The Pensions Regulator

Joint winding up approach published

Ref: PN08-05
3 March 2008

Pension scheme trustees should ensure that the key activities of winding up, or passage through the PPF assessment period, are completed within no more than two years.

This expectation is set out in a joint consultation paper issued today by the Pensions Regulator, Pension Protection Fund, and Department for Work and Pensions. The approach aims to speed up the winding up process, providing earlier certainty for scheme members about the benefits they will receive, including members of schemes which have qualified for the Financial Assistance Scheme.

It also aims to ensure scheme assets are maximised and levy payments reduced by not incurring the costs of a lengthy wind up or passage through the PPF assessment period.

Today's joint statement sets out the three organisations' respective expectations, including how we will provide support and when and how we will intervene. Expectations are that:

• schemes already winding up should complete at least the key activities as soon as possible and certainly within two years from the date of the statement;
• schemes entering wind up in the future should complete at least the key activities within two years;
• schemes qualifying for FAS should be in a position to transfer all residual assets and membership data as soon as legislation is passed, and certainly within two years; and
• schemes in a PPF assessment period should put in place necessary arrangements to ensure swift passage through assessment, which is likely to last for a minimum of one year, and all tasks should be completed within the following twelve months.

Minister for Pensions Reform Mike O'Brien said:

"When an occupational pension scheme closes it's obviously deeply worrying for the members of that scheme. What they need in such circumstances is certainty rather than the anxiety of undue delays.
 
"It's reasonable to expect a pension scheme to complete the key activities of wind-up within two years. If the process drags on without good reason the regulator may intervene. The regulator's approach is to educate and enable in the first instance – but with the option of sanctions if required.
 
"Although the FAS has a mechanism for making interim payments while a pension scheme is still winding up, trustees do not always take up such options – sometimes for legitimate reasons. So it's important that wind-up is completed as quickly as possible to make sure people can start receiving the money they're entitled to.

"The Government is working hard to get improved assistance to people eligible for the FAS and we will continue to work closely with the regulator to ensure schemes are wound up as soon as possible."

Pensions Regulator chief executive Tony Hobman said: "We are working closely with PPF and DWP to ensure consistency in this new regulatory approach and reinforce the importance of good scheme governance both before and during wind up. We recognise that trustees will need support during this process, and have also today published draft guidance which aims to help parties through some of the issues they may encounter.

"We believe there are only limited exceptions to meeting the two year timeframe. We will use our powers where appropriate, including issuing directions where we consider there have been unreasonable delays, or appointing trustees to schemes."

PPF chief executive Partha Dasgupta said: "Our own record for shepherding schemes through the PPF assessment period over the past three years has shown that the two-year target for completing the assessment period is more than achievable. All schemes that have transferred to the PPF so far have done so within agreed timescales. We now look forward to continuing to work closely with DWP, the regulator and stakeholders to improve this process and make it as effective and efficient as possible."

Editor's notes

1. The joint statement has been produced by the Pensions Regulator, Pension Protection Fund and Department for Work and Pensions in respect of the Financial Assistance Scheme. This aligned approach aims to ensure consistency between the three organisations and maximise regulatory impact.
2. The Pensions Regulator has today published for consultation draft good practice guidance, which also applies to schemes qualifying for the FAS. This was produced following input from industry specialists, administrators and insurers on complex areas that can delay the wind up process and on which they would find guidance helpful. The PPF is currently developing good practice guidance specifically for schemes in a PPF assessment period which will be published in due course.
3. The Pensions Regulator's free e-learning http://www.trusteetoolkit.com/ will provide a suite of additional winding up modules giving information on the activities involved during the wind up process. A module on winding up a DB scheme with a solvent employer is already available, with further modules on winding up a DB scheme with an insolvent employer, and winding up a DC scheme, currently being developed.
4. We welcome responses to the consultation on the joint statement and the regulator's guidance, which should be submitted by April 15 to guidance@thepensionsregulator.gov.uk. Both documents may be viewed on the regulator's website.
5. Enforcement in relation to schemes winding up will be through the use of existing statutory powers, those that are the most likely to be used in this context are listed below.
   The Pensions Regulator can:
   • issue directions, for example where parties are failing to take all reasonable steps to wind up a scheme (the regulator expects this to be the principal means of enforcement against schemes which do not complete the key activities of winding up within two years);
   • remove or appoint trustees where necessary;
   • publish information, for example a decision by the Determinations Panel; and
   • take action against schemes which fail to provide the regulator with registrable information about starting or completing wind up.
   The PPF can:
   • issue directions, for example in respect of the investment of the scheme's assets, incurring expenditure, the instigation or conduct of legal proceedings; and
   • require relevant information to be provided.
6. The joint statement follows a DWP review on the winding up of DB schemes under which two-year timeframes were proposed. A report setting out the proposals was published by DWP in November 2006.
7. The Pensions Regulator is the regulator of work-based pensions in the UK, with wide-ranging and flexible powers under the Pensions Act 2004.