Winding up or transferring a defined contribution scheme
Stage 2: Prepare to start formal wind up
Once the decision has been taken to wind up, the second stage of the winding up process is preparing to formally trigger wind up under the scheme governing documentation.
The following activities are recommended during this phase.
Create a project plan
Prepare and agree a project plan with the key parties involved in the process, such as the employer, and any external administrators or advisers. The project plan should set out anticipated steps, timings and costs.
Check the scheme governing documentation
Ensure that you have reviewed the scheme governing documentation relating to winding up. See Review the scheme governing documentation in stage 1 for more details.
Legal requirements specific to the winding up process only start once wind up has been formally triggered. Therefore, once wind up starts, it is unlikely that changes could be made to the scheme governing documentation. You may therefore want to take legal advice about whether any amendment to the scheme governing documentation is necessary before the wind up starts – for example, to allow amendments during the wind up.
Check what will happen to benefits or benefit accrual on winding up
Find out how benefits will be affected by the wind up for example, if contributions will automatically stop, or if death in service benefits stop being payable.
Prepare to transfer members’ benefits
You will need to ensure that scheme data is up to date (see the ‘guidance on improving data’ section in stage 1), that no employer contributions are owing and that the provisions and benefits of your scheme are understood. You will also need to review whether the scheme governing documentation permits the trustees to offer members options for transferring benefits. If not, you may wish to consider whether it would be helpful (or possible) to amend the scheme governing documentation to permit this.
Check whether trustee exoneration or indemnity protections will remain in place after wind up is completed
If existing trustee protections end, you will want to consider whether any additional protections will be needed once wind up is completed. However, if a power to purchase indemnity insurance is not explicitly mentioned in the scheme governing documentation, you should seek legal advice before paying any insurance premiums from scheme assets. You may also wish to take legal advice on how best to ensure you are fully discharged from your responsibilities to members (whether under legislation or otherwise) on wind up.
Consider extending the scheme's accounting year
A scheme’s accounting year can be extended to up to 18 months when the scheme goes into wind up. Trustees might want to consider this if – assuming deadlines are managed properly under their project plan – it would mean that that only one set of accounts would need to be prepared to complete winding up.
Check the terms of office for member-nominated trustees or non-affiliated trustees
If member-nominated trustees (MNTs) or non-affiliated trustees are coming to the end of their term, you may wish to consider amending the scheme governing documentation to allow them to remain in place until winding up is completed. However, in the case of non-affiliated trustees, this will only be possible if they will not exceed the maximum term permitted by legislation.