INSOLVENT OPERATING A PENSION – ACTIONS TO TAKE
This Part of the chapter gives information and guidance regarding the official receiver’s duties when a pension scheme operated by the insolvent for the benefit of the insolvent’s employers is encountered by the official receiver.
Such a scheme would generally be termed an occupational pension scheme (see paragraph 61.71).
Background information relating to an insolvent operating a pension is in Part 5.
The flowchart at Annex G gives the official receiver on overview of the process of dealing with a pension operated by an insolvent.
Stakeholder pensions (see paragraph 61.9) are not a pension scheme operated by the employer, as such. Instead, they are effectively personal pension schemes that are accessed by the employee through the employer. The key difference is that the operation the scheme is unlikely to be unaffected by the insolvency of the employer and it is not, therefore, necessary for any action to be taken as regards these types of pension schemes.
The guidance in this Part of the Chapter does not, therefore, apply where the pension scheme ‘operated’ by the insolvent is a stakeholder pension.
There are a number of duties on the official receiver, and actions for him/her to carry out as regards the insolvency of an employer that operated an occupational pension scheme:
In exceptional circumstances, the official receiver may have other duties if the insolvent employer were the only trustee of the pension scheme (though this is unlikely to be a lasting state of affairs - see paragraph 61.96). Guidance on those other duties is given in Annex E to this chapter.
The official receiver ought to be able to establish if he/she is the sole trustee (as employer) from the documents obtained in the enquiries outlined at paragraph 61.83, particularly the trust deed. In short, if the trust deed shows the company as the only trustee then the official receiver, as liquidator of the company, will be the sole trustee.
To assist in dealing with the pension, the official receiver should obtain the following information from the pension scheme trustee/administrator, using the standard letter (see paragraph 61.84):
If all/some of the information requested in the letter has been obtained from other sources, the letter should be amended as appropriate but should contain, as a minimum, the official receiver’s claim, as liquidator of the company or trustee of the bankrupt’s estate, for surplus funds (see paragraph 61.98).
The official receiver is required to issue:
Following the PPF accepting the pension into an assessment process (see paragraph 61.100), the PPF will assume all the creditor rights of the pension scheme trustees. This means that the official receiver will be required, after that date, to issue to the PPF all documents usually sent to creditors.
As outlined at paragraph 61.85, the official receiver is required to issue a notice to certain interested parties of the making of a winding-up or bankruptcy order [note 9]. The notice is accessed by following this link:
The form asks for details of the type of scheme, but there is no legal requirement that this part of the form is completed [note 10], so the official receiver should not spend time trying to establish these details.
If the insolvent operated more than one pension scheme, a separate notice is required for each scheme.
The form can be sent in paper format but there is an on-line facility, the use of which will cause the form to be sent to the PPF, the Pensions Regulator and the scheme trustees. Use of this facility requires registration, which is a simple process:
Assuming the PPF accepts the pension scheme into an assessment process (see paragraph 61.100), the official receiver, as liquidator or trustee is required to decide whether rescue of the pension scheme is possible. Such a rescue would only be possible if the insolvent employer is continuing as a going concern. In the vast majority of cases dealt with by the official receiver there will be no continuation of business (see Chapter 62) and, therefore, the official receiver will be required to issue a notice that scheme rescue has not been possible [note 12].
The form may be found by following this link:
The form should not be issued if a case with a trading business is to be handed over to an insolvency practitioner. Responsibility to make the decision regarding the rescue of the scheme will rest with the practitioner appointed.
Where the official receiver’s appointment as liquidator or trustee comes to an end through the rescission or annulment of the order, he/she should notify the interested parties (see paragraph 61.85) of this fact.
The relevant form can be found by following this link:
The employer has a general duty to co-operate with the trustee of a pension scheme [note 13] and to provide such information as may reasonably be required to facilitate the effective operation of the scheme. This duty is extended to the official receiver [note 14], as liquidator or trustee, but is subject to his/her ability to recover any costs incurred in dealing with the duty. If not, he/she may require the pension scheme trustee to meet the expenses.
There are civil penalties for failing in this duty and the official receiver should, therefore, deal with requests for information from the trustee expeditiously – seeking the guidance of Technical Section as appropriate.
The Pensions Regulator has wide powers to seek information from parties dealing with a pension scheme, including the official receiver [note 15]. Correspondence from the Pensions Regulator should be dealt with promptly and any correspondence received from the Pensions Regulator in cases where the official receiver is sole trustee (see Annex E paragraph 1) should be referred to Technical Section.
If any of the insolvent employer’s contributions to the scheme, or those contributions deducted from employees, are outstanding as at the date of the insolvency, it is possible for the trustee of the pension scheme to make a claim on the National Insurance Fund (see paragraph 76.44), via the Redundancy Payments Service (RPS).
The official receiver, as office holder, has a duty to co-operate with the RPS [note 16] [note 17] and any reasonable request for information or documents (which is likely to involve completion of an RP15) should, therefore, be complied with.
Where the official receiver has concerns regarding the operation of the pension scheme, they may be reported/discussed as follows:
In all cases, the official receiver may discuss any concerns with Technical Section before any formal report is made.
When the official receiver has completed the liquidation of the company, a letter should be sent to the trustees and/or administrator of the scheme to check that the imminent dissolution of the company will not hinder the administration/winding-up of the scheme (see paragraph 61.78).
If the scheme’s trustees or administrators wish the company to remain on the register, the official receiver should reach an agreement with them for a suitable period of deferral of dissolution of the company (see paragraph 38.48).
The official receiver may nevertheless apply for release as liquidator, since he/she can exercise the company’s functions in relation to the scheme as liquidator ex-officio at any time before dissolution, if required [note 19] [note 20].
Following receipt of the section 120 notice (see paragraph 61.87), the Pensions Regulator (see paragraph 61.77) has the power to seek the appointment of an independent trustee to a pension scheme [note 21].
It is the general policy of the Pensions Regulator to seek the appointment of a trustee where the insolvent employer is the sole trustee and/or where the (other) trustees are no longer contactable. Where the official receiver is aware that the insolvent employer is the sole trustee, he/she should encourage the Pensions Regulator to make such an appointment, if this is not already in process or has not already been carried out.
It is unlikely, therefore, that the official receiver, as office holder, will have to carry out any of the functions of a trustee of a pension scheme. General guidance on some of these duties is outlined in paragraph 61.74, and more detailed guidance can be found in Annex E.
Depending on the terms of the pension scheme rules, the official receiver as liquidator may be requested to exercise the discretion of the company to, for example, allow the scheme to continue.
The exercising of such discretion often gives rise to a conflict between the liquidator’s duties to the scheme members and company creditors. Conversely, the official receiver may be under a duty to exercise discretion [note 22].
The official receiver should therefore not exercise such discretion without first obtaining legal advice that this is the correct way to proceed. The parties requesting the exercise of discretion should pay the costs of obtaining that advice.
Guidance on other trustee functions that the official receiver may be asked to perform is contained within Annex E.
The rules relating to the operation of pension schemes provide that the scheme is operated as a separate entity to the employer, and that the funds are not mixed with company monies. It is extremely unlikely, therefore, that the funds in a pension scheme would be available to the official receiver as liquidator. In certain circumstances, however, some or all of the scheme funds might be claimed by the liquidator. Some examples are as follows:
As regards the final two bullet points, above, it is likely that the official receiver will need specialist assistance as regards recovery. The advice of Technical Section should be sought in such cases.
Where, following winding-up of the scheme (see paragraph 61.78), there is a deficiency in the assets of the scheme such that it is not possible to pay the benefits due under the scheme in full, that deficiency is a provable debt against the company in liquidation or the bankruptcy estate [note 23].
Since a defined contribution (money purchase) scheme generally pays out benefits based on the monies accumulated in the scheme, it is far more likely that a deficiency in the scheme assets will be found in a defined benefit (final/average salary) scheme.
On receipt of the notice of insolvency (see paragraph 61.87) and scheme status (see paragraph 61.89), the PPF decide, within 28 days, if the scheme is to enter into an assessment process. The PPF will assess the pension scheme for eligibility for the compensation scheme based on the type of insolvency event and the nature of the pension scheme. The types of insolvency dealt with by the official receiver will meet the PPF eligibility criteria, as will most occupational pension schemes that are defined benefit schemes [note 24] (see paragraph 61.71).
The assessment period may take up to two years, but the official receiver need have no direct involvement, and will have little indirect involvement unless he/she is the sole pension trustee which is unlikely (see paragraph 61.96 - see Annex E paragraph 2).
Assuming the scheme meets the eligibility criteria (see paragraph 61.100), the PPF will issue a notice to the official receiver and assume responsibility for the pension scheme from the trustees. If any of the relevant eligibility criteria are not met, the PPF will have no further involvement in the pension scheme. Similarly, the PPF will not assume control of the pension if it is assessed that there are sufficient assets to pay the benefits due under the scheme. In that case, it will become the responsibility of the scheme trustees to wind-up the scheme (see paragraph 61.78).
Any sums due to the scheme from the employer, during the assessment period, should be passed to the PPF rather than the scheme trustees. In reality, such a need to pass over monies is unlikely to arise in cases dealt with by the official receiver. If in doubt, the official receiver should seek advice from Technical Section.
Enquiries from pension scheme members can be directed to the trustees or, if the question is about the PPF compensation, the enquirer may be directed to the PPF (see paragraph 61.76).
Enquiries regarding the pension scheme from scheme members should be directed to the pension scheme trustees unless the PPF has assumed control of the pension (see paragraph 61.100).
If the enquiry regards the operation of the PPF compensation scheme, the enquirer may be directed to the PPF.
[Back to Part 5 – Insolvent operating a pension – background]