Trustees may face DB worries

The Pension Regulator’s draft guidance on the abandonment of defined benefit (DB) pension schemes could place trustees in a difficult position.

The paper Abandonment of defined benefit pension schemes, which is under consultation until 9 February, is aimed at explaining to trustees how to recognise plans that could be affected.

In it, the Regulator states that it intends to look at the abandonment of schemes “in the context of a developing market that is seeking to transfer the risks inherent in pension schemes to third parties”.

But a spokeswoman for the Regulator denied it was concerned with companies such as life assurance firm Paternoster, which was set up to buy out DB schemes.

“We had seen some examples of suggestions that [employers] were looking at with regard to defined benefit schemes which were effectively removing them from the employer, so they were just leaving them without any protection. [Companies] like Paternoster, where you have got buyouts, such as annuity buyouts, [with] an insurance product that is regulated by the Financial Services Authority, [are] not what we are talking about,” she explained.

The consultation paper, however, fails to give any examples of what constitutes abandonment of a scheme. Tony Barnard, technical consultant at Gissings, said this makes it very difficult for trustees. “If you go through the whole of the discussion paper, [the Regulator] knows there is a problem, but [it] seems uncertain of what the nature of the problem is.”

He advised trustees faced with the buyout of a DB scheme to talk to the Regulator directly. “Apart from independent, professional trustees, the majority of trustees are not going to have the necessary experience. Get the Regulator involved at an early stage would be my [advice].”