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Winding up your DB scheme

If wind up is triggered and not deferred, you must wind up your defined benefit (DB) pension scheme efficiently and effectively. Make sure that at least the main tasks are completed within two years.

Key points

  • Notify us that that your DB scheme has begun winding up.
  • Submit a wind-up report if your scheme has not fully wound up two years after it was triggered.
  • Put a project plan in place to help you plan effectively and complete at least the key wind-up activities within two years of starting the process.

Triggering wind up for your scheme

You and the employer may decide to wind up the scheme for a number of reasons. For example, if you and the employer are unable to put an adequate funding solution in place you should consider whether you and/or the employer have the power to wind up the scheme and if this is the most appropriate step, or how the scheme’s interests in the employer can otherwise be protected or realised.

You should also be aware when compulsory winding up of the scheme can otherwise be triggered, eg the scheme rules may require the scheme to be wound up if no participating employer remains or we may use our powers to direct you to do so.

Notifying the regulator

If your scheme begins to wind up, you must notify us. You can do this using our online service Exchange.

If the scheme has not fully wound up two years after wind-up was triggered, you must submit a wind-up report. You can submit the report using Exchange.

Key wind-up activities

The key activities you should complete when winding up your DB scheme are:

  • calculating whether there is a debt on the employer (under section 75 of the Pensions Act 1995) and serving that debt if so
  • securing pensioner benefits
  • identifying the remaining non-pensioners’ share of assets and obtaining terms from an insurer to secure those deferred benefits
  • issuing option letters to non-pensioners and then details of insured benefits
  • conducting a final actuarial valuation
  • obtaining final audited accounts.

You should complete at least the key activities within two years of starting the wind-up process. You should create a project plan to help you meet this timeframe.

To avoid unreasonable delays you should adopt a pragmatic and proportionate approach. However, you still need to work in accordance with the provisions of the trust deed and rules, your fiduciary duties and other legal requirements.

Section 75 debts

One of the consequences of triggering wind-up is that a section 75 debt may become due from the employer(s) if the scheme has a funding shortfall. The debt is generally equivalent to the amount that it will cost the scheme to buy annuities to secure members’ benefits in full.

After a scheme begins winding up, you need to ensure that section 75 debts are calculated and collected from the employer.

Pension Protection Fund (PPF) entry

If your employer is insolvent and your DB scheme is underfunded, you may need to consider applying for entry to the PPF. You’ll need to take the scheme through the PPF assessment period. For more information, go to the PPF information for scheme trustees.