If it looks like an employer event is occurring that could cause concern to defined benefit pension scheme members, the trustees will need to decide how to respond.
You should start by asking the employer for as much information as possible about the situation. It will help if you enter into an information-sharing arrangement with the employer. Use this information to assess the potential impact of the event on the scheme and its members.
Communicate with members
Pension scheme members may become very concerned about the impact of an employer event, particularly restructuring or insolvency.
If possible, and if it is appropriate, you should communicate with members before or when the event in question commences, so that any member concerns can be addressed in a timely manner. The trustees will need to consider factors such as the likelihood of the event occurring and the level of commercial sensitivity. This may depend, for example, on:
- how likely the event is to happen
- the likelihood of members being made aware of the event via other routes
- the potential impact on the scheme and its members
- how likely members are to start making decisions that are not in their best interests
If it looks like an employer event is likely to happen, you should review the impact on the employer covenant and the scheme. For more information, read our guidance on assessing and monitoring the employer covenant.
Mitigation and clearance
If you believe an employer event is materially detrimental to the scheme’s ability to meet its liabilities, you should raise your concerns with the employer, ensure appropriate mitigation is being considered, and enquire if they will be considering applying for clearance from us.
You can find examples of material detriment in our clearance guidance.
The employer may also want to carry out an incentive exercise or try to change the benefits in the scheme, either for future or past service, to reduce risk or cost associated with the scheme. This involves offering members the option to transfer out of the scheme or to change their benefits.
If an incentive exercise is proposed, you should look at your communications and support process for members to help them make informed decisions and better choices. You should also make sure the exercise is carried out in a fair and transparent manner.
Trustees and employers should follow best practice when conducting any exercise designed to make members aware of their options under the scheme, including the ability to transfer out.
Trustee toolkit online learning
The 'How a DB scheme works' module contains information on the employer covenant and corporate transactions. You must log in or sign up to use the Trustee toolkit.