted adviser will only offer to provide services to the trustees if they allow the abandonment as a precondition to providing this service.
    • Increased or earlier payment of contributions from the current employer. The current employer may propose increasing or making anearly payment of agreed employer contributions. Whether this is afactor that trustees should take into account depends on how thecurrent employer is now able to make the additional funding availableto the scheme. Trustees should determine whether the additionalfunding is new money that would otherwise not be available to thescheme.

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