Service Areas   |   Distress and winding up

Support for clients who are initiating, responding to or grappling with the implications of change.

Change is the only constant in the pensions world. Clients may need to adapt to unexpected developments, such as the insolvency of a sponsoring employer, an employer’s proposal to cease accruals or terminate the scheme, a proposal to merge the scheme with another or simply to reorganise its own business. When it comes to supporting clients who are initiating, responding to or grappling with the implications of change, the partners at Arc Pensions Law have decades of experience to call upon in giving advice.

Benefit Redesign and Liability Management

The challenge of operating a defined benefit pension scheme is often as much about risk and uncertainty as the size of liabilities.

A vast range of factors affect the funding levels in a pension scheme. They can often be macro-economic issues that are outside the control of the employer or trustees, and quite unpredictable over the longer term. Nonetheless, businesses are increasingly looking for certitude in this area, with plans for de-risking their pension arrangements. Plans often include:

  • amending benefits where possible
  • changing investment strategies
  • buying in insurance policies and/or buying out benefits to the insurer, and/or
  • encouraging members to give up certain benefits or transfer their rights elsewhere in return for an enhanced benefit.

These options and any other de-risking proposals require careful legal analysis. Arc Pensions Law can help determine which options work for you and help to manage the process, ensuring that any risks are appropriately identified and dealt with. Understanding the benefits in the scheme is a fundamental form of de-risking. Assessment in this area and engagement with trustees is known as ‘safe settlement’, and highly important for any employer trying to keep control of risk and uncertainty. Our expertise in this area is discussed in more detail here.

Corporate Activity

Since the mid-2000s, businesses have had to be aware of the effects of normal business activity on their defined benefit pension arrangements.

Even the most standard commercial activity might affect the next valuation or give rise to demands for additional funding from the Pensions Regulator. Pensions law and regulation can seem ubiquitous and overly restrictive for corporate groups. These rules can apply to apparently unrelated acts, such as:

  • intra group reorganisations of assets
  • dividend payments
  • refinancing or increasing lender security
  • acquisition of business, and
  • guarantees of obligations of the group or other companies.

Arc Pensions Law can provide the practical advice you need to ensure that your business does not fall foul of regulation. With extensive experience in this area, we can ensure that the most productive approach is taken and that your business is not unduly affected by legal requirements. We can guide you through the planning stage, assist in engagements with the Pensions Regulator or scheme trustees, and generally minimise the time and cost of pensions regulation to the management of your business.

Deals and Transactions

Pension issues can be fundamental to any transaction involving the buying, selling or reorganisation of a business, and may involve restructuring of the transaction or significant changes to a scheme.

Amongst other things, there may be issues relating to:

  • sharing of funding risk and liability
  • understanding the level of funding shortfalls
  • triggering of pension debt payments from the transaction
  • unknown and unrecognised liabilities for benefits
  • liabilities for unfunded or unknown pension schemes
  • liabilities to employees relating to pension rights
  • risks of regulatory action or fines due to the management of the pension liabilities, and
  • guarantees or other obligations to pension schemes of the group or other group companies.

A business should be able to understand these risks and take action to limit and deal with them in the most appropriate way. Arc Pensions Law’s highly experienced team can ensure that such issues are raised early and proactively solved in a swift and pragmatic manner with minimal risks.

Pension Scheme Winding Up

As pension schemes come to an end, the process of winding up must be carefully handled.

The procedure is complex, covering such issues as:

  • legal aspects of triggering termination
  • trustee insurance and other enduring protection
  • negotiating individual annuity policies
  • managing Section 75 debts, and
  • formally documenting termination and discharge of trustees.

Arc Pensions Law can steer you through this process and give you confidence that, as far as possible:

  • members have been identified
  • benefits have been secured
  • liabilities have been met
  • regulatory notifications have been given, and
  • trustees have been discharged.

In the real world, it is not always possible to know that all these issues have been dealt with. For instance, beneficiaries may not be traceable or documentation on benefits incomplete. Our advice will help you reach a practical solution, protecting trustees and employers from future risks. If you are preparing your scheme for eventual winding up, whether as a scheme sponsor or trustee, please also take a look at our Safe Settlement page.

Restructuring, Distress and Insolvency

In any insolvent or distressed situation, a defined benefit pension scheme becomes a very large creditor (often the largest).

Although usually unsecured, the ‘moral hazard’ powers of the Pensions Regulator make it an important party to any restructuring process. Employers, trustees, insolvency practitioners and creditors need to understand the complex law around pensions and insolvency. Arc Partner Rosalind Connor covers many of these complexities in her Practitioners Guide to Pensions and Corporate Insolvency. The team at Arc Pensions Law have been advising on restructuring since before the present regime was introduced in 2005, and have since advised on a large number of leading transactions. We advise on matters including:

  • preparing proposals from the employer to the trustees, the Regulator and the PPF and managing the process effectively
  • advising trustees where the employer is in distressed or insolvent circumstances, dealing with their changing obligations and issues
  • working with lenders to protect their position in distressed circumstances where the PPF or trustees of a pension scheme are involved, and
  • advising insolvency practitioners on the pensions law and practice relating to their appointments.

Scheme Mergers

The number of occupational pension schemes continues to shrink as an increasing number of small schemes look to merge in order to benefit from economies of scale and deal effectively with regulatory and compliance issues.

A merger often makes sense in terms of cost and time management, saving on duplicated fees and avoiding separate trustee boards. However, the merger process itself is complex and there are many regulatory pitfalls. The team at Arc Pensions Law is highly adept and experienced in this area. We take all issues into consideration, from the balance of powers to funding, regulatory notifications to tax implications and sectionalisation to trustee appointments. We help to ensure that the process is carried out smoothly and swiftly, verifying that issues are dealt with in full, that the resulting scheme operates effectively and that the appropriate cost and time saving measures have been taken.

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