Pension scheme restructuring, benefit change and wind-up
Restructuring and wind-up involve changing benefits or ending a scheme. The exam tests s67 protection, employer debt, PPF entry and buy-out, plus the moral hazard regime.
Core rules
- Accrued rights are protected by s67 Pensions Act 1995; changes need an actuarial equivalence certificate or member consent. Future accrual can be changed prospectively.
- s75 employer debt arises on wind-up or an employer leaving a multi-employer scheme; it is calculated on a prescribed basis (often buy-out for non-PPF wind-ups, s179 for PPF entry).
- PPF assessment: 12-month assessment period, s179 valuation, compensation at 90% of accrued pension for those below normal pension age, subject to a cap, with limited indexation.
- Moral hazard: TPR can issue Contribution Notices and Financial Support Directions; Regulated Apportionment Arrangements allow an insolvent employer to separate from the scheme with PPF and TPR approval.
- Buy-ins and buy-outs transfer risk to an insurer; a buy-in is an asset while a buy-out ends the scheme.
Worked example
On wind-up, assets are £60m and buy-out liabilities £85m, so the s75 debt is £25m. The employer cannot pay. On PPF entry, the s179 liability is £70m. The PPF deficit is £10m, and members may receive less than their full promise. The gap between £25m and £10m illustrates why the buy-out and PPF bases are not interchangeable.
Traps
Assuming accrued benefits can be cut without protection; confusing s75 with s179; ignoring wind-up expenses; forgetting GMP equalisation; treating a buy-in as ending the scheme; overlooking TPR clearance before a corporate transaction.