Trustee Guidance: Overview of an assessment period
Introduction
The guidance on the Assessment Period Process – found on this webpage and subsequent pages of this website - aims to provide assistance to trustees of eligible occupational pension schemes on the process for assessing a pension scheme for possible transfer into the Pension Protection Fund following employer insolvency. It also aims to assist insolvency practitioners and advisers to pension scheme trustees.
This is presented solely as guidance to assist readers through the process. It is not a statement of law.
Unless stated otherwise, any references to: the Act; sections; schedules and regulations relate to those under the Pensions Act 2004. You would need to verify for yourself whether legislation is in force or whether it has been amended or repealed by subsequent legislation. References to any powers and responsibilities of the Pension Protection Fund referred to throughout the guidance are more properly described as being of the Board of the Pension Protection Fund. However, for clarity we have referred to the Pension Protection Fund throughout.
At the Start of the Assessment Period
The assessment period process will begin on the occurrence of a relevant insolvency event.
Where the employer cannot become formally insolvent, the trustees or the Pensions Regulator must inform the Pension Protection Fund when they become aware that the employer is unlikely to continue as a going concern.
During the assessment period, and in order to determine whether it should assume responsibility for an eligible pension scheme, the Pension Protection Fund will look to establish answers to two key questions:
- can the pension scheme be rescued?
- can the pension scheme afford to secure benefits which are at least equal to the Pension Protection Fund protected liabilities if it assumed responsibility for the pension scheme?
If the answer to either of these questions is ‘yes’, the Pension Protection Fund will cease to be involved with the pension scheme and the pension scheme will either continue or wind-up outside of the Pension Protection Fund.
However, if the answer to both is ‘no’, and the relevant processes and procedures have been completed, the Pension Protection Fund will assume responsibility for the pension scheme.
The subsequent web pages - detailed in the left margin – will guide you through the assessment period process.
Pension schemes that do not follow the usual process
Some pension schemes, because of their structure, do not follow the usual process and need to be handled in a different way.
Please follow the appropriate link if your scheme:
Further information can also be found in the regulations supporting the Act.
The Role of the Trustees
During the assessment process, trustees will play an important role and will:
1.continue to be responsible for the ongoing operation of the pension scheme. Trustees should be proactive and take the necessary actions to ensure the pension scheme passes through the assessment period in both a timely and cost effective manner – consistent with their fiduciary duties and obligations.
2.co-operate with the Pension Protection Fund to ensure that the pension scheme is managed in accordance with the Act by making themselves aware of a number of activities that should be carried out, and of a number of legal requirements placed on the pension scheme by virtue of the Act that will need to be applied during the assessment period. The legal framework for the assessment processes is fully set out in the provisions in Part 2 of the Act, sections 107 to 220, Schedules 5-9 and associated regulations.
3.continue to ensure current pension scheme members’ benefits, plus those who reach the normal pension age during the assessment period, are paid at a level that does not exceed the Pension Protection Fund level of compensation. In the majority of cases it is expected that members’ benefits will be paid at the Pension Protection Fund level of compensation. See Financial Management
4.keep pension scheme members informed of developments and deal with their questions relating to the pension scheme or their individual entitlement.
5.co-operate with the Pension Protection Fund by preparing and monitoring progress against a management plan. See Management Plans
6.commence preparation tasks for the section 143 actuarial valuation of the pension scheme, including data cleansing activities and reconciliation of Guaranteed Minimum Pensions. See Data Audit
7.co-operate with the Pension Protection Fund by providing the information as specified in schedule 2 of the Provision of Information Regulations, where required or requested, about the pension scheme, for example by:
- providing copies of minutes of trustees’ meetings on a timely basis,
- informing the Pension Protection Fund of any changes in relation to the pension scheme generally and its administration;
- providing information on investments during the assessment period.
8.manage the pension scheme assets prudently to ensure that any deficit is kept to a minimum. See Financial Management
The Role of the Pension Protection Fund
The Pension Protection Fund is committed to working closely with trustees during what may be a stressful time for both the trustees and pension scheme members.
The Pension Protection Fund will assign a dedicated caseworker who will be responsible for each pension scheme and will provide assistance and guidance to trustees throughout the assessment period on any areas of uncertainty surrounding their responsibilities. This person should be the key point of contact for trustees.
During an assessment period, the Pension Protection Fund may undertake a monitoring role in relation to the trustees of the scheme. This is to ensure that the trustees operate the scheme in an appropriate manner for potential entry to the Pension Protection Fund.
The Pension Protection Fund will also act as Creditor of the Employer and monitor the progress of the insolvency proceedings, liaising closely with the insolvency practitioner.
Where the Pension Protection Fund ultimately assumes responsibility for a scheme, arrangements will then be made to pay compensation to the scheme members. See Responsibility for the Pension Scheme Assumed
It is the intention of the Pension Protection Fund to work in partnership with scheme trustees. This will involve working collaboratively to achieve the objective of transferring the scheme in a timely and effective manner. Trustees must be aware, however, that in certain circumstances, the Pension Protection Fund has powers under the Act to issue directions to trustees and other relevant persons in relation to areas such as:
- investment of the pension scheme assets;
- incurring expenditure;
- instigating or conducting legal proceedings; and
- discharging money purchase benefits in the case of hybrid pension schemes.
Action may also be taken by the Pension Protection Fund when the necessary information is not provided to enable the organisation to carry out its functions, or where false or misleading information has been provided knowingly.
The Pension Protection Fund may also request the Pensions Regulator to apply sanctions under its powers where trustees do not comply with legislation in relation to the operation of the pension scheme.
The Role of the Pensions Regulator
The Pensions Regulator’s role relating to the assessment period includes the following activities:
- appointing an independent trustee, where it is appropriate;
- monitoring moral hazard activities of employers;
- in cases where a sponsoring employer of a pension scheme cannot be subject to insolvency events, for example, where the employer is a public body or an unincorporated charity, the Pensions Regulator will notify the Pension Protection Fund when they become aware that an employer is unlikely to continue as a going concern; and
- applying sanctions when called upon by the Pension Protection Fund
Once a scheme enters an assessment period, the Pension Protection Fund will work closely with the Regulator, keeping it informed of any relevant developments relating to the scheme. The Regulator may use its powers when problems arise on individual schemes.
For further information on the Pensions Regulator, visit its website
The Role of the Insolvency Practitioner
The insolvency practitioner undertakes a number of significant roles relating to the assessment period. These include:
- notifying an insolvency event to the Pension Protection Fund, the Pensions Regulator and the pension scheme trustees;
- confirming that the pension scheme will or will not be rescued; and
- dealing with the Pension Protection Fund in relation to its role as creditor of the employer.
The Pension Protection Fund will actively participate in the progress of insolvency proceedings, as appropriate.
Guidance for Insolvency Practitioners and Official Receivers provides information on how insolvency practitioners and official receivers should interact with the Pension Protection Fund in the event that an employer, with an occupational pension scheme, suffers an insolvency event.
Created May 2006
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