Trustees need help with wind-up deadline
UK - A joint consultation statement on the winding-up of pension schemes has been criticised by Hymans Robertson for failing to explain how trustees are expected to complete the process within two years.
The consulting and actuarial firm said the consultation from the UK Pensions Regulator (TPR), the Pension Protection Fund (PPF) and the Department for Work and Pensions (DWP) was a "laudable" attempt to speed-up a "tortuous process" but warned trustees need more guidance.
The tripartite statement from the three organisations lists its expectations for the process but says, in particular, trustees should complete the key activities of winding up a scheme, including those eligible for the Financial Assistance Scheme (FAS), within two years.
It also stated if trustees are considered by regulatory authority to be taking "unnecessary delays" in the winding-up process, the TPR will use its powers to issue directions or appoint and remove trustees.
However, Martin Potter, partner at Hymans Robertson, said the statement recommends scheme wind-ups should be completed within two years but "fails to explain how this might actually be achieved in the current circumstances".
He claimed the task of reconciling Guaranteed Minimum Pensions (GMP) and the process of equalising benefits are just two complications in the winding-up of a scheme TPR has failed to tackle in the draft guidance published alongside the consultation.
In the guidance, TPR admitted reconciliation of GMP was a "time-consuming process" but claimed it did not take a view on whether GMP benefits should be equalised or not , though warned it would "discourage trustees from creating unnecessary delays in deciding how to deal with GMP equalisation".
However, Potter said while it is "laudable to seek to expedite an often tortuous process, this won't happen solely through improved project management: as current legislative barriers make scheme wind-ups akin to wading through treacle".
He added: "Simply trying to reconcile the Post-Pensions Act priority order - which requires PPF benefits to be secured first - with complex rules covering securing members' benefits which, in turn, require GMPs to be secured first, is hugely confusing for members."
In addition, Potter revealed as trustees are left with unlimited liability for their actions after the scheme is wound up and all assets are distributed - which means they could still be faced with substantial claims against them in the future - it is "hardly surprising that trustees want to tread warily and take their time when winding up a scheme".
Instead, he claimed trustees should be able to "act pragmatically without fear of unlimited claims" and should be allowed to secure benefits which are substantially the same as those provided by the scheme rules, without the need to replicate ever nuance of the scheme rules, as only then will the timescale for winding-up a scheme be reduced.
"This announcement offers nothing to trustees in this difficult situation nor to their members who find themselves in very difficult financial circumstances. This is a long-standing and real pensions security problem that is clearly still a long way off being solved," added Potter.
The consultation, which aims to maximise the value of scheme assets while also reducing PPF levy payments by avoiding the costs of lengthy wind-ups or entry into the PPF assessment period, will close to comments on April 15 2008.
If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email email@example.com