When an insolvency event occurs, pension scheme validation will normally happen within 28 days. Once the scheme has been validated, the trustees must submit a project plan to the PPF outlining the tasks they will undertake, along with an estimate of costs for each task. This report will be updated on a regular basis to enable the PPF to track the trustees’ progress. The scheme trust deed and rules, along with amending documents, must be submitted to the PPF as soon as the scheme enters the assessment period and the trustees should inform the PPF if the scheme has triggered wind-up or entered into a compromise agreement.
Any active scheme members cease to accrue benefits at the assessment date and the trustees must issue an initial communication to all members at this point to explain what is happening with the scheme.
If the scheme is contracted out of the Second State Pension, the trustees must arrange to cancel the contracting out certificate. Cessation lists will then be provided by the National Insurance Services to the Pensions Industry and the information they contain must be reconciled with the data held by the administrator. Reconciliation of guaranteed minimum pensions normally forms part of the overall data and benefit audit where the trustees are required to check there are no gaps in the data and benefits have been administered in line with the trust deed and rules. Any discrepancies should be addressed as soon as possible because the audit is the most time-consuming task in the assessment process. I will cover this part of the process in more detail in the next article.
The trustees remain responsible for managing their scheme during a PPF assessment period, including settling and paying benefits at PPF levels of compensation. The trustees must undertake a review of benefits in payment for those members who had not reached scheme normal retirement age at the assessment date and are not in receipt of an ill-health or survivor’s benefit. Benefits for those members will be reduced to PPF levels and any overpayments reclaimed. It is beneficial for members if the trustees begin to reclaim overpayments during the assessment period as once transferred the PPF have a duty to apply interest to any overpayments.
Another important task that the trustees must carry out is a review of the changes to the rules of the pension scheme over the three years prior to the assessment date which may have resulted in an increase in scheme liabilities.
A review of the equalisation position is of paramount importance. For many schemes, amendments to their rules to allow for equalisation have not been carried out in accordance with the trust deed and rules and consequently scheme liabilities may be significantly higher than previously valued.
The trustees must ensure that investments are suitable for a scheme in the assessment period. As soon as the scheme enters the assessment period, the trustees may wish to take investment advice and reorganise investments if necessary to ensure the assets match the liabilities of the scheme. The trustees must also submit copies of contracts with advisers for review by the PPF and will ultimately arrange for the PPF to take control of the assets. Trustees’ report and accounts must be supplied throughout an assessment period.
After the initial tasks are complete, the PPF transition manager will begin to request all the information that the PPF requires to be able to pay compensation to members once it becomes responsible for the scheme.
The PPF takes responsibility for defined benefit schemes only and any money purchase assets held under the trust need to be discharged before the scheme transfers to the PPF.
WORKOUT TIPS
01 The PPF's scheme assessment periods last on average 12-24 months
02 Following validation, trustees must submit a project plan to the PPF outlining tasks and costs
03 During the assessment period trustees are still responsible for scheme management and PPF level benefits
Paula Cunningham is a trustee representative with Dalriada
