• At the end of the trust period
  • Historically due to rule against perpetuities
• In the circumstances specified in the Trust Deed
  • Principal employer gives notice of its intention to cease contributions
  • Principal employer ceases to trade or goes into liquidation
  • No beneficiaries left
  • If a date one year before the expiration of the trust period is reached
  • Trustees consider the scheme to be insolvent.
• Termination by the Pensions Regulator
  • Section 11 Pensions Act 1995
  • ought to be replaced by another scheme
  • scheme no longer required
  • to protect the interests of members

• A which would otherwise be wound up is allowed to continue as a 'closed' arrangement
• Must be necessary provision under trust deed or the requirements of s38 PA95
• No new joiners but benefits continue to build up for existing members
• Achieved by employer exercising existing power or by power of amendment
• Closure common where employer wishes to move to DC
• Will not usually trigger the scheme's winding up provisions
• Cannot usually be re-opened

Closure to future accrual notes (6)

What Section of which Act gives the Regulator the power to freeze pension schemes?

In which 2 circumstances can the Regulator use this power?

• scheme continues to exist but no future accrual
• Death in service benefits, may or may not continue
• Pensionable service link may be frozen; salary increases link not maintained - benefits linked to pensionable service and salary to date of closure
• Frozen arrangement may result from exercise of powers under TDR 
• Where commencement of winding up has been triggered by event under the trust deed, trustees may have power to postpone winding up and continue scheme.
• However, closure of scheme via power of amendment may trigger wind up 

Section 23 Pensions Act 2004

•  Pending consideration being given to the making of an order to terminate the scheme under section 11 of the Pensions Act 1995
• If it is necessary to protect the interests of the generality of the members of the scheme.

What does a freezing order do?

What additional directions may it contain? (6)

Terminate the accrual of benefits and prevent the scheme from commencing wind up.

May also contain the following directions:

• No new members
• No further contributions
• No benefits to be paid out
• No transfers
• No Statements of entitlement to be provided to members
• No refunds are to be made

• Close the scheme to new entrants
• Operate the scheme as a frozen arrangement
• Make transfers to another approved scheme
• Realise the assets of the scheme, commission an actuarial investigation and allocate money available to provide transfer payments for members/purchase annuities.

1. Trustees' Position
2. Priorities
3. Award of Benefits
4. Modification by the Regulator
5. Supervision by the Regulator
6. Written Records
7. Directions by the Regulator

Notes on 'Trustees Position'

regarding the procedure for winding up

• Ensure assets disposed of in accordance with priority order
• Important: if there's insufficient assets, the ordert will determine the priority in which the assets are applied
• Common for TDR to contain an order but in most cases overridden by statutory priority order s73 PA95
• Options available to T's if an event occurs which could lead to wind-up:
  • close the scheme to new entrants
  • operate the scheme as a frozen arrangement
  • make transfers to another approved scheme in respec of employees who become eligible to join that scheme
  • realise the assets, commission an actuarial investigation, and allocate the money (after expenses) to provide TV's or the purchase of non-commutable and non-assignable annuities
• Notify members of winding up
  • OPS(DoI)Regs 96 - within one month of commencement of wind up
• Action pan to achieve wind up
• Follow regulator guidance on winding up
• T's powers will generally continue to be exercisable, although may not have power of amendment, etc
• If wind up is intentional - possible to amend rules before wind up triggered

How long do trustees have to inform members of the commencement of winding up?

What Regulation enforces this?

1 month

Occupational Pension Scheme (Disclosure of Information) Regulations 1996

• Power of amendment
• Employer's consent is no longer required to amendments
• Only powers contained in the winding up provisions are available

• Expenses
• Benefits under policies issued before 6 April 97
• Liability for pensions that do not exceed the corresponding PPF liability
• AVC's
• Any liability for pensions or other benefits.
• 6 April 2005

Notes on 'Award of Benefits'

with regards to procedure for winding up

• Preservation requirements allow a refund of member conts - less than 2 years service
• Otherwise benefits provided should be in pension form (plus lump sum)
• Terms of contract/policy should ensure that deferred benefits are not paid before the earliest date from which an immediate pension or early retirement could be paid unless ill health
• Shouldn't be a provision permitting full commutation on grounds of serious ill health unless insurer has made satisfactory arrangements for payment of tax due where amount paid results in lifetime allowance being exceeded
• Provide for authorised payments

• The Regulator has the power to modify a scheme being wound up to ensure the scheme is properly wound up where the employer has become insolvent. 
• Regulator can only exercise this power where the trustees have applied for an order.
• Order must be limited to the minimum required and must not have an adverse effect on the accrued rights

What conditions must be met before the regulator can give directions?

What can the regulator require any person to do? (4)

Who cannot be subject to directions?

• Where periodic reports are being made under s72B PA95
• The first report has been made or should've.

1. Provide the T's or managers with specified info
2. Provide persons involved with admin with specified info
3. provide any prescribed person with info
4. take such steps as may be specified

• Persons involved with the administration
  • employer
  • trustees
  • auditor
  • legal adviser
  • fund manager
  • person acting int he administration of the scheme

• Supervision of the windup by the Regulator.
• Trustees must make periodic reports to the Regulator.  The first report must be made within 3 months of the 3rd anniversary on which the winding up commenced.

• Trustees are not taking steps that the Regulator considers would be taken if they were acting reasonably.
• Steps are being taken that are causing unreasonable delay
• Winding up is being obstructed or unreasonably delayed by the failure of any person to provide info or take steps asked of them.
• Winding up is likely to be facilitated or accelerated by the taking of any step by any person other than the Trustees.

Company Insolvency Notes

Protection of Assets (2)

Arrears of contributions

• Where scheme is wound up as a result of employer insolvency, Scheme's status as trust means assets are held seperately from employer's and protected.
• Trust status does not protect the value of any scheme assets that are invested in employer's business (can be no more than 5%)
• Apply to the Secretaty of State for Work and Pensions for payment from the State redundancy fund in respect of relevant contributions due.
• Relevant conts:  Those due in the 12 months prior to the date of insolvency, to a maximum of 10% of remuneration

• Number of possibilities:
  • Augment benefits or return surplus to employer
  • T's power to augment may require consent of employer
  • T's may be directed to augment up to old HMRC limits before returning surplus to employer
• Where T's have power to decide - difficult choice
• Principal dutys is to members so augmentation should be main imperative
• Employer can be seen as a potential beneficiary where the balance of cost has been met by the employer

• TDR usually sets out how surplus dealt with
• May be at discretion of T's or with employer consent
• Question arises as to whether employer can decide in its own interest not to make augmentation or whether it has to act in a fiduciary manner
• Mettoy Pension Trustees Ltd V. Evans (1990)
  • Employer's power was fiduciary and therefore must consider the interests of beneficiaries.  The power could not be exercised by the liquidator use primary duty is to the employer's creditors.

• All benefits have been bought out in full
• Benefits have been augmented where there is power to do so.
• two notices have been given to members.
  • First stating they may make representations to the T's or employer
  • Second stating they have the right to make representations to the Regulator if they think the refund requrements are not satisfied
  • notices must allow a five month period for representation to be made
• Tax charge levied on any refund - 35%

An insolvency event occurs for the purposes of the PPF where:  (7)

• A proposal for a voluntary arrangement is made
• There is an application for a moratorium where a voluntary arrangement is proposed
• An administrative receiver is appointed
• The company enters into administration
• The company enters into a voluntary wind up without a declaration of solvency
• A members' voluntary liquidation is converted into a creditors' voluntary liquidation
• A winding up order is made by a court.

• An insolvency event will trigger the beginning of an assessment period.
• At least 1 year period.
• Trustees remain responsible for the operation of the scheme but:
  •  no conts can be paid,
  • no new members,
  • no further benefits can accrue,
  • wind up can't commence without approval of PPF board.
• PPF board may direct the T's as to:
  • how assets are to be invested,
  • the incurring of expenses,
  • the payment of benefits,
  • recovery of debts on employer and
  • conduct of any proceedings
• PPF board will commission actuarial valuation to determine whether scheme can meet cost of priority liabilities:
  • Can secure PPF liabilities and scheme rescue possible - T's commence wind up
  • Can't meet PPF liabilities, PPF boad take responsibility for scheme
  • Can meet PPF liabilities, but not full benefits, PPF can direct T's to run scheme as closed fund, but if scheme subsequently becomes incapable of meeting PPF liabilities, the PPF must take responsibility.
• Transfer of assets to PPF takes place within 12 months of end of assessment period 

• Insolvency practitioner ust give notice of insolvency event to regulator and Trustees
• Insolvency Practitioner must issue a scheme failure notice to confirm that a scheme rescue is not possible.
• A Withdrawal Notice is where the Practitioner confirms that a scheme rescue has occurred.

• To provide benefits for certain members of pension schemes which do not qualify for the PPF
• Those which commenced wind up before 6 April 2005 and a relevant insolvency event has occurred in relation to the employer before or after 6 April 2005

• T's must make arrangements to secure contracted out rights
• For COSR schemes with GMP and/or PR's, rights may be secured by:
  • Transfer to another contracted out scheme
  • Purchase of a section 32 buy-out policy
  • Purchase of immediate or deferred annuity
• COMP schemes:
  • Transfer to another contracted out scheme
  • purchase of annuity from life office
  • purcahse of insurance policy

What is a deemed buy back?

In what circumstance can it be used?

• Where the individual member can apply to the DWP to get it's contracted out rights bought back.
• When the employer is insolvent and the scheme is not sufficiently funded to pay a CETV to restore the state scheme rights of the member.
• Complex procedures which requires T's to decide whether to bear the cost of carrying out calcs in relation to a sample of membership and apply to NISPI
• NISPI wiil calculate the TV's required and indicate the amount of state scheme benefit which would be paid to each member
• Each individual member decides - they forfeit their right on winding up
• Can present problems for T's due to cost.  However if likelihood that state benefits wil exceed what would otherwise be available to some/all members, the T's have a clear duty to consider whether to apply.
• May also be necessary to amend the scheme rules

• Take a surrender value and utilise the proceeds elsewhere
• Treat benefits as paid up so that no further premiums are payable and the benefits are crystallised and the policy can then be assigned to the relevant member.

• Normally calculated by insurer as and when required
• but policy may contain guaranteed minimum surrender value basis
• If large amount, insurer may require advanced notice of intention to surrender, alternatively may hold right to pay the surrender value over a period of time.
• An option to surrender on guaranteed terms at any time would leave insurer open to adverse selection by policyholder
• Surrender means company will not receive all the premiums it anticipated
• Also, to pay surrender value the insurer would need to realise underlying investments at a favourable time
• Surrender value offered will be less than the accumulated premiums paid and investment growth to date

1. Trustee Act 1925 provides a mechanism under which trustees can advertise for claims prior to winding up
2. Exoneration clause
3. Indemnity from principal employer
4. 'run-off' insurance