Post-transaction and wind-up support

A pension scheme wind-up is the process of formally closing down a pension scheme, after the scheme assets have been used to secure members’ benefits and any residual assets have been distributed. For defined benefit schemes, this usually involves securing members’ benefits with an insurance company through what is known as a “buy-out”.

A wind-up process can be an unsettling time for members if the process isn’t managed well. Receiving their benefits from a different party, changes to terms for certain benefit options and losing the familiarity of regular scheme newsletters could make members feel uneasy.

Communicating clearly about each stage of the process so that members understand what the wind-up means for them is key to allay any concerns and ensure they have confidence in the action being taken. Key steps to help with this are:

• Agreeing a clear member communication strategy to keep all members informed and reassured throughout the process from buy-in to wind-up;
• Implementing a well-managed project plan to ensure you deliver what you’ve told members you’ll do; and
• Managing a smooth payroll and administration transfer to the insurer so that members have confidence in the insurer from day one.

For sponsors, buying-out a closed defined benefit pension scheme can remove balance sheet risks and completing the wind-up process will remove the ongoing expenses of running the scheme.

The sponsor will often bear the costs associated with the buy-out and wind-up. There may also be complex discussions over topics such as return of any surplus assets and who carries the risk for any historical errors or future claims.

Key priorities for the sponsor will often be:

• Ensuring key objectives (both sponsor and trustee), timelines and budgets are outlined and agreed between all parties upfront;
• Maintaining regular communication between the sponsor, trustees and advisers to monitor progress; and
• Working collaboratively to address challenges and acknowledge respective interests.

For trustees the key priority will be running a well-managed process to have confidence that the right benefits have been secured for the right people and their trustee duties have been discharged appropriately.

The immediate focus after completing a buy-in transaction will be informing scheme members, implementing any new member option terms and ensuring funds arrive in the trustee bank account to meet benefit payments. The next step will then be working through a data cleanse process to perform one last check that all members have been identified, and the correct benefits have been secured with the insurer before looking to move the policy to buy-out. This will often involve grappling with technical areas like GMP equalisation and resolving legal uncertainties, and there may be surplus assets to consider too.

There will also be other member benefits to secure outside of the scheme such as members’ AVCs or DC funds and historical annuity policies.

Trustees will also need to ensure they have adequate protection in place through insurance and / or a sponsor indemnity in case a claim arises after the scheme has wound up.