(1 min read)
For only the second time in its history, the Pensions Regulator has exercised its power to authorise trustees of a pension scheme in wind-up to modify the scheme to allow a surplus to be paid to the scheme's employer. With an increasing number of schemes reaching an end game stage in which they are in surplus, it is possible that we may see the Regulator use this power more frequently in future. We take a look at the issues the Regulator considered before exercising its power.
The Pensions Regulator (TPR) has exercised its power to authorise a scheme trustee to modify a scheme in winding-up to allow the surplus to be paid to the scheme’s employer(s). This is only the second occasion on which TPR has exercised this power.
Section 69 of the Pensions Act 1995 allows TPR to make an order in relation to a scheme in winding-up which either modifies the scheme or authorises the trustees to modify the scheme to enable surplus assets to be distributed to the employer(s) after the scheme’s liabilities have been fully discharged. TPR can only make such an order if it is satisfied that there is no other way of enabling surplus assets to be distributed to the employer or (broadly) that any procedure for doing so is liable to be unduly complex or protracted.
The scheme’s rule dealing with surplus on a winding-up did not include a power to pay surplus to the employer(s), and its power of amendment prohibited amendments which would result such payments. The winding-up rule allowed the trustee to augment benefits on a “just and equitable” basis, but only with the consent of the Principal Employer. The Principal Employer had made clear that it would not give such consent. The two insurance companies with which the benefits had been bought out had in any event indicated that it would no longer be possible to adjust the bought out benefits.
The scheme had closed to future accrual with effect from 1 March 2011, and had become fully funded on a “technical provisions” basis from 31 December 2015. Since that time the Principal Employer had paid an additional £32.5 million in contributions into the scheme. The trustee therefore considered the Principal Employer to be the source of the surplus.
Our thoughts
What a scheme’s rules currently provide regarding surplus payments can sometimes simply be a reflection of the Inland Revenue rules in force as at the date of the scheme’s establishment. The current Pension Schemes Bill is due to give trustees power to modify a scheme to allow a surplus payment to the employer, but that power will not apply to a scheme that is being wound up.
