The Littlewoods Pensions Trust Limited

Determination Notice under section 69 of the Pensions Act 1995.

The Littlewoods Pensions Scheme

The Pensions Regulator case ref: C212251039

Members of the Determinations Panel (“the Case Panel”) of the Pensions Regulator (“TPR”) held a Determination Meeting on 29 January 2025 to consider the issues in a Warning Notice dated 30 September 2024 (“the Warning Notice”) addressed to The Littlewoods Pensions Trust Limited (“the Trustee”) and Littlewoods Limited (“the Principal Employer”).
The Warning Notice was referred to the Determinations Panel by a TPR case team (“the Case Team”) on 7 November 2024 after representations had been received from Arc Pensions Law LLP (“Arc”) on behalf of the Trustee. No representations were received from the Principal Employer.

Matters to be determined

The Warning Notice followed an application made by the Trustee under section 10(2)(b) of the Pensions Act 2004 (“PA04”) requesting that an order be made under section 69(1)(a) or section 69(1)(b) of the Pensions Act 1995 (“PA95”) to modify, or authorise the Trustee to modify, the Scheme for the purpose of enabling the assets remaining after the liabilities of the Scheme have been fully discharged (“the Surplus”) to be distributed to the Principal Employer.

The Case Panel’s Decision

The Case Panel determined to issue an order under section 69(1)(b) authorising the Trustee to modify the Scheme for the purpose of enabling assets remaining after the liabilities of the Scheme have been fully discharged to be paid to any one or more of the persons who fall within the definition of “employer” for the purposes of section 69(1). The exercise of the power granted by this order is subject to the provisions of section 76 PA95.
The terms of the Order are set out at paragraph 67 of this Determination Notice.

Directly Affected Parties

Section 96(2)(d) PA04 requires the giving of notice of a determination to “such persons as appear to the Regulator to be directly affected by it”. In light of its order giving the Trustee the power to modify the Scheme, the Case Panel considered The Littlewoods Pensions Trust Limited to be the only person directly affected by its determination.
The Warning Notice was also issued to Littlewoods Limited as the Principal Employer to the Scheme. However, in light of the Case Panel’s determination, and consequent order, the Case Panel’s view is that no particular employer is directly affected by its determination; it is for the Trustee to decide which employer(s) meet the statutory definition and therefore would be objects of the power the Trustee is hereby authorised to add to the provisions of the Scheme.

Details of the Scheme

The following details in relation to the Scheme are set out in the case papers. The Scheme is a defined benefit occupational pension scheme established under trust. It is governed by a trust deed and rules dated 1 July 2013. The Warning Notice confirmed that the Scheme is a “registered scheme” within the meaning of section 153 of the Finance Act 2004, as required by section 69(5) PA95.
The Scheme closed to new members with effect from 1 October 2001 and to the future accrual of benefits with effect from 1 March 2011. The Warning Notice explains that the Scheme became fully funded on the technical provisions basis (as per section 222(1) PA04) with effect from the Scheme valuation as at 31 December 2015 which was finalised in January 2017.
Since that time, the Principal Employer has paid an additional £32,500,000 of employer contributions to the Scheme. Arc and the Trustee consider the Principal Employer to be the source of the Surplus.
The Scheme entered into winding-up on 31 October 2021.
The Scheme has had multiple contributing employers at various times and the Warning Notice sets out a number of current and former participating employers. The Scheme’s history is described as “long and complex as is to be expected of a scheme of its size and vintage”.

Buy-out

In 2018 and 2020 respectively, the Trustee entered into bulk purchase annuity contracts with Scottish Widows and Rothesay Life. Each of these contracts secured (as individual annuities) the benefits of all respective Scheme members and dependants in full in accordance with their entitlement pursuant to the rules of the Scheme. The bulk purchase annuities were initially held collectively in the name of the Trustee as an asset of the Scheme. In May 2023, individual annuities were issued to the vast majority of members and dependants, converting the buy-in to a buy-out. Members not included in this process were paid winding-up lump sums instead. As part of the buy-out process, the Trustee also exercised contractual options from the original buy-ins that secured benefit enhancements at a combined total cost of approximately £15 million.

Basis of the application

This is an application by the Trustee pursuant to section 10(2)(b) of PA04 requesting that an order be made under section 69(1) PA95. Section 10(6) PA04 confirms that section 69(1) PA95 is one of the provisions in respect of which an application may be made under section 10(2)(b).
TPR has the power under section 69(1)(a) PA95 to make an order modifying the Scheme to enable the assets remaining after the liabilities of the Scheme have been fully discharged to be distributed to the employer or, alternatively, to authorise the Trustee to modify the Scheme for that purpose (section 69(1)(b) PA95).
An application was initially submitted to TPR by Arc, on behalf of the Trustee, on 3 July 2023. Having reviewed the application, the Case Team was of the view that further evidence was needed to demonstrate that all of the legal tests required for a modification order to be made were satisfied. On 4 March 2024 a final application was submitted to the Case Team and the matter was referred to the Panel on 7 November 2024.
The application explains that there was an anticipated surplus of £10-12 million after the Scheme has been wound up with all liabilities having been fully discharged, all costs of winding up having been met and the provision of suitable post-winding up insurances having been made.
The application has been made because the rules of the Scheme state that the Trustee may direct that surplus assets be used following the winding up of the Scheme to provide a “just and equitable increase in the benefits of persons entitled to benefits under the Scheme” but any such distribution is subject to the Principal Employer’s consent, which the application indicates the Principal Employer has confirmed it will not give.
There is no alternative provision in the rules of the Scheme in relation to the use of surplus assets and the Trustee is expressly precluded from amending the rules of the Scheme to introduce a power to return surplus assets to the Principal Employer (or any other Scheme employer) as set out in Part 1, Clause 6.1.1.3. and Schedule B, rule 1.1.4 of the Trust Deed and Rules dated 1 July 2013.
The application confirms that, if an order is made to modify the Scheme rules, or to allow the Trustee to modify the Scheme rules, and in accordance with the statutory requirements, the Scheme’s (former) members will be notified of the proposal and given the opportunity to make representations to the Trustee and to TPR on the proposal to return the surplus to the Principal Employer, in accordance with section 76(3)(d) PA95.

Legal requirements for use of the power

Extracts from the relevant legislation are appended to this Determination Notice at Appendix 1.
In order for TPR to make an order modifying the Scheme to enable the Surplus to be distributed to the employer or authorising the Trustee to modify the Scheme for that purpose, prescribed requirements in relation to the distribution must be satisfied (section 69(2) PA95). For the reasons given in paragraph 56 below, the Case Panel has concluded that there are currently no Prescribed Requirements.
Section 69(3) PA95 stipulates that Regulations may make provision requiring applications under section 69(1) to meet prescribed requirements. Again, there do not appear to be any such requirements.
Section 76 of PA95 stipulates what must be satisfied before there can be any exercise of a power (however conferred) to distribute assets to the employer on a winding up. These include that the scheme’s liabilities have been fully discharged (section 76(3)(a) PA95) and that notice has been given to members of the scheme in accordance with prescribed requirements about the proposal to return a surplus to the employer (section 76(3)(d) PA95). Regulation 15 of the Occupational Pension Schemes (Payments to Employer) Regulations 2006) prescribes this notice period as 3 months.
Section 70(1) PA95 further stipulates that TPR may not make an order under section 69(1) unless it is satisfied that the purposes for which the order is made cannot be achieved otherwise than by means of such an order, or can only be achieved in accordance with a procedure that is liable to be unduly complex or protracted or involves the obtaining of consents that cannot be obtained or can only be obtained with undue delay or difficulty.
It is apparent from the Warning Notice that the Case Team supports the application on the basis that all of the relevant statutory requirements are satisfied. It is also stated that, if TPR was to make the order as requested, this would be in accordance with its statutory objective to promote the good administration of work-based pension schemes, by enabling the orderly winding up of the Scheme and ensuring that the Surplus is not trapped in the Scheme or eroded in ongoing costs. It is also said that making an order would not be incompatible with any of TPR’s other statutory objectives.

The Scheme Rules

The Trust Deed and Rules dated 1 July 2013 provide, amongst other things, as follows:

“TRUST DEED

4. MAIN OBJECT
4.1 The main object of the Scheme shall be the provision of pensions for the Members on retirement from the service of the Employers at such ages and under such conditions as are set out in the Rules.”

As regards the distribution of surplus assets on the Scheme’s termination the rules provide:

“SCHEDULE L

4. SURPLUS OF ASSETS ON TERMINATION

4.1 Surplus assets
Where the Trustee is satisfied that all liabilities of the Scheme have been (or will be) discharged and a surplus of Fund assets remains, the Trustee may apply those assets as set out in this Rule 4.

4.2 Residual risks and other insurance
The Trustee may take out insurance on terms that are satisfactory to the Trustee, after consulting the Principal Employer, including (without limitation) run-off insurance and insurance against invalidity of execution of deeds and residual risk (such policy being a “Winding-up Insurance Policy”) […]

4.3 Augmenting benefits
Where there exists a surplus of Fund assets after applying sub-Rule 4.2, the Trustee, subject to the terms of Rule 10 of Schedule B (Tax Approval and Unauthorised Payments), may direct, with the consent of the Principal Employer, that there be a just and equitable increase in the benefits of persons entitled to benefits under the Scheme.”

If, therefore, the Principal Employer does not consent, the Trustee has no power under the rules of the Scheme to unilaterally apply surplus assets to provide an increase in benefits.
As regards the power of the Trustee to amend the rules, Schedule B provides as follows: -

“POWER OF AMENDMENT

1.1 Power to amend
Subject to the requirements of Section 67 of the 1995 Act, the Trustee acting on the advice of the Actuary may, from time to time by deed with the consent of the Principal Employer (to be testified by their execution of such deed) amend, repeal or add to the Rules provided that:

1.1.1 the main object of the Scheme shall not be altered;

1.1.2 except in pursuance of a report of the Actuary no amendments repeal or addition shall be made so as to affect prejudicially the accrued rights of any Member or the financial position of the Scheme;

1.1.3 no alteration shall be made affecting contributions or benefits unless the Actuary first certifies that having regard to the provisions of the Scheme such alteration would be equitable as between the several Members existing at the date thereof; and

1.1.4 no amendment repeal or addition shall be made which would result in the transfer of any monies to the Employers or any of them.”

The Trustee asserts that as a result of clause 1.1.4 it is unable to amend the rules of the Scheme to allow the distribution of surplus assets to the employer on winding up.

Background: Benefit enhancements obtained by the Trustees

The Trustee considers that the buy-out contracts with Scottish Widows and Rothesay Life will provide benefits in accordance with the main object of the Scheme – that is, pensions for members “on retirement [...] at such ages and under such conditions as are set out in the Rules.”
The Warning Notice explains that the Trustee is satisfied that all of the liabilities of the Scheme have been fully discharged in accordance with section 76(3)(a) PA95.
The Trustee is also stated to be satisfied that all benefit entitlements under the Scheme have already been secured to the fullest extent possible including the following:
1. The Trustee paid an additional premium to each of the insurers (Scottish Widows and Rothesay Life) to extend the Scheme provision providing for the payment of a survivors’ pension on the death of a member to a spouse or civil partner, to financial dependants where there is no spouse or civil partner.
2. When the buy-in was converted to a buy-out, the Trustee paid an additional premium to secure the application of Rothesay Life’s standard commutation factors, which is expected to benefit all members who take a pension commencement lump sum (the majority). XXXXXXXX XXXXXXX XX XXX XXXXXX XXXXX XXXXXXXX XXXX XXXX XXXXXXX XXXXX XXX XXXX XXXXXXXX XXXXXXX XXXXXXXX XXXX XXXXXXXX XXXX XXX XXXXXXXXXX XXXX XXXXXXX XX X XXXXXXXXX XX XXXXXXXX XXXXX XXXXXXXX XXXXXXXXXXX XXXXXXX XXXXX XXXXXXXXX XX XXXXXXXXXXX XXXXXXX XXXXXXXXXXXX XXXX XXXXX XXXXXXXX XXXXXX XXX XXXXXXX XXXXXXXXXXX XXXX XXXXXX
3. Whilst ahead of entering into the bulk purchase annuity contracts the Trustee has undertaken a large volume of work on the Scheme in recent years to validate the benefits payable, and to address issues such as GMP equalisation, the Trustee also expects to have paid substantial premiums (budgeted at up to XXX XXXXXXX in total) to cover the risk of errors, non-payments, missing beneficiaries and missing payments.
4. The Trustee also benefits from an indemnity from the Principal Employer in respect of any residual uninsured liabilities.
The Surplus is stated to be the sum remaining after these payments, and all of the projected costs of completing the winding up of the Scheme, have been met.

Background: Considerations of the use of the Surplus

Prior to making its application, the Trustee considered whether to apply the surplus in accordance with the Scheme rules, Schedule L, rule 4.3, “Augmentation” namely to allow “a just and equitable increase in the benefits of persons entitled to benefits under the Scheme”. This requires the Principal Employer’s consent and the Trustee’s application states that the Principal Employer had “made it clear it would not consent to augmentation”.
With advice from Arc, the Trustee nevertheless considered augmenting benefits and particularly how the requirement to ensure a “just and equitable increase to benefits…” could be satisfied (assuming that the Principal Employer’s consent could have been obtained).
The Trustee’s application highlights a number of complexities in achieving a just and equitable increase in benefits in accordance with the Scheme rules, including the following:
1. At the time the bulk purchase annuity contracts were entered into, the Scheme had over 11,500 pensioner and deferred members. Rule 4.3 of Schedule L expressly refers to a wider group of “persons entitled to benefits under the Scheme” which encompasses additional beneficiaries such as spouses, civil partners, and financial dependants. Potentially, therefore, there could be as many beneficiaries as members;
2. The meaning of “just and equitable” is not straightforward and if the surplus were to be distributed in this way, the Trustee would need to consider the different possibilities. One option could be to divide the surplus by the amount of “persons entitled to benefits under the Scheme” equally on a per capita basis; another option to divide the Surplus in the same way but unequally, i.e. by reference to each member’s pension (accrued or in receipt) at the time. The Trustee asserts that either approach would involve considerable work and analysis, with specialist advice of multiple types required;
3. Although the Surplus is a large sum of money, in the overall context of the Scheme it is not. Even when divided simply by the number of members, the figure per capita is hundreds rather than thousands. The Trustee obtained actuarial advice that, if the Surplus were applied on a per capita basis, it would amount to an average annual increase in pension of under £10 per member, representing an increase of approximately 0.1% for a member retiring on the average pension;
4. The Scheme’s benefit structure is complex and two members with the same headline pension at retirement might nevertheless be subject to different treatment in the future depending on various factors, all of which would need to be taken into account in any “just and equitable” approach;
5. Potentially, an increase to benefits could cause some Scheme members to breach a tax threshold. Although the lifetime allowance was abolished (with effect from 6 April 2024), there were ongoing complexities within this part of the pensions tax regime which would need to be considered.
In light of the above complexities, having taken legal and actuarial advice, and given the Principal Employer’s refusal to consent to augmentation, the Trustee decided not to augment benefits. As explained, augmenting member benefits by distributing the surplus in the just and equitable manner specified in the Scheme rules is only possible with the Principal Employer’s consent, and this consent has not been given.
Arc has also explored applying the surplus in making one-off lump sum cash payments to members of the Scheme (rather than an increase to their annual pension) as an alternative way of distributing the surplus in a “just and equitable” manner, and applied to HMRC for clearance for these payments to be made in the form of scheme administration member payments pursuant to section 171 FA04. HMRC declined to give this clearance.
The Trustee has also asked each of the insurers to ascertain whether it might be possible to adjust benefits (subject to payment of an additional premium) if a “just and equitable” approach to augment benefits could be devised. Both insurers have advised that this would not be possible, with Scottish Widows explaining that an augmentation to an issued individual policy could only occur if there has been an error in the calculation of the benefits and Rothesay Life indicating this would only be possible if an increase was required under the terms of an individual policy. Rothesay Life has also pointed out that its contractual nexus is now with each of the former Scheme members to whom an individual policy of insurance has been issued, and not with the Trustee.
The Trustee concluded, as set out in its application, that “The Trustee has no ability to apply any surplus assets to augment without the consent of the Principal Employer and, it seems, no practical mechanism to do so even with the consent of the Principal Employer. We refer you to the responses of the insurers. The Trustee took its consideration of augmentations (including the “just and equitable” requirements) as far as it could in the circumstances.”

Return of Surplus

The Trustee has considered whether the surplus could be paid on the basis of a resulting trust, in favour of the originator(s) of the surplus funds. Arc has advised the Trustee that this route should be available in this case but that the Scheme’s long history and the number of participating employers (some of which still exist and some dissolved) means that an application to court would be required before making any payments from surplus assets on this basis. It is stated in the application that the process of trying to “reconstruct” where the current assets have come from “would be not only challenging but also impossible to complete with any degree of accuracy”.
The application nevertheless makes clear that the Trustee considers that the surplus should be repaid to the Principal Employer, which voluntarily paid £32.5 million through continuing contribution payments after the Scheme became fully funded on a technical provisions basis, in order to achieve “the Trustee’s secondary funding objective of self-sufficiency”.
The application sets out that the Principal Employer is of the view that it has a “moral right” to recover the relatively small amount of the “overshoot” and has suggested that, if this application is refused, it may serve to discourage other employers from funding schemes to levels above the technical provisions due to a risk that a non-returnable “trapped” surplus is generated. The Trustee has stated that it “has sympathy with this view”.

Determinations Panel additional information request

On 19 December 2024 the Case Panel wrote to the Trustee requesting further information, including confirmation of whether it considers the most appropriate course is for the entirety of the Surplus to be paid to the employer, notwithstanding its refusal to consent to further augmentation of benefits.
Arc, on behalf of the Trustee, responded on 9 January 2025 confirming that Scheme assets were used to pay additional premiums in order to secure “as an entitlement” terms that were more generous than the discretionary terms under the Scheme. The effect of this was to increase payments to some beneficiaries depending on future circumstances. The response indicates that, whilst the Principal Employer initially objected on the basis that this was an “augmentation” of benefits requiring its consent, it later accepted that the Trustee had power to exercise the options as they were contractual rights embedded in existing investment assets of the Scheme.
In addition to the above, the Trustee has also arranged residual risk cover for the Rothesay policyholders; and is in the process of securing XXXXX XXXXXXX residual risk cover in relation to the Scottish Widows policyholders.
The response explained that the Trustee expects to have used up to XXX XXXXXXX of Scheme assets to improve the annuity terms and provide cover for any unpaid or underpaid beneficiaries. To the extent that any residual risks are not covered they would fall to be paid by the employer further to an indemnity it has given. The Trustee is therefore satisfied that “the liabilities of the Scheme have been fully discharged, after considering and exercising all relevant powers”.
Given that the liabilities of the Scheme have been “secured in full with some improvements”, that the Trustee has “fully discharged its obligations”, and that the employer is “clearly” the source of the relatively small balance that remains, the Trustee has confirmed that it is satisfied that it is appropriate to pay the remaining surplus to the Principal Employer.
The Trustee further confirmed that it had no objection to an order giving discretion to the Trustee to identify which employer or employers fall within the definition of “employer” for the purposes of section 69(1) Pensions Act 1995, if the Case Panel was minded to make an order.

Reasons for decision

In making its decision the Case Panel had regard to TPR’s objectives as set out in section 5 of PA04 and to the matters mentioned in section 100 of PA04.
The Case Panel considered the terms of section 69 and section 70 of PA95 and took account of the requirements that must be satisfied before it could make the order requested. In particular it had to determine:

(i) That an application had been made by the trustee of a Scheme that is being wound up (section 69(1) PA95);
(ii) That any prescribed requirements in relation to the distribution referred to in section 69(2) have been satisfied and that any prescribed requirements under section 69(3) have been satisfied;
(iii) That the Scheme is an occupational pension scheme (other than a public service pension scheme) and is registered under section 153 of the Finance Act 2004 (section 69(5) PA95).
(iv) That enabling a surplus to be distributed to the employer (a) cannot be achieved otherwise than by means of the requested order or (b) can only be achieved in accordance with a procedure which (i) is liable to be unduly complex or protracted or (ii) involves the obtaining of consents which cannot be obtained or can only be obtained with undue delay or difficulty (section 70 PA95).

Considering each of the requirements set out above, the Case Panel found the following:

(i) Application

The Case Panel concluded that an application had been made by the Trustee of the Scheme which is being wound up. An application was initially submitted on 3 July 2023 and resubmitted following Case Team queries on 4 March 2024. The Trustee’s application confirmed that it is in the process of winding up the Scheme.

(ii) Prescribed requirements

Section 124(1) PA95 provides that “prescribed” for the purposes of section 69 PA95 means “prescribed by regulations” and that “regulations means regulations made by the Secretary of State”. The Case Panel has not been made aware of any such regulations and nor has it been able to identify any.
The Case Panel therefore concluded that there were no prescribed requirements needing to be satisfied to prevent it from making an order under section 69(1) PA95.

(iii) Registered occupational pension scheme

On the basis of the evidence before it and the submissions from the Parties, the Case Panel concluded that the Scheme is an occupational pension scheme (other than a public service pension scheme) and that it is registered under section 153 of the Finance Act 2004.

(iv) Section 70 PA95 requirements

As regards the requirements of section 70 PA95, namely the Case Panel’s views on whether it is satisfied that the purposes for which the application for the order was made cannot be achieved otherwise than by means of such an order, the Case Panel concluded that the “purpose” under section 69 is distributing the surplus to the employer. The Case Panel agreed that this did not appear possible under the Scheme rules, which contain no provision allowing for this. Moreover, the Scheme rules expressly prohibit any changes “which would result in the transfer of any monies to the Employers or any of them.” In light of these provisions, the Case Panel agreed that the Trustee had no power to distribute the Surplus to the employer under the Scheme rules.
The Case Panel noted that there did not appear to be any other means by which the purpose of returning the Surplus to the employer could be achieved, save potentially on the basis of a resulting trust. The Case Panel agreed with the Trustee that this was likely to be a complex process and that the Trustee might properly consider it prudent to seek Court approval. The Trustee has been advised “that an application to Court would be required and that the process of trying to reconstruct where the current assets have come from would be not only challenging but impossible to complete with any degree of accuracy”.
In these circumstances, the Case Panel, agreed that section 70(1) PA95 was satisfied, and an order could properly be made. In the Case Panel’s view, the purpose, of distributing assets to the employer, can only be achieved either by means of the requested order, or by an application to Court which is likely to be unduly complex or protracted. It also appeared to the Case Panel that there was some considerable uncertainty as to how successful such an application would be but that, in any event, it would be likely to involve significant costs, diminishing the surplus in the process.
The Case Panel disagreed with the conclusion reached by the Case Team that section 70(1)(a) is not satisfied. The Case Team suggested that “the purpose” could have been satisfied if the employer had consented “to the augmentation of benefits, and if a manner of ensuring a “just and equitable” increase in members’ and dependants’ benefits that both Scottish Widows and Rothesay Life would accept and process could be devised”. That indicated that the Case Team had identified the “purpose” in section 69(1) as the use of the surplus rather than (as the Case Panel concluded in paragraph 59 above) the distribution of the surplus to the employer.
Having concluded that the statutory requirements had been met, and that it was able to make an order, the Case Panel considered whether it was appropriate to do so having regard to section 100 PA04.
In its application in this case, the Trustee has clearly set out in considerable detail its consideration of the various options on augmenting members’ benefits and why they were not practicable (not least that there was no employer consent to augmentation), and the steps it has taken to contractually enhance members’ benefits which have now been bought out under the policies with Rothesay Life and Scottish Widows. It has also explained why there are, and were, no practical alternatives for distributing the Surplus by any further augmentation of benefits in the absence of the employer’s consent, or by making one-off payments to members without incurring adverse tax implications. The Case Panel accepted that the Trustee had thoroughly explored several different options, and that none of those appeared to be realistically achievable.
In these circumstances, the Case Panel was satisfied that it was appropriate to make a modification order. This was particularly the case in circumstances where:
1. the Surplus appears to have arisen because the Principal Employer continued paying contributions even after the Scheme reached a technical provisions surplus and where not required by the scheme funding regime;
2. the Trustee has confirmed that scheme benefits for pensioners and deferred pensioners have been insured in full, without reduction;
3. members’ benefits appear to have been contractually enhanced as part of the buy-out process;
4. insurance policies and a guarantee from the Principal Employer are in place;
5. the Trustee properly considered alternatives, including the possibility of augmenting members’ benefits through a “just and equitable distribution” of the Surplus which it had concluded, even if it had been possible, would have been costly and challenging to achieve. In any event, employer consent would have been required, which consent had not been given;
6. the amount of the Surplus proportionate to the liabilities is such that any further augmentation would likely have very limited effect on members’ benefits, producing very small increases.

Order

The Case Panel determined to make an order under section 69(1)(b) authorising the Trustee to modify the Scheme to allow the assets remaining after the liabilities of the Scheme have been fully discharged to be distributed to those persons falling within the definition of employer in section 69(1). The Case Panel did not consider it appropriate to decide to which particular employer (if there is more than one) the Surplus should be distributed. In the Case Panel’s view, the Trustee is in the better position to decide on the identity of the employer for the purposes of section 69(1) and to consider any competing claims from different employers to the Surplus. In making its order the Case Panel took account of the fact that the Trustee has confirmed that it will ensure when exercising the power granted that any statutory requirements (including section 76 PA95) will be met.
The Case Panel determined that an order be issued in the following terms:
“The Pensions Regulator hereby orders that Littlewoods Pension Trust Limited, as the trustee of the Littlewoods Pension Scheme (“the Scheme”), is authorised to modify the Scheme pursuant to section 69(1)(b) of the Pensions Act 1995 for the purpose of enabling assets remaining after the liabilities of the Scheme have been fully discharged to be distributed to the employer (as defined in section 124 PA95).

Additional Matters

(i) Warning Notice submissions

The Warning Notice suggests that the main criterion to be met in determining whether the order sought can be made is that “the liabilities of the scheme” as described in section 69(1)(a) PA95 have been fully discharged. The Case Panel is not convinced that this is the case. In the Case Panel’s view, the provisions in both section 69(1)(a) and (b) are intended only to allow the Scheme to be modified to enable the Trustees to act, once all the liabilities of the Scheme have been discharged, if it chooses to do so.
The order is to give a trustee the power to distribute assets to an employer once that trustee is satisfied that the liabilities have been discharged where there would not otherwise be that power. The Case Panel notes that Arc appears to agree with this position, emphasising in its Response dated 16 October 2024 that it is not seeking an order directing that the surplus be repaid, but that it is only asking for a provision to allow this to happen in appropriate circumstances.

(ii) Section 76 PA95

Similarly, the Warning Notice sets out in some detail the requirements that would need to be satisfied before any power, if granted, could be exercised, in particular under section 76(3) PA95. In the Case Panel’s view this is not directly relevant to the question of whether it should make an order under section 69(1); it is only relevant to what must happen when any distribution power is exercised.
Given that the making of the modification order will necessarily precede the distribution of any surplus pursuant to that order, it appears to the Case Panel that it is only relevant insofar as any power granted is subject to it being exercised in accordance with the statutory requirements in section 76 PA95. For this reason and the reasons set out above at paragraph 56, in the Case Panel’s view, the provisions of section 76 cannot be the prescribed requirements referred to in section 69(1).
In any event, in the Case Panel’s view, it cannot conclude that the requirements of section 76(3) have been met as those requirements will only come into play if the Scheme rules are modified, or the Trustee is authorised to modify the Scheme to give the Trustees the power to distribute the surplus assets to the employer AND the Trustee chooses at some future date to exercise that power. The Case Panel can, however, take account of the fact that it has been told by the Trustee that these requirements will be met.
Whether or not the former members of the Scheme are still, technically, members of the Scheme (given that their benefits have been bought out in full, and each of them has an individual contract with an insurer in respect of the provision of their benefits) the Trustee has indicated that they will be notified of the proposal in accordance with section 76(3)(d) PA95 and regulation 15 of the Occupational Pension Schemes (Payments to Employer) Regulations 2006.
Appendix 1 to this Determination Notice contains important information about the rights of the Directly Affected Party to refer this decision to the Upper Tribunal.

Signed:

Case Chair: Antony Townsend

Dated: 21 February 2025

Appendix 1: Relevant statutory provisions

Pensions Act 1995 – Sections 69, 70, 71 and 76

69 Grounds for applying for modifications: winding up registered schemes

(1) The Authority may, on an application made to them by the trustees of a registered pension scheme which is being wound up, make an order—
(a) modifying the scheme for the purpose of allowing assets remaining after the liabilities of the scheme have been fully discharged to be distributed to the employer, or
(b) authorising the trustees to modify the scheme for that purpose.

(2) But the Authority may act under subsection (1) only if prescribed requirements in relation to the distribution are satisfied.

(3) Regulations may make provision requiring applications under subsection (1) to meet prescribed requirements.

70 Section 69: Supplementary

(1) The Authority may not make an order under section 69 unless they are satisfied that the purposes for which the application for the order was made—
(a) cannot be achieved otherwise than by means of such an order, or
(b) can only be achieved in accordance with a procedure which—
(i) is liable to be unduly complex or protracted, or
(ii) involves the obtaining of consents which cannot be obtained, or can only be obtained with undue delay or difficulty.

(2) The extent of the Authority’s powers to make such an order is not limited, in relation to any purposes for which they are exercisable, to the minimum necessary to achieve those purposes.

71 Effect of orders under section 69
(1) An order under paragraph (b) of subsection (1) of section 69 may enable those exercising any power conferred by the order to exercise it retrospectively (whether or not the power could otherwise be so exercised) and an order under paragraph (a) of that subsection may modify a scheme retrospectively.

(2) Any modification of a scheme made in pursuance of an order of the Authority under section 69 is as effective in law as if it had been made under powers conferred by or under the scheme.

(3) An order under section 69 may be made and complied with in relation to a scheme —

(a) in spite of any enactment or rule of law, or any rule of the scheme, which would otherwise operate to prevent the modification being made, or
(b) without regard to any such enactment, rule of law or rule of the scheme as would otherwise require, or might otherwise be taken to require, the implementation of any procedure or the obtaining of any consent, with a view to the making of the modification.

(4) In this section, “retrospectively” means with effect from a date before that on which the power is exercised or, as the case may be, the order is made.

76 Excess assets on winding up

(1) This section applies to a trust scheme in any circumstances if—

(a) it is a registered pension scheme under section 153 of the Finance Act 2004,
(b) the scheme is being wound up, and
(c) in those circumstances power is conferred on the employer or the trustees to distribute assets to the employer on a winding up.

(2) The power referred to in subsection (1)(c) cannot be exercised unless the requirements of subsections (3) and (in prescribed circumstances) (4), and any prescribed requirements are satisfied.

(3) The requirements of this subsection are that—
(a) the liabilities of the scheme have been fully discharged,
(b) where there is any power under the scheme, after the discharge of those liabilities, to distribute assets to any person other than the employer, the power has been exercised or a decision has been made not to exercise it, and
(d) notice has been given in accordance with prescribed requirements to the members of the scheme of the proposal to exercise the power.

(4) The requirements of this subsection are that—
(a) any requirements prescribed by virtue of subsection (2) are satisfied, and
(b) the requirements of subsection (3) are satisfied.

The Occupational Pension Schemes (Payments to Employer) Regulations 2006

15 Notice of proposal to distribute excess assets to the employer

(1) The prescribed requirements for the notice specified in section 76(3)(d) (excess assets on winding up) are set out in paragraphs (2) to (5).

(2) Where the trustees or the employer propose to exercise the power in section 76(1)(c) of the 1995 Act, the trustees or, as the case may be, the employer, must take all reasonable steps to ensure that each member, except any excluded person, is sent a written notice divided into two parts, of the proposal in accordance with the following provisions of this regulation.

(3) The first part must—
(a) inform the member as to—
(i) the trustees’ estimate of the value of the assets remaining after the liabilities of the scheme have been fully discharged and the persons or class of person to whom, and in what proportions, it is proposed that they should be distributed; and
(ii) whether the requirements of section 76(3) of the 1995 Act are satisfied;

(b) invite the member, if he wishes, to make written representations in relation to the proposal to the trustees or, as the case may be, to the employer, before a specified date (which is not earlier than two months after the date on which the first part is given); and

(c) advise the member—
(i) that the second part of the notice will be sent to him if the trustees or, as the case may be, the employer intend to proceed with the proposal to exercise that power; and
(ii) that no excess assets may be distributed to the employer in accordance with the proposal until at least three months after the date on which the second part is sent to him.

(4) The second part of the notice must be given after the date specified in accordance with paragraph (3)(b) and at least three months before the power is exercised and must—
(a) contain the information referred to in paragraph (3)(a), including any modifications to the proposal; and

(b) advise the member that he may make written representations to the Regulator before a specified date (which is not earlier than three months after the date on which the second part of the notice is sent to him) if he considers that any of the requirements of section 76(3) of the 1995 Act are not satisfied.

(5) The parts of the notice under paragraphs (3) or (4) shall be treated as having been given to a member where it has been sent by post to either—
(a) the address at which he was last known to be living; or
(b) in the case of a person who was an active member, immediately before the commencement of the winding up of the scheme, an address at which he is currently known to be employed.

Pensions Act 2004 – Sections 5 and 100

5 Regulator's objectives
(1) The main objectives of the Regulator in exercising its functions are—
(a) to protect the benefits under occupational pension schemes of, or in respect of, members of such schemes,
(b) to protect the benefits under personal pension schemes of, or in respect of, members of such schemes within subsection (2),
(c) to reduce the risk of situations arising which may lead to compensation being payable from the Pension Protection Fund (see Part 2),
(cza) in relation to the exercise of its functions under Part 3 only, to minimise any adverse impact on the sustainable growth of an employer,
(ca) to maximise compliance with the duties under Chapter 1 of Part 1 (and the safeguards in sections 50 and 54) of the Pensions Act 2008, and
(d) to promote, and to improve understanding of, the good administration of work-based pension schemes.

(2) For the purposes of subsection (1)(b) the members of personal pension schemes within this subsection are—
(a) the members who are employees in respect of whom direct payment arrangements exist, and
(b) where the scheme is a stakeholder pension scheme, any other members.

(3) In this section—
"stakeholder pension scheme" means a personal pension scheme which is or has been registered under section 2 of the Welfare Reform and Pensions Act 1999 (c. 30) (register of stakeholder schemes);
"work-based pension scheme" means—
(a) an occupational pension scheme,
(b) a personal pension scheme where direct payment arrangements exist in respect of one or more members of the scheme who are employees, or
(c) a stakeholder pension scheme.

10 Functions exercisable by the Determinations Panel

(1) The Determinations Panel is to exercise on behalf of the Regulator—
(a) the power to determine, in the circumstances described in subsection (2), whether to exercise a reserved regulatory function, and
(b) where it so determines to exercise a reserved regulatory function, the power to exercise the function in question.

(2) Those circumstances are—
(a) where the Regulator considers that the exercise of the reserved regulatory function may be appropriate, or
(b) where an application is made under, or by virtue of, any of the provisions listed in subsection (6) for the Regulator to exercise the reserved regulatory function.
(3) Where subsection (1) applies, the powers mentioned in that subsection are not otherwise exercisable by or on behalf of the Regulator.

(4) For the purposes of this Part, a function of the Regulator is a “reserved regulatory function” if it is a function listed in Schedule 2.

…
(6) The provisions referred to in subsection (2)(b) are—
…
(i) section 69(1) of that Act (application for order authorising modification or modifying a scheme);
…(7) Regulations may amend subsection (6) by—
(a) adding any provision of this or any other enactment to the list in that subsection, or
(b) omitting or altering the description of any provision mentioned in that list.

(8) The Panel may be authorised under paragraph 20(4) or (6) of Schedule 1 to exercise further functions of the Regulator on behalf of the Regulator.

…

100 Duty to have regard to the interests of members etc
(1) The Regulator must have regard to the matters mentioned in subsection (2)—(a) when determining whether to exercise a regulatory function—
(i) in a case where the requirements of the standard or special procedure apply, or
(ii) on a review under section 99, and
(b) when exercising the regulatory function in question.

(2) Those matters are—
(a) the interests of the generality of the members of the scheme to which the exercise of the function relates, and
(b) the interests of such persons as appear to the Regulator to be directly affected by the exercise.

Referral to the Tax and Chancery Chamber of the Upper Tribunal

You have the right to refer this determination to the Tax and Chancery Chamber of the Upper Tribunal (“the Tribunal”).

A reference to the Tribunal is made by way of a written notice signed by you or your representative on your behalf and sent or delivered to the Tribunal with a copy of this Determination Notice. The reference notice must be received by the Tribunal no later than 28 days after this Determination Notice is given to you, unless you obtain an extension from the Tribunal.

The Tribunal’s address is:

Upper Tribunal
(Tax and Chancery Chamber)
Fifth Floor
Rolls Building
Fetter Lane
London
EC4A 1NL
Tel: 020 7612 9730

The detailed procedures for making a reference to the Tribunal are contained in section 103 PA 04 and the Tribunal procedure rules.

You should note that the Tribunal procedure rules provide that at the same time as filing a reference notice with the Tribunal, you must send a copy of the reference notice to TPR. Any copy reference notice should be sent to:

Determinations Panel Support
The Pensions Regulator
Telecom House
125-135 Preston Road
Brighton
BN1 6AF

Tel: 01273 811852

A copy of the form for making a reference, FTC3 ‘Reference Notice (Financial Services)’, can be found at: https://www.gov.uk/government/publications/form-ftc3-reference-notice-financial-services

The Littlewoods Pensions Trust Limited: Determination notice