The regulations and oversight of the UK Pensions Regulator (TPR) can only protect a pension scheme’s members so much. Sometimes there is nothing that can be done for a plan sponsor in terminal decline.

Yet if a company believes it could succeed were it not saddled with its pensions burden, it can petition the TPR for a regulated apportionment arrangement (RAA).

An RAA splits a business from its pension fund and allows it to continue trading. The concession is that in exchange for the pension scheme debt, the Pension Protection Fund (PPF) receives equity in the phoenix company. In time, it is hoped – rather than expected – that this asset will deliver returns in excess of those available at insolvency.

Anne-Marie Winton commented that RAAs are “not quite the pensions unicorn” and that it can take many years for some deals to be agreed. She believes the PPF would rather deal with a distressed scheme than an insolvent one, and this may lead to closed doors deals.

New legislation to tackle restrictions such as the 12-month rule, or the 28-day ‘cooling off’ period which could see a business go bust without anyone being able to work on a rescue plan, would also smooth the process.

Yet, these might be unnecessary if TPR was comfortable with its winding-up powers, suggests Anne-Marie. “TPR could then trigger a section 75 debt leading to the inevitable insolvency of the employer and then be handed off to PPF for a RAA,” she says.

However, Anne-Marie points to doubts over TPR’s current powers, although this could be resolved through legislation.

Read the full article here in Investment & Pensions Europe