Continuity option 1 (discharge liabilities and wind up)

CDC code in force: 31 July 2026

Continuity option 1 is for the scheme’s liabilities to be discharged and for the scheme to be wound up.
We are more likely to be satisfied where the continuity strategy shows trustees have considered each continuity option and addresses how members’ interests will be protected during a triggering event period.

Ways to discharge liabilities

The ways that a scheme can settle liabilities to members when it closes are set out in section 36 of the Pension Schemes Act 2021 (continuity option 1: discharge of liabilities and winding up). These include:
1. transferring the value of benefits to an occupational pension scheme
2. transferring the value of a member’s pension to a flexible retirement account (called a flexi-access drawdown fund), which lets the member take money out as income when they choose
3. transferring the value of the pension to a dependant’s flexible retirement account (a flexi-access drawdown fund), so the dependant can take income from it
4. transferring the value of the pension to a nominee’s flexible retirement account, allowing the nominee to take income from it
5. transferring the value of the pension to a successor’s flexible retirement account, so the successor can withdraw income from it
Schemes can settle liabilities to each member by buying one or more insurance policies from Financial Conduct Authority (FCA) authorised insurers. These policies will then be used to pay the member’s benefits. This is referred to as an ‘alternative payment mechanism’ in section 36(2)(c) of the Pensions Act 2004.

Key issues to consider

This is not a comprehensive list of every issue, but we are more likely to be satisfied that the continuity strategy is adequate if it addresses the following considerations.

When choosing continuity option 1

When choosing continuity option 1, include details of how the trustees would¹:
1. consider the interests of active, deferred, pensioner and beneficiary members when identifying suitable options for discharging liabilities
2. assess and decide on the relevant factors when selecting the default discharge option(s)² by transferring the value of the beneficiaries’ accrued rights to benefits under the scheme to one or more alternative arrangements
3. carry out due diligence checks (such as consulting professional advisors) before choosing an alternative arrangement
4. secure benefits for members already receiving a periodic income³
The strategy should include details of scheme rules on how continuity option 1 is given effect⁴, specifically:
1. the time when winding up is formally triggered⁵
2. how the value of available assets will be determined
3. how the realisable value of accrued rights to benefits will be quantified during wind-up, noting that the rules for valuing accrued benefits must be applied to all members without variation⁶
4. how the amount or rate of periodic income payable during wind-up is to be calculated and adjusted⁷

Actions from wind-up to start date

The strategy should contain a plan on how the trustees would implement the following actions from the winding-up start date⁸. The actions include:
1. stopping admission of new members
2. ceasing receipt of contributions by or on behalf of members
3. dealing with late payments and transfers into the scheme9
4. stopping, interrupting or delaying the payment of benefits, including transfer payments
5. discharging trustee liability in connection with pension sharing orders and short service refunds10
6. an assessment of any activities that can’t be carried out in house and would require external contractors

Quantifying value

The strategy should include details of how the trustees will quantify the realisable value of each beneficiary's accrued rights, on an actuarial basis. This should be done in accordance with regulations and scheme rules and:
1. within 28 days of commencing wind-up (initial estimate)
2. within six months of the date we notified the trustees that the implementation strategy was approved
3. no less than one month before the proposed discharge date (final estimate)
4. immediately before discharge, with any final figure reduced to reflect any periodic income paid in winding-up period (final quantification)

Periodic income during wind-up

The strategy should include a plan for how the trustees will provide periodic income to pensioner beneficiaries during the wind-up period¹¹ from the wind-up commencement date, until initial quantification of accrued rights has taken place.
This should include how the trustees will provide a periodic income to pensioner beneficiaries in place of any pension they were in receipt of before wind-up commenced.
Periodic income during this period must fall on the same day and be an equivalent amount to pension received before wind-up started and remain in place until the value of rights has been initially quantified.
After initial quantification of accrued rights, trustees should show:
1. how the trustees will provide periodic income to pensioner beneficiaries, following the quantification of accrued rights on an initial estimate basis (after any adjustments), and as revised by subsequent winding-up quantifications
2. the principles the trustees will use to prepare beneficiaries for the transition from the periodic income paid during wind-up and the benefits to be secured through one of the permitted discharge options
3. a summary of the trustees’ approach to making decisions and dealing with investments during wind-up, including identification of assets that may be transferred in specie, or will need divestment
4. applicable timescales – for example, when disinvesting, and whether there is a need to manage any specific conditions under the terms of contracts with investment providers
5. a summary of costs and how these will be met, including disinvesting, exit fees, early redemption penalties, or costs for advice
6. a summary of assumptions used for any estimated figures provided

Data cleansing

In respect of data cleansing and member tracing¹², the strategy should show the approach to identifying and rectifying any data issues, including how they will conduct tracing member exercises, an estimate of costs and how they will meet them.

Investments

When dealing with investments¹³, the following should be included in the strategy:
1. A summary of the trustees’ approach to making decisions and dealing with investments during wind-up, including identification of assets that may be transferred in specie, or will need divestment.
2. Applicable timescales, for example, when disinvesting, and whether there is a need to manage any specific conditions under the terms of contracts with investment providers.
3. A summary of costs and how these will be met, including disinvesting, exit fees, early redemption penalties, or costs for advice.
4. A summary of assumptions used for any estimated figures provided¹⁴.

Transfers

In respect of transfers the strategy should show¹⁵:
1. how the trustees would securely transfer the value of beneficiaries’ accrued rights to benefits to a receiving scheme or alternative discharge option, including:
  1. a summary of any checks or approvals before the transfer takes place
  2. a summary of timelines and costs, and how they will meet those costs
2. how the trustees would securely transfer beneficiaries’ personal data, including details of any quality controls and checks to ensure the integrity of data on transfer

Communication strategy

The strategy should include details of communication plans. In particular, how trustees would communicate with employers, beneficiaries and TPR, including:
1. the information to be provided
2. how the trustees will assess whether their communications are understood
3. stages at which communications will take place
4. how trustees will deal with members communicating with them
5. a timetable for how the trustees will ensure statutory notices¹⁶ are sent to employers and beneficiaries
6. estimates of the costs of communication and how they will be met
7. strategies for communicating with us, which should include the types of communications, owners and timescales

Legal references

¹ Section 36 of the Pension Schemes Act 2021

² Section 36(2) of the Pension Schemes Act 2021 and Paragraph 2 of Schedule 6 to the 2022 and 2025 Regulations

³ Paragraph 7 of Schedule 6 of the 2022 Regulations

⁴ Paragraph 3 of Schedule 6 to the 2022 and 2025 Regulations

⁵ Paragraph 4 of Schedule 6 to the 2022 and 2025 Regulations

⁶ Paragraphs 3(3) and 5 of Schedule 6 to the 2022 and 2025 Regulations

⁷ Paragraph 3(2)(e) of Schedule 6 to the 2022 and 2025 Regulations

⁸ Paragraph 4 of Schedule 6 to the 2022 and 2025 Regulations

⁹Paragraph 6(2) of Schedule 6 to the 2022 and 2025 Regulations

¹⁰ Paragraphs 6(5) and 6(6) of Schedule 6 to the 2022 and 2025 Regulations

¹¹ Regulation 15(1)(g) and Paragraph 7 of Schedule 6 to the 2022 Regulations and Regulation 38(1)(g) and Paragraph 7 of Schedule 6 to the 2025 Regulations

¹² Regulation 15(1)(l) of the 2022 Regulations and Regulation 38(1)(l) of the 2025 Regulations

¹³ Regulation 15(2) of the 2022 Regulations and Regulation 38(2) of the 2025 Regulations

¹⁴ Regulation 15(1)(p) and Paragraph 7 of Schedule 6 to the 2022 Regulations and regulation 38(1)(p) and paragraph 7 of Schedule 6 to the 2025 Regulations

¹⁵ Regulations 15(1)(h), (i), and (k) of the 2022 Regulations and Regulations 38(1)(h), (i), and (k) of the 2025 Regulation

¹⁶ Sections 36(1)(c) and (5) of the Pension Schemes Act 2021 and Paragraphs 10-13 of Schedule 6 to the 2022 and 2025 Regulations