Senior Pensions Consultant
Out-Law Guide | 10 Jun 2020 | 4:01 pm | 8 min. read
Written by Tina Rushworth, senior pensions consultant at Pinsent Masons, the law firm behind Out-Law.
As scheme secretary of the Carillion group of schemes, the most important lesson I learned from the collapse of a high profile sponsoring employer was to put contingency plans in place early. Existing good practice makes it easier to implement contingency plans when the need arises – and it helps to have a good scheme secretary in place who understands the scheme and the way that the trustee board works, or to appoint one if that role is not already filled.
Of course, every pension scheme and sponsoring employer is different. This makes it important to appoint the right specialists and professional advisers, who will be able to help manage and mitigate risks to the scheme.
An effective scheme secretary must be diligent, methodical and organised, with the ability to properly and clearly record trustee considerations, decisions, actions and references to specialist advice in real-time. They must bear in mind that regulators and the public may be reading their minutes and records at a later date, should the worst happen.
Senior Pensions Consultant
Existing good practice makes it easier to implement contingency plans when the need arises – and it helps to have a good scheme secretary in place who understands the scheme and the way that the trustee board works.
Carillion announced its first profit warning on 10 July 2017. At the time, I was scheme secretary to a board of 16 trustee directors and a company-appointed trustee of a trust-based defined contribution (DC) plan. Although it would be a further six months before the company was placed in liquidation, it was at this point that the nature of my work changed to almost daily liaison with The Pensions Regulator (TPR), appointing additional advisers and responding to concerns and queries from scheme members.
Some of the things that need to be considered at this stage are:
For the scheme secretary, the busiest point is before insolvency actually occurs and the PPF takes over. Here is where your preparations outlined above will pay off.
However the crisis has arisen – whether due to pandemic, a consequence of adverse trading or being subject to a corporate transaction - the following tasks are essential:
It goes without saying that confidentiality is paramount. Confidentiality agreements should be in place, and trustees must be clear on their responsibilities in this regard.
The next step is to ensure the right governance is in place. It will be necessary to:
Saving cost and duplication of effort is good if you can achieve it. One potential way of doing this is establishing a shared information portal to store governing documents, member communications, policies, benefit specifications etc. It is a good idea to ask your legal advisers to host and administer this portal, particularly for a large-scale liquidation which may be of future interest to a parliamentary select committee.
Administrative continuity ahead of any transition to PPF assessment should be a priority. If you have done your contingency planning well, this should go as well as it can.
Now, you should:
Remember that the PPF will need to approve any scheme expenses from the assessment date onwards.
Being aware of what happens from day one in PPF assessment will help trustees to get to grips with their obligations so training on this, and the different types of insolvency and their impact on pension schemes, is worth doing. Of course, understanding your scheme and its sponsors is essential so that you can identify which entities have to have an insolvency event before PPF assessment kicks in.
Once PPF assessment arrives, the focus of scheme governance changes from demonstrating best practice in all areas to more process-driven, codified governance.
The PPF operates in a different way to usual best practice. Decisions are quicker and based on codified rules, with the aim of moving assets into line with the PPF’s investment strategy and getting the scheme accepted into the PPF as quickly and cheaply as possible.
The PPF has the power to replace the scheme trustees with its own panel trustees. Where this happens, the scheme secretary will need to help facilitate the appointment of the new trustee and help with a smooth handover. Once appointed, the new trustee will have well established guidelines to follow to ensure as smooth a transition for the members into the PPF as possible.
Your scheme reference manual will help the new trustee get to grips with the scheme, as well as enabling ceding trustees to record any relevant matters they wish to before they go. If you set up an electronic portal for storing scheme documents and correspondence for future reference earlier in the process, this is the point at which you should upload any final documents that you believe may need to be retained.
Throughout the entire process, it will be important to communicate with scheme members, TPR and your advisers as soon as possible. Develop a media strategy, and ensure that your messaging is centralised and coordinated. A 'cascade' policy should be put in place for giving and receiving information for the trustees, which helps if only the chair is in the thick of the negotiations. This method is fast for communicating back and forth, and can work at all times of the day and night.
Make sure correspondence with members ahead of PPF assessment clearly flags up the risks and potential for scams on transferring assets out of the scheme. Your communications should help members who ask for transfer quotes understand the risks and the true value of giving up their pension and compensation that will be available from the PPF should they keep their funds invested in the scheme.
Engaging a PR consultant may also be useful here. They are often able to find out what will be published in the press ahead of publication, and can ensure that consistent information is released in order to stop scheme members panicking. In a large insolvency, most information gets to members through the television, social media, news sites and newspapers.
After social media and news outlets, the next port of call for members is the scheme administrator, scheme website and HR representatives. Having an FAQ document that is updated regularly is essential. Your pre-agreed communications strategy will help to manage this process.
Have a pre-prepared statement drafted depending on the outcome of negotiations the night before any announcement is made. This will probably be a holding letter to members unless the scheme has entered immediate PPF assessment. If assessment has occurred then there are standard letters provided by the PPF which can be sent. Your legal advisers can help with this.
28 Oct 2019
24 Mar 2020
Senior Pensions Consultant