guidelines file cabinet label

The Pension Protection Fund (PPF) is a statutory fund which pays compensation to members of eligible salary-related pension schemes where the employer has become insolvent and the scheme has insufficient funds to cover the level of compensation offered by the PPF. The PPF is funded by compulsory annual levies charged on all eligible schemes as well as via an investment portfolio. The compensation payable is either 90% or 100% of what is due under the scheme (subject to a cap based on the age of the individual), depending on the circumstances of the individual involved. The PPF then claims as a creditor in the insolvency of the employer.

When an employer enters into an insolvency process, the PPF begins an assessment period. This period lasts at least a year during which the PPF assesses whether it will assume responsibility for that scheme. The PPF will only take on responsibility for an eligible scheme if:

  1. the scheme has insufficient funds to pay pensions equal to the compensation offered by the PPF;
  2. the insolvency practitioner (IP) has issued a scheme failure notice confirming that no scheme rescue is possible; and
  3. there has been no withdrawal event. A withdrawal notice can be issued by the PPF if it considers that the scheme is not eligible or by an IP if the pension scheme can be rescued.

The IP plays an important role in the assessment process.  The IP is required to serve a notice on the PPF when the employer enters into an insolvency process.  That notice begins the assessment period. The IP is then required to assess whether the pension scheme can be rescued, for example, if the employer can be rescued as a going concern. If it can, the IP issues a withdrawal notice.  If not, the IP issues a scheme failure notice.  During the assessment period the PPF acts as the creditor of the employer in relation to the pension scheme but in all other respects the scheme runs as normal and is administered by the trustees.

If the PPF takes responsibility for a scheme, the assets and liabilities of the scheme transfer automatically to the PPF and the scheme is deemed to have been wound up.  The PPF becomes responsible for paying compensation to members.

Because of the important role IP’s play in the assessment of a scheme and the PPF’s role as a creditor of the employer, the PPF have issued guidance on the IP’s role and the process to be followed.  That guidance, which is based on the statutory obligations of the IP set out in the Pensions Act 2004, can be found here:

http://www.pensionprotectionfund.org.uk/DocumentLibrary/Documents/insolvency_guidance.pdf

The guidance covers the obligations of the IP in notifying the PPF of an insolvency event as well as during the assessment period.  It also provides some guidance on the PPF’s approach during the assessment period.

The guidance also contains information on the circumstances in which the PPF (along with the Pensions Regulator) will participate in the restructuring of an employer, without entry into a formal insolvency process.  The circumstances in which it will do so are limited, and a number of criteria must be met, which are set out in the guidance.  The guidance also includes links to standard documentation.

This post was edited by Lisa Smith. For more information, email blogs@gateleyplc.com.

 


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.