A pension’s trustees are responsible not only for the day-to-day management of a scheme, but communicating clearly and effectively with its contributing members. When pension schemes fail, the trustee’s position becomes more important than ever: with their financial futures at stake, pension members will be understandably anxious for a quick and optimal
resolution. In a wind-up situation, the trustee should be able to steer their pension scheme towards available compensation funds swiftly and successfully.
Types of compensation:
Compensation for failed pensions is available in the form of the Pension Protection Fund – and the connected Financial Assistance Scheme. The PPF aims to provide from 90% to 100% of members’ payments, while the FAS (covering schemes which became insolvent from 1 January, 1997 to the 5 April, 2005) delivers top ups of up to 90%. While funded
differently, both funds are managed by the board of the PPF and involve strict regulation. Insolvent pension schemes that apply for transfer to compensation from either fund, need to be able to demonstrate the legitimacy of their need via a stringent assessment process, during which trustees must carry out a number of administrative duties in addition to their
The importance of the trustee:
The ability of the trustee to handle a PPF transfer is a hugely important factor. Thanks to strict regulatory control – the result of a turbulent economic climate – the assessment process can take some time and the extra burden placed on the trustee is significant. Schemes which seek compensation need to go through checks of assets and liabilities – and prove that there is no alternative to the transfer. To fulfil their duties to beneficiaries, trustees must bring a winding-up pension through assessment, avoiding pitfalls and delays wherever possible. In these situations, pressure on trustees is increased by beneficiaries – who will require advice and information at every step.
While anyone can be a trustee, pensions are often large trusts with many members – finding a lay trustee with the experience and expertise in this type of management can be difficult. In wind-up situations, many pension schemes turn to professional trustees: professionals present opportunities to acquire specific PPF transfer experience and can often anticipate
the problems a given pension scheme may face. With backgrounds in law, accountancy and other relevant disciplines, professional trustees’ familiarity with the financial landscape is a great benefit to pension members, who frequently seek advice and information during what is a very uncertain period. Professional trustees, serving as part of a board, are often able to help lay-trustees – a board communicating effectively is of great benefit to a PPF application.
The reassurance and independence which professional trustees bring should not be underestimated. PPF transfer can take up to a year and a half – finding the right trustee should expedite the process significantly and bring resolution to contributing members.
A successful compensation application means more than protecting the beneficiaries of a particular scheme – a quick, efficient PPF transfer protects the reputation of pension schemes on a societal level – and promotes good financial practice for the future. For more information, see Dalriada Trustees’ pension wind ups page.
Written by Hal Wightman of Pensions Clarity