The cost of independent advice should not stop trustees from taking appropriate action in reviewing a transaction which could lead to a pension scheme being abandoned, says The Pensions Regulator.
In its response to the feedback received on the consultation ‘Abandonment of defined benefit pension schemes’ the Regulator says cost issues “do not remove trustees’ fiduciary duty”.
Instead it suggests trustees “seek immediate reimbursement from the employer of all necessary advice the trustees require in order to properly consider any transaction proposed by the employer”.
Following the consultation, which received 21 responses, the Pensions Regulator has issued 18 pages of ‘reinforced’ guidance for trustees on the issue of abandonment, as it believes it is “appropriate to provide further guidance to trustees to recognise these specific types of transaction and help them respond appropriately”.
Although it admits the draft guidance “contained some inconsistencies” in relation to other regulations such as clearance, which it says have “been addressed in the final guidance”.
Other concerns highlighted by respondents included the perceived presumption that abandonment would not be in the members’ interests, and the suggestion the merits and facts of each transaction should be considered to determine the best outcome for members.
In addition, the responses highlighted the risk of trustees vetoing an arrangement which might end up being in the best interests of members, while some argued the ‘covenant’ did not just include the employer but also the investment strategy and the level of funding.
As a result, the Regulator agrees “some changes are needed to what we are saying about abandonment”, and it confirms it has refined its statement to refer more narrowly to the change from an employer of substance to an employer without substance as being an important factor for trustees to consider.
It says it has also tried to draft the guidance to reflect the factors which it believes are important for trustees to measure in order to reach a conclusion on whether or not abandonment would be in the members’ best interests.
Tony Hobman, chief executive of the Pensions Regulator, confirms the organisation has taken on board many of the comments and useful suggestions put forward, which are reflected in the guidance.
He adds: “Our position remains that, in cases where there is an employer of substance, abandonment is unlikely to be in the members’ best interests. We encourage early discussion to consider suitable alternatives.”
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