Ricky D’Ash: The long road to pensions wind-up

It will come as no surprise to employers with defined benefit (DB) pension schemes just how expensive they are to run and administer.

Often there are deficits to make good, as well as the various fees to maintain the scheme from actuaries, consultants, trustees and pension lawyers. It is no wonder that employers want to remove these liabilities from their books as quickly as possible.

I am currently involved in the wind-up of three DB pension schemes: two are very small, and one is medium-size with two sections, final salary and money purchase.

Each scheme has experienced its own problems and all three are yet to be fully wound up, despite the fact that we have been working to a two-year timeline from the start. 

One scheme was never contracted out and so does not have the complexity to deal with guaranteed minimum pension (GMP). The other two were contracted out and GMP is very much a reality.

With GMP, both the pensions administrator and HMRC (HM Revenue and Customs)] need to agree the provisions for pension members, because they would have contracted out of the state earnings-related pension scheme, or later the state second pension, and GMP must at least provide an equal value if the member was contracted in, so they would not be disadvantaged.

This can be an extremely lengthy process, because it depends on HMRC working with you to resolve issues. This has delayed the project by several months.

Data has proved to be a key issue, with missing data causing severe delays in some cases and being very expensive to fix. Another problem is poor past administration and, of course, changes in key internal and external personnel, who have moved on and taken knowledge of the scheme with them. 

Pension lawyers will need to work with employers to piece together the ‘picture’ or ‘storyline’ from the origination of the trust to the establishment of the trust’s history with the deed of amendments, additions, removals, and so on. A full benefits specification, which is ultimately presented to the buy-in insurer, must also be created.

In my current experience, it has been better to get as much done as possible before the employer sends the trustees an official notice to wind up the pension scheme. Statutory notices need publishing in the London Gazette and employers need to allow at least two months for potential missing beneficiaries to come forward. Once schemes officially enter into wind-up, The Pensions Regulator will be looking for completion within two years.  

Not forgetting the later stages of wind-up, trustee liability insurance needs to be considered for missing beneficiaries, bank accounts will need closing, and a final set of reports and accounts must be concluded before the final deed of termination. 

There is so much to plan for and many potential delays to factor into the project plan to achieve the ultimate outcome.

Ricky D’Ash is group reward manager at City and Guilds 

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