Once the decision has been taken to wind-up, the second stage of a wind-up process is preparing to formally trigger wind up under the scheme rules.
This section of our guidance focuses on the actions you may want to consider before taking this step, for example drawing up a project plan, and reviewing key areas of your scheme rules. It also addresses the actions you will need to take to formally trigger wind up of the scheme, and the information you must provide to your members once wind up has been triggered.
Planning to wind up your scheme
Before triggering wind up, it’s important that you prepare and agree a project plan with the key parties involved in the process, such as the sponsoring employer, and any external administrators or advisers. The project plan should set out anticipated steps, timings and costs. It should also consider what actions you will be able to handle using in-house facilities, and the extent to which you will need professional advice or assistance, and the cost implications.
If the scheme is large or complicated you may also want to consider approaching a professional project manager to help you with planning and implementing the wind up.
The legal requirements specific to the wind up process only start once a wind up has been formally triggered. However, once a wind up starts you will not be able to make changes to the scheme unless the scheme rules specifically allow this. You may therefore want to take legal advice about whether any scheme rule amendments are necessary before the wind up starts – for example, to allow amendments during the wind up.
Actions to consider when reviewing the scheme rules
After preparing your project plan, you will need to review your trust deed and rules. Key issues that you will need to consider (and may wish to discuss with a legal adviser) are:
Review the winding up rule in the trust deed and rules
Check how a wind up can be triggered. For example, it may be necessary for the principal employer to give a formal, written notice triggering wind up to each of the trustees.
Check whether the power of amendment can be exercised after wind-up has been triggered
If the power of amendment can’t be exercised after the trigger of the wind up you may wish to amend the scheme rules to change this. It’s not uncommon for the rules to need amending after wind up has been triggered, to facilitate the wind up process.
Check whether any other rules will cease to apply on wind up
Make sure you can still exercise other key powers once wind up has been triggered.
Check what will happen to benefits / benefit accrual on wind-up
Find out how benefits will be affected by the wind-up (eg if contributions will automatically cease, or death in service benefits cease to be payable).
Check whether trustee exoneration or indemnity protections will remain in place after wind up is completed
If existing trustee protections will fall away, trustees 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 rules, 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 by statute or otherwise) on wind up.
Consider extending the scheme's accounting year
A scheme accounting year can be extended to up to 18 months when it 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 wind up.
Check the terms of office for member-nominated trustees / 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 rules to allow them to remain in place until the wind 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.
If a scheme is already in wind up, or a wind up is automatically triggered for any reason (for example, once the employer stops paying contributions) you may not have time to plan for all of the above activities. You will still be able to wind up the scheme – but it’s likely to be more complicated and you may need to take legal advice.
Formal trigger of wind up
When you have completed the steps above (and assuming wind up has not been triggered automatically) the next stage is to formally trigger the wind up. You will need to make sure that you comply with any formal requirements set out in the trust deed and rules.
On formal trigger of wind up, you will need to let us know that the scheme status has changed to 'winding up'. You can do this online using Exchange.
Once wind up is triggered, the process should be completed efficiently, and we would anticipate that in most cases the key activities can be completed well within two years. However, if your scheme is not wound up within two years you will need to to submit a report to us on the progress of the wind up, and provide further reports on an annual basis.
You can use the Section 72A wind up report template:
You must also keep written records of any decision to wind up the scheme (or postpone wind up), and of any decisions about the timing of any steps being taken for the purposes of the wind up.
Communicating with members
Once the wind up has been formally triggered, you must notify all members and beneficiaries that the scheme is winding up. This notification must be issued within one month of formally starting the wind up and contain the following information:
- A statement that the scheme is being wound up and the reasons for the wind up.
- Whether death in service benefits will continue to be payable for active members.
- A summary of the action that has been and is being taken to establish the scheme's liabilities and recover any assets, estimated timeframes and an indication of whether benefits are likely to be reduced.
- If the official receiver or an insolvency practitioner has been appointed to the employer, a statement that at least one of the trustees of the scheme is required to be an independent person.
Asset recovery and the reduction of accrued rights are unlikely to be issues for DC schemes in most cases, but you may want to consider taking legal advice if you think your scheme may have problems with either area.
It is important that you communicate with your members throughout the wind up process. As a minimum, you must give members the information in point 3 above every 12 months while the scheme is winding up. If the wind up is not completed within two years, copies of the reports made to us must also be provided to members on request.