Insolvent Operating a Pension - Background


December 2012


61.70  Pension schemes operated by the insolvent – general

This Part of the chapter gives background information and guidance relating to pension schemes operated by the insolvent for the benefit of its/his/her employees.

Such a scheme would generally be termed an occupational pension scheme.

Information and guidance on the actions required of the official receiver when he/she encounters such a pension scheme operated by an insolvent for the benefit of the insolvent’s employees is in Part 6 of this chapter.


61.71  Types of occupational pension schemes

There are two main types of occupational pension schemes: 

  • Defined benefit schemes– where the level of benefits relate to the final or average salary of the employee. 
  • Defined contribution schemes (also known as money purchase schemes) – where the contributions made in respect of the scheme accumulate (and are perhaps invested) and the pension benefits are paid out of the final ‘pot’ of monies. 

See paragraph 61.9 for guidance regarding stakeholder pension schemes.


61.72  The administration of an occupational pension scheme

An occupational pension scheme (see paragraph 61.71) will have three people (or groups of people) involved in its operation – the employer, who sponsors and/or contributes to the scheme, the employees/members who benefit from the scheme and the trustee (see paragraph 61.74) who manages the scheme on behalf of the members.  The employer and/or the members(s) may, in some cases, also be the trustee.


61.73  The effect of the insolvency of an employer on a pension scheme

The effect on the pension scheme of the insolvency of an employer will be set out in the scheme’s trust deed and rules.

Unless the official receiver, as office holder, is the sole trustee (though this is unlikely to be a lasting state of affairs - see paragraph 61.96), the responsibility for considering, and dealing with, the effect of the insolvency on the scheme will rest with the scheme trustees.


61.74  Trustee of a pension scheme

The role of a trustee (of which each scheme may have a number) of a pension scheme is to run the scheme in accordance with the trust deed and rules for the benefit of the scheme members/beneficiaries.

The trustees (at least one third of whom should be nominated by the members) may be drawn from: 

  • Employees
  • Scheme members
  • Professional trustees
  • The employer
  • A business involved in running the scheme (such as a financial services company). 

In reality, in many of the companies dealt with by the official receiver, the trustees (who are likely to be the company and the director(s) of the company) will have appointed a financial services company to run and manage the pension scheme – though the trustees still bear ultimate responsibility for the correct operation of the scheme.


61.75  Disqualification of pension scheme trustee

It is a criminal offence to act as the trustee of a pension scheme whilst disqualified from doing so.  An individual who is subject to a disqualification  order under the Company Directors Disqualification Act 1986 or who is an undischarged bankrupt is disqualified from being a trustee of a pension scheme [note 1].  Any company that has a director that is disqualified from being a trustee is also disqualified [note 2].

The Pensions Regulator (see paragraph 61.77) may waive the disqualification, on the application of the disqualified person [note 3].


61.76  Pension Protection Fund

The role of the Pension Protection Fund (PPF) (see Annex H for address) is to provide a minimum level of benefits to members of a defined benefit (see paragraph 61.71) pension scheme.  The compensation will be paid where there is a qualifying insolvency event, a shortfall in the funding of the scheme needed to pay minimum levels of benefit, and it has not been possible to rescue the pension scheme.

The PPF and its compensation scheme is funded by levies on each defined benefit scheme.

Further information regarding the PPF is in paragraphs 61.100 to 61.102.


61.77  Pensions Regulator

The Pensions Regulator is the UK regulator of work based pension schemes; its specific objectives are provided for in the legislation governing pensions [note 4] [note 5]. The Pension Regulator (see Annex H for address) has a duty to ensure that all parties responsible for providing access to and managing work-based pensions fulfil their obligations.

The Pensions Regulator has enforcement powers; for example, it can seek a contribution notice where an employer has failed to fulfil its duty to properly fund a pension scheme – leaving the PPF to deal with the shortfall (see paragraph 61.76).  The contribution notice requires the responsible person to make good the loss to the PPF [note 6].  Such an order cannot be made against the official receiver for acts carried out in accordance with his/her duties [note 7].

The Pensions Regulator also maintains a list of independent pension trustees, and has the power to make an appointment of a trustee from the list to a pension scheme (see paragraph 61.96).


61.78  Winding-up of a pension scheme

A pension scheme will normally be wound-up if the employer is unwilling or unable to continue to make contributions to the scheme.  In these circumstances, it will be for the trustees of the scheme to decide if the scheme should be wound-up.  If the official receiver as liquidator is the only employer (i.e., if there are no other trustees and no independent trustee has been appointed – see paragraph 61.96), he/she should follow the guidance in Annex E paragraph 4 regarding winding-up.


[Back to Part 4 – Realising a vesting pension] [On to Part 6 – Insolvent operating a pension – action to take]