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20 Contributions by gunnercooke LLP
PRACTICE NOTES
Purpose of participation
Admitting a new employer to an occupational pension scheme is intended to extend the scheme’s benefits to that employer’s relevant employees, ensuring those workers of the new employer can access the benefits provided.
Reason for participation
An employer might choose to participate in a scheme for various reasons. For example:
it has recently been acquired by an employer that already participates in the scheme
following a business reorganisation, employees have transferred to it from another employer that is already in the scheme
it wishes to alter the pension arrangements offered to its staff (for instance, closing a defined benefit scheme to new members and joining another group defined contribution arrangement), or
it must enter a pension scheme for automatic enrolment purposes
Who may participate?
The scheme’s governing documentation determines who can become a participating employer in any particular scheme and will set out the conditions for
Pensions
PRACTICE NOTES
What is a cash balance scheme?
Put simply, a cash balance pension scheme is an arrangement where a member accumulates a guaranteed pot of money during their pensionable service, which is then used to provide retirement benefits. When the member retires, this pot is generally applied to buy an annuity (or to deliver other retirement benefits) on whatever terms can be obtained in the market at that time. This kind of scheme blends features of a defined benefit (DB) arrangement with aspects of a defined contribution (DC) arrangement. That mix is important because it influences how the risks inherent in any pension arrangement are shared between the member and the sponsoring employer, as explored in this Note.
Benefit structures
Cash balance schemes come in different forms, but they broadly fall into two categories depending on how the retirement cash sum is
Pensions
PRACTICE NOTES
Although trustees of defined benefit (DB) schemes are typically not signatories to sale and purchase agreements in corporate deals, they still have a crucial part to play. To properly grasp the implications of any transaction, they must also possess a solid grasp of scheme funding, so they can see the full picture. Their responsibilities include safeguarding members’ accrued promises and, as encouraged by the Pensions Regulator, taking a proactive stance on addressing funding shortfalls—this involves evaluating the employer’s financial robustness (the employer covenant) and, where suitable, seeking improved funding terms from the sponsoring employer. In line with this, the Pensions Regulator requires trustees to maintain up-to-date insight into covenant strength by undertaking routine employer covenant reviews. This regular assessment keeps trustees’ understanding current during corporate activity and supports informed, timely engagement with the sponsoring employer when appropriate. While trustees owe fiduciary duties to act in the
Pensions
PRACTICE NOTES
THIS PRACTICE NOTE APPLIES TO TRUST-BASED DEFINED CONTRIBUTION (DC) OCCUPATIONAL PENSION SCHEMES
Statutory right to cash equivalent
In the same way as defined benefit (DB) occupational pension schemes, members of defined contribution (DC) occupational pension schemes have a legal entitlement to transfer the cash equivalent of their benefits to another pension arrangement. This entitlement is primarily set out in sections 93–101 of the Pension Schemes Act 1993 (PSA 1993). The Occupational Pension Schemes (Transfer Values) Regulations 1996, SI 1996/1847 (the Transfer Regulations) provide further detail, including the rules for working out a member’s cash equivalent. Together, these instruments govern the transfer process and calculation mechanics in DC schemes.
Overriding nature of statutory right to transfer
This entitlement is an overriding statutory right (subject to the statutory conditions below). It expressly prevails over any provision in a scheme’s trust deed and rules where those provisions conflict with that right. Some DC
Pensions
PRACTICE NOTES
Practice Note
In this Practice Note, any mention of the National Employment Savings Trust (NEST) Order refers to the National Employment Savings Trust Order 2010, SI 2010/917, in force from 25 May 2018. Citations to the NEST Rules mean the Rules of the National Employment Savings Trust effective from 5 August 2024. NEST is a trust-based, low-cost occupational pension arrangement, created within the government’s workplace pension reforms so that any employer can satisfy new obligations under the auto-enrolment framework. Its intended audience is UK workers new to pensions who previously lacked access to a high-quality, low-cost workplace scheme. NEST meets the definition of a ‘Master Trust scheme’ in sections 1–2 of the Pension Schemes Act 2017. Accordingly, from 1 October 2018 it has been subject to the authorisation and supervision regime for Master Trust schemes. It was therefore obliged to seek master trust
Pensions
PRACTICE NOTES
NEST Order and NEST Rules
In this Practice Note, any mention of the National Employment Savings Trust (NEST) Order refers to the National Employment Savings Trust Order 2010, SI 2010/917 (the NEST Order), as in force from 25 May 2018. References to the NEST Rules mean the Rules of the National Employment Savings Trust effective from 5 August 2024. NEST is a low-charge, defined contribution occupational pension arrangement created as part of the government’s workplace pension reforms. Those reforms introduced a suite of employer obligations (the ‘employer duties’), including a requirement to place eligible jobholders automatically into a pension scheme that satisfies prescribed standards (an ‘automatic enrolment scheme’). NEST was designed to guarantee that every employer could access a low-charge vehicle to help them discharge these new duties. NEST has continued to grow strongly, with membership rising from 12 million to 13 million between March 2023 and
Pensions
PRACTICE NOTES
An indemnity is a contractual responsibility resting on one of the contracting parties (the indemnifier) and owed to the other contracting party (the indemnified party), that responsibility being for the indemnifier to pay, or otherwise recompense, the indemnified party in respect of specified liabilities incurred or assumed by the indemnified party (such liabilities commonly arising after the contract is signed)...
Pensions
PRACTICE NOTES
An indemnity is a contractual duty resting on one contracting party (the indemnifier) and owed to another contracting party (the indemnified party), obliging the indemnifier to pay or otherwise make good the indemnified party’s specified liabilities, whether incurred or assumed by the indemnified party, such liabilities commonly arising only after the contract has been signed by the parties to it...
Pensions
PRACTICE NOTES
FORTHCOMING CHANGE :
The Department for Work and Pensions (DWP) is preparing to introduce a secondary notifiable events regime under section 69A of the Pensions Act 2004, which was inserted by the Pension Schemes Act 2021. Under this new framework, employers will be required to notify both the trustees and the Pensions Regulator of certain defined benefit (DB) scheme events, and to provide an ‘accompanying statement’ (a declaration of intent) setting out the details and the mitigation steps for any potential detriment to the scheme.
In a 2021 DWP consultation it was proposed that three events should trigger notification:
(i) an intended disposal by the employer of a material part of the employer’s business or assets;
(ii) the intended granting or extension of security over assets that would give priority to other creditors—a decision in principle by the employer to grant or extend
Pensions
PRACTICE NOTES
Automatic enrolment duties
The auto-enrolment framework, created under Part 1 of the Pensions Act 2008 (PenA 2008), places three principal enrolment obligations on employers:
automatically enrol every ‘eligible jobholder’ into an ‘automatic enrolment scheme’ (the auto-enrolment duty)
enrol ‘non-eligible jobholders’ into an ‘automatic enrolment scheme’ when they opt in
enrol ‘entitled workers’ who ask to join a scheme into a registered pension scheme
In broad terms, from 2017 the enrolment duties take effect for an employer on the date their first worker starts employment. The minimum quality criteria an automatic enrolment scheme must meet depend on the type of arrangement, for example whether it is a defined benefit (DB) or defined contribution (DC) scheme.
To assist employers in meeting the auto-enrolment duty, the government set up a low-cost pension scheme — the National Employment Savings Trust (NEST) — which was fully compliant. Many employers still use NEST, and the
Pensions
PRECEDENTS
This precedent is produced on the assumption that the drafter acts for the buyer and on the footing that the target company (the Company) is a subsidiary of the Seller. You are strongly encouraged to engage a pensions specialist at the earliest opportunity.
1 Definitions
For the purposes of paragraphs 2 to 9 (inclusive):
Employee means any current or former employee, officer or director of the Company [ or of any Group Company ] [ and any other person involved in managing the affairs of the Company ];
Pension Scheme[s] means [ [ name(s) of scheme(s) ] OR an arrangement or practice for the payment of, or contribution towards, an annuity, pension, lump sum, gratuity or similar benefit to be provided on retirement, ill-health, death or change in service status, or pursuant to a pension sharing order, in relation to the service or
Pensions
PRECEDENTS
This precedent has been produced on the basis that the drafter is acting for the buyer. The following warranties have been prepared for a transaction where:
The Buyer will provide pension benefits through its own arrangement or via an appointed provider; and
Employees’ past service benefits will not be transferred to the Buyer’s arrangement.
You are strongly advised to involve a pensions specialist at the earliest opportunity.
1 Definitions
For the purposes of paragraphs 2 to 7 inclusive:
Employee means [ [specify as necessary, either by category or by named individuals ]; Pension Scheme [ s ] mean [ s ] [ [ name(s) of scheme(s) ] OR an arrangement or practice for the payment of, or contribution towards, an annuity, pension, lump sum, gratuity or similar benefit to be given on retirement, long-term ill-health or death, or pursuant to a pension sharing order, in relation to the service or
Pensions
PRECEDENTS
This Deed is entered into on the [ insert day ] day of [ insert month ] 20[ insert year ]
Parties
[ Insert full company name ], incorporated in England and Wales with company number [ insert number ], and whose registered office is at [ insert registered company address ] (the Departing Employer);
[ Insert full company name ], incorporated in England and Wales with company number [ insert number ], and whose registered office is at [ insert registered company address ] (the Receiving Employer); and
[ [ Insert full name of company ] incorporated in England and Wales with company number [ insert number ] and having its registered office at [ insert registered company address ] OR [ insert individual name(s) ] of [ insert individual address(es) ] ] (the
Pensions
PRECEDENTS
Date: [ insert date ]
(1) [ Name of Principal Company ]
(2) [ Names of Trustees ]
(3) [ Name of New Employer ]
Deed of Participation relating to [ Name of Scheme ]
This Deed is executed the [ insert day ] day of [ insert month ] 20[ insert year ].
Parties
[ insert full company name ] registered in England and Wales under company number [ insert number ] and with its registered office at [ insert registered company address ] (the “Principal Company”);
[ [ insert full name of company ] registered in England and Wales under company number [ insert number ] and with its registered office at [ insert registered company address ] OR [ insert individual name(s) ] of [ insert individual address(es) ] ] (the “Trustees”);
[ insert full name of the new
Pensions
PRECEDENTS
This Deed is entered into on the [ insert day ] day of [ insert month ] 20 [ insert year ], by and between the parties set out below, namely:
Parties
[ insert full company name ], registered in England and Wales with company number [ insert number ], and having its registered office situated at [ insert registered company address ] (the Receiving Employer);
[ insert full company name ], registered in England and Wales with company number [ insert number ], and having its registered office situated at [ insert registered company address ] (the Principal Employer);
[ insert full name of company ], registered in England and Wales with company number [ insert number ], and having its registered office situated at [ insert registered company address ] OR [ insert individual name(s) ] of [ insert
Pensions
PRECEDENTS
Date: [ insert date ]
(1) [ name of Former Principal Employer ] (2) [ names of Trustees ] (3) [ name of the New Principal Employer ]
Deed of Substitution of principal employer[ and change of scheme name] relating to [ name of the scheme ]
This deed is entered into on the [ insert day ] day of [ insert month ] 20[ insert year ].
Parties
[ insert name of retiring employer ], incorporated in England and Wales under company number [ insert company number ], with its registered office at [ insert registered company address ] (the Former Principal Employer);
[ [ insert full name of company ] incorporated in England and Wales under company number [ insert company number ] and whose registered office is at [ insert registered company address ] OR [ insert individual name(s) ] of [ insert
Pensions
PRECEDENTS
This precedent has been produced on the footing that the drafter is acting for the buyer. It proceeds on the understanding that the target company (the Company) is a subsidiary of the Seller. It is strongly recommended that a pensions specialist is engaged at the earliest opportunity.
1 Definitions
For the purposes of paragraphs 2 to 7 (inclusive):
Employee denotes any current or former employee, officer, or director of the Company [ or of any Group Company ] [ as well as any other individual involved in the management of the affairs of the Company ];
Pension Scheme refers to any arrangement or practice for the payment of, or contribution towards, an annuity, pension, lump sum, gratuity, or comparable benefit to be provided on retirement, ill-health, death, or change in service status, or under a pension sharing order, in relation to the service or historic service of an
Pensions
PRECEDENTS
This precedent is prepared on the assumption that the drafter acts for the seller. It also proceeds on the basis that the target company (the Company) is a subsidiary of the Seller. You are firmly encouraged to bring in a pensions specialist at the earliest opportunity.
1 Definitions
For the purposes of paragraphs 2 to 11 (inclusive):
Employee means any current or former employee, officer or director of the Company [ or of any Group Company ] [ and any other person participating in the management of the Company’s affairs ] ;
Pension Scheme [ s ] mean [ s ] [ [ name(s) of scheme(s) ] OR an arrangement or practice for the payment of, or contribution towards, an annuity, pension, lump sum, gratuity or comparable benefit to be provided on retirement, long-term ill-health or death, or pursuant to a pension sharing order, in
Pensions
PRECEDENTS
This template has been prepared on the basis that the writer is acting for the buyer, and that the target company (the Company) is a subsidiary of the Seller. It is strongly recommended that a pensions expert is engaged at the earliest opportunity.
1 Definitions
For purposes of paragraphs 2 to 9 inclusive, the following apply:
Employee means any present or former employee, officer, or director of the Company [ or of any Group Company ] [ and includes any other person participating in the management of the Company’s affairs ] ;
Pension Scheme [ s ] mean [ s ] [ [ name(s) of scheme(s) ] OR an arrangement or practice for the payment of, or for contributing towards, an annuity, pension, lump sum, gratuity, or a similar benefit to be provided upon retirement, ill-health, death, or a change in service status, or in
Pensions
PRECEDENTS
This precedent is prepared on the footing that the drafter acts for the Seller. It is prepared on the basis that the target company (the Company) is a subsidiary of the Seller.
It is strongly recommended that a pensions specialist is engaged at the earliest opportunity.
1 Definitions
For the purposes of paragraphs 2 to 12 (inclusive), the following definitions set out below shall apply:
Employee means any current or former employee, officer, or director of the Company [ or of any Group Company ] [ and any other individual involved in the management of the Company’s affairs ] ;
Pension Scheme means any arrangement or practice providing for, or contributing towards, an annuity, pension, lump sum, gratuity, or similar benefit on retirement, long-term ill-health, or death, or pursuant to a pension sharing order, arising from the service or historic service of an
Pensions
99 Contributions by gunnercooke LLP Experts
PRACTICE NOTES
ARCHIVED: This archived Practice Note centres on the abolition of contracting-out on a money purchase (or protected rights) basis, taking effect from 6 April 2012. It is not maintained and remains archived. For general information concerning the meaning of contracting-out, see the Practice Note entitled: What does ‘contracting-out’ mean for pension lawyers?
Contracting-out on a money purchase basis before 6 April 2012
Contracting-out was the route by which an individual (whether employed or self-employed) could choose to waive accrual of the part of the State pension which, before 6 April 2016, was called the additional State pension (or Second State Pension (S2P)). Contracting-out on a money purchase basis (also known as DC contracting-out) first became possible in April 1988. A money purchase form of contracting-out required the relevant contracted-out pension scheme to grant members ‘protected rights’ in lieu of the state benefits forgone as a
Pensions
PRACTICE NOTES
THIS PRACTICE NOTE RELATES TO DRAWDOWN PENSIONS COMMENCING BETWEEN 6 APRIL 2011 AND 5 APRIL 2015 (INCLUSIVE)
ARCHIVED: This archived Practice Note outlines the legal framework that applied to drawdown arrangements begun on or after 6 April 2011 and before 6 April 2015, whether by way of income withdrawal or a short-term annuity. It is no longer maintained. For details of the regime for drawdown arrangements starting on or after 6 April 2015, see Practice Notes: Drawdown from 6 April 2015 and Drawdown and death benefits from 6 April 2015.
What is a drawdown pension?
The term ‘drawdown pension’ replaced the earlier labels ‘unsecured pension’ and ‘alternatively secured pension’ used before 6 April 2011. Up to 5 April 2015, drawdown pension described the process for paying pension which enabled members who were:
already receiving benefits from a pension arrangement (either a pension paid by the scheme or an
Pensions
PRACTICE NOTES
FORTHCOMING DEVELOPMENT :
The Pensions (Extension of Automatic Enrolment) (No. 2) Bill secured Royal Assent on 18 September 2023, becoming the Pensions (Extension of Automatic Enrolment) Act 2023 (the Act), and was published on 19 September 2023. The Act confers powers on the Secretary of State for Work and Pensions to make regulations to:
lower the minimum age at which otherwise eligible employees must be automatically enrolled and re-enrolled into a pension scheme by their employers;
remove the Lower Earnings Limit from the qualifying earnings band so that contributions are calculated from the first pound of earnings; and
revise the requirements for the annual review of the qualifying earnings band.
Adjustments to automatic enrolment eligibility will proceed following a consultation on the detailed implementation method and timing. The commencement of section 1 of the Act is set to be ‘on such day or days as the
Pensions
PRACTICE NOTES
THIS PRACTICE NOTE APPLIES ONLY TO PENSION SCHEMES IN ENGLAND AND WALES
Under the statutory auto-enrolment framework, employers must:
automatically enrol any eligible jobholders into an 'automatic enrolment scheme', unless they are already an active member of a 'qualifying scheme' with that employer
enrol any non-eligible jobholders who submit an opt-in notice into an 'automatic enrolment scheme', unless they are already an active member of a 'qualifying scheme' with that employer
Qualifying schemes must at least satisfy minimum standards. For a defined contribution (DC) arrangement, this includes compulsory employer and worker contributions at no less than the minimum rates. An automatic enrolment scheme is a qualifying scheme that also fulfils additional conditions. This is outlined further below.
Employers should confirm that any scheme selected to meet auto-enrolment duties achieves the minimum standards.
The Pensions Regulator has issued comprehensive guidance to support employers in
Pensions
PRACTICE NOTES
FORTHCOMING DEVELOPMENT :
The Pensions (Extension of Automatic Enrolment) (No. 2) Bill secured Royal Assent on 18 September 2023, becoming the Pensions (Extension of Automatic Enrolment) Act 2023 (the Act), and it was published on 19 September 2023. The Act empowers the Secretary of State for Work and Pensions to make regulations to:
lower the minimum age at which otherwise eligible workers must be automatically enrolled and re-enrolled by their employers into a pension scheme;
remove the Lower Earnings Limit from the qualifying earnings band so that contributions are calculated from the first pound of pay;
adjust the requirements for the annual review of the qualifying earnings band.
Changes to eligibility for automatic enrolment will be introduced following consultation on the detailed method of implementation and timing. The commencement of section 1 of the Act will be “on such day or days as the Secretary of State may by
Pensions
PRACTICE NOTES
FORTHCOMING DEVELOPMENT :
The Pensions (Extension of Automatic Enrolment) (No. 2) Bill secured Royal Assent on 18 September 2023, becoming the Pensions (Extension of Automatic Enrolment) Act 2023, and was published on 19 September 2023. The Act enables the Secretary of State for Work and Pensions to set regulations to:
lower the minimum age at which otherwise eligible staff must be automatically enrolled and re-enrolled into a workplace pension;
remove the Lower Earnings Limit from the qualifying earnings band so contributions are calculated from the first pound of pay;
vary the framework for the annual review of the qualifying earnings band.
Alterations to eligibility for automatic enrolment will follow a consultation on the detailed method and timetable for implementation. The commencement of section 1 of the Act will be “on such day or days as the Secretary of State may by
Pensions
PRACTICE NOTES
FORTHCOMING DEVELOPMENT :
Section 10 of the Finance Act 2022 will lift the normal minimum pension age (NMPA) from 55 to 57 on 6 April 2028, with members of the firefighters, police and armed forces public service pension schemes excluded. The Act also preserves access before age 57 for members of registered schemes who, on or before 4 November 2021, either already held an ‘unqualified right’ to draw benefits, or were part-way through a substantive transfer to a scheme conferring an unqualified right to a protected pension age below 57 by that date. To rely on this 2028 protection, the scheme’s rules must, as at 11 February 2021, have contained an unqualified right to take scheme benefits before 57. For more detail, see Practice Note: Increasing the normal minimum pension age (NMPA) to 57—pensions impact. As a general position, members of
Pensions
PRACTICE NOTES
This Practice Note cites case law of the Court of Justice of the European Union. For guidance on whether EU judgments are binding on UK courts, see Practice Note: Assimilated law — Assimilated case law.
What are bridging pensions?
Bridging pensions are a type of pension provided by some, though not all, defined benefit occupational schemes when a member’s scheme pension begins before state pension age (SPA). As the name implies, they function as a temporary top-up designed to bridge the gap between the point the member’s normal scheme pension is paid and a later date—typically the member’s SPA—when their state pension starts.
Unequal SPAs for men and women and bridging pensions—how they interact
Until plans were considered by the government to equalise the SPAs for men and women in 1993, men continued to have an SPA of 65 and women 60. Bridging pensions are commonly used in an
Pensions
PRACTICE NOTES
Employees’ pensions rights under an occupational pension scheme can be categorised as:
entitlements that flow from the trusts governing the particular, relevant pension scheme
contractual provisions contained in employees’ contracts of employment, whether express or implied
For more detail, see Practice Note: Pensions and the employment contract.
Understanding both sources matters when changes to future pension entitlements are considered. Appreciating this twin character is crucial, particularly where adjustments to staff members’ prospective pension benefits are on the table. As a rule, altering employees’ pension provisions within an occupational scheme requires use of the scheme’s power of amendment (and the sponsoring employer may need to consult the workforce about the proposals). Nevertheless, because pension rights sit in both spheres, employers will frequently also look to secure employees’ explicit agreement to the changes (typically after any consultation has closed) to reduce the risk of a
Pensions
PRACTICE NOTES
By-product or waste?
Working out whether a substance or item counts as waste can be intricate. See Practice Note: Meaning of waste—what is waste? The task may require judging if the material is a product/by-product, or instead a production residue. The expression ‘by-product’ lacks a definition in domestic legislation, and production residues are especially hard to evaluate...
Environment
PRACTICE NOTES
The Waste (England and Wales) Regulations 2011
The Waste (England and Wales) Regulations 2011 (SI 2011/988) gave effect in domestic law to the Waste Framework Directive 2008/98/EC (WFD), as updated in 2018. Earlier Directives were put into practice through a suite of Acts and Regulations, among them:
the Environmental Protection Act 1990, notably section 34 on the duty of care owed by those handling waste
the Control of Pollution (Amendment) Act 1989 and the Controlled Waste (Registration of Carriers and Seizure of Vehicles) Regulations 1991 (SI 1991/1624), addressing registration of waste carriers
the Environmental Permitting (England and Wales) Regulations 2016 (SI 2016/1154), covering permits for waste disposal and recovery activities
the Hazardous Waste (England and Wales) Regulations 2005 (SI 2005/894), the Hazardous Waste (Wales) Regulations 2005 (SI 2005/1806 (W.138)), and the Hazardous Waste (England and Wales)
Environment
PRACTICE NOTES
THIS PRACTICE NOTE APPLIES TO DEFINED BENEFIT OCCUPATIONAL PENSION SCHEMES
Numerous employers running defined benefit (DB) occupational pension schemes have opted to halt future accrual, substituting them with a defined contribution (DC) solution, often — though not invariably — by way of a group personal pension (GPP) arrangement.
At times, the impetus for such a shift follows the acquisition of the employer(s) by a new owner keen to curb future pension expenditure and/or to standardise pension provision across the corporate group that the relevant employer(s) has joined.
In other situations, the driver for change arises in the ordinary course of the employer(s)’ business operations and is typically propelled by cost pressures and affordability.
In any case, a proposal to close a DB scheme to future accrual will generally be regarded as a deterioration in the benefits package for the employees concerned...
Pensions
PRACTICE NOTES
This Practice Note mainly concerns the settlement of disputes involving occupational pension schemes in England and Wales. It does not cover the compromise of debts under section 75 of the Pensions Act 1995 (often called Bradstock agreements); for that, see Practice Note: Compromising section 75 debts—Bradstock agreements.
Why compromise?
When a commercial conflict arises between two or more parties, it is usual to pursue resolution by agreement rather than only seeking a court determination; the same holds within the pensions sphere as across wider commerce. A well‑judged compromise can deliver key benefits for everyone involved, including:
cost savings
time savings
confidentiality
greater flexibility and informality for affected parties, and
avoiding the risk of an unfavourable court outcome
Compromising a dispute demands that the parties reach consensus on how to address the issues raised and, ideally, how similar matters should be handled or, with luck, prevented in future.
Pensions
PRACTICE NOTES
Employer debt legislation
Section 75 (and 75A) of the Pensions Act 1995 (PA 1995), together with the underlying legislation, collectively comprise what is commonly called the ‘employer debt legislation’. In broad terms, these provisions state that a statutory (non-priority) debt arises in respect of an employer (or employers) participating in a registered defined benefit occupational pension scheme when the scheme is in deficit on a buy-out basis and one of three trigger events occurs:
the scheme entering wind-up
an insolvency event (as defined for the purposes of the legislation) in relation to a participating employer
in a multi-employer scheme, a participating employer ceasing to employ active members while at least one other employer continues to do so (an ‘employment cessation event’)
The statutory debt created under PA 1995, s 75 (a ‘section 75 debt’ or ‘employer debt’) is owed by the
Pensions
PRACTICE NOTES
Use of terms ‘connected’ and ‘associate’ in pensions
Although initially coined within the insolvency/bankruptcy regime set out in the Insolvency Act 1986 and underlying regulations, the notions of ‘association’ and ‘connection’—together with the allied idea of ‘control’—have, over time, been adopted and applied across various parts of the UK’s pensions legislation framework for practical purposes in appropriate cases. Examples include:
Moral hazard powers — the terms are employed in the moral hazard provisions of the Pensions Act 2004, in practice to assess the degree of distance or proximity of entities from sponsoring employers of occupational pension schemes, and whether such entities might be susceptible to the Pensions Regulator’s moral hazard powers, for example the issue of financial support directions and contribution notices — for further information, see Practice Notes: Contribution notices and Financial support directions
Pensions
PRACTICE NOTES
A Limited Liability Partnership (LLP)
An LLP is a statutory business vehicle created under the Limited Liability Partnership Act 2000 (LLPA 2000). From 6 April 2001, LLPs have been capable of being formed in England and Wales. Notable features of an LLP are:
It is a corporate body and separate legal entity, with a legal personality independent of its members.
It has unrestricted capacity.
Its members benefit from limited liability, whereas partners in a general partnership have unlimited liability (although, for tax purposes, an LLP is treated as a general partnership).
Members may determine their own arrangements, via an LLP members’ agreement, including:
obligations to contribute to the LLP
allocation of management responsibilities
profit distribution mechanisms
the
Pensions
PRACTICE NOTES
The Pension Regulator’s moral hazard powers
Under the moral hazard provisions of the Pensions Act 2004 (PeA 2004), the Pensions Regulator holds authority to impose contribution notices (CNs) and to require financial support directions (FSDs). These measures are notably far-reaching and can be severe in practice indeed...
Pensions
PRACTICE NOTES
FORTHCOMING DEVELOPMENT:
At a roundtable in the City of London on 28 January 2025 with leaders of the UK’s largest companies, Prime Minister Keir Starmer and Chancellor Rachel Reeves set out proposals to ease constraints on defined benefit (DB) pension schemes that have strong surpluses, to release capital for investment in UK firms as part of the Labour government’s broader drive to spur economic growth. The government envisages that, where trustees consent to share a slice of the scheme’s surplus with the employer, the employer could channel these monies into its core operations and/or offer extra benefits to members. The reforms seek to unlock an estimated £160 billion presently sitting in surplus across roughly 75% of schemes. Legislation is proposed to permit all DB schemes to amend their rules to allow surplus extraction, subject to
Pensions
PRACTICE NOTES
Ways of providing death-in-service benefits
Employers commonly provide their staff with death-in-service benefits (often referred to as 'life assurance' or 'life cover' benefits). This protection is ordinarily limited to employees (hence the term 'death in service', reflecting the label itself), although in certain situations an employer may decide to extend the benefit beyond retirement. Employers can deliver these benefits in three ways:
via a dedicated trust-based arrangement that, while registered as a pension scheme for the purposes of Part 4 of the Finance Act 2004 (FA 2004), provides only death-in-service benefits—such arrangements are frequently known as 'life cover only schemes', 'death-in-service schemes' or 'standalone life assurance schemes', and no other benefits
through a registered pension scheme (usually an occupational pension scheme) in which the death-in-service benefits form part of the broader benefit structure of the scheme as a whole. In this type of
Pensions
PRACTICE NOTES
THIS PRACTICE NOTE APPLIES ONLY TO DEFINED BENEFIT OCCUPATIONAL PENSION SCHEMES
Recent years have seen more defined benefit occupational pension schemes fall into deficit, and sponsoring employers and trustees have shown heightened interest in ways to manage, and preferably reduce, the financial risks and investment swings linked to these arrangements—a process typically termed ‘de-risking’. A range of de-risking approaches exists, and further options continue to be developed. These methods are directed at managing exposure to financial risk and investment volatility tied to such schemes. Among them are incentive exercises, including enhanced transfer value exercises and pension increase exchange exercises, which are treated as part of the de-risking toolkit—an arsenal available to employers and trustees of defined benefit schemes (for more information on incentive exercises, see Practice Note: Pension scheme incentive exercises). Increasingly, however, de-risking strategies are turning to insurance solutions, with pension buy-outs and
Pensions
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