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This consists of a set of principles and provisions whose purpose is to facilitate effective management of listed companies with the aim of delivering long-term corporate success.

The FRC's Stewardship Code sets high stewardship standards for asset owners and managers, and for service providers that support them, through a set of “apply and explain” principles accompanied by reporting expectations. It is complementary to the (UK) Corporate Governance Code.

Our stewardship expectations of investment managers

A good pensions administrator makes your pensions scheme members’ lives easier – when they come to take their benefits, have to report a death, or have a question they want answering. It will have robust and intuitive systems, staff that are knowledgeable and empathetic, and be at the forefront of legislative and technological developments in the pensions space.

The UK regulatory framework offers robust safeguards, including:

• Capital requirements: Insurers must hold sufficient reserves to meet liabilities under stress scenarios.
• Close supervision: The PRA closely monitors insurers, with larger insurers receiving tailored supervision based on their risk profile and activities.
• Governance standards: Insurers are required to maintain robust governance structures and appoint qualified individuals to oversee critical functions.

These protections, while strong, are not intended to create a zero-failure regime. Trustees should still undertake due diligence to understand the specific risks and resilience of their chosen insurer.

Surplus extraction could enable scheme members to have additional pension benefits. The Pensions Regulator (TPR) supports the government's proposals, emphasising that any release of surplus should only occur when schemes are fully funded and appropriate protections for members are in place. Trustees are expected to ensure that the security of members' benefits is not compromised when considering surplus releases. (The Pensions Regulator) 

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.

Moving a scheme to wind-up is a complex process involving a number of interdependent workstreams and requires a thorough understanding of the processes involved. Key trustee steps to help ensure a seamless transition are:

• Agreeing clear project plans, budgets and regular reporting with all parties to ensure a smooth move to wind-up.
• Drawing on experienced project management support to help navigate the many interdependent workstreams.
• Obtaining practical advice from experienced specialists on technical areas and common issues.
• Initiating early discussions with the sponsor to ensure robust trustee protections at the end of the wind-up process.

The Government is moving forward with ideas about the better use of £1.4 trillion of assets held by DB schemes to stimulate economic growth. By reforming the rules, the government intends to allow these funds to be invested in the wider economy, benefiting both businesses and pension scheme members. Learn more

A pension scheme wind-up may occur for various reasons, such as the sponsoring employer choosing to close the scheme or being unable to financially support it. Many defined benefit schemes are now closed to new members and have stopped building up new benefits. For lots of these schemes, increasing interest rates in recent years have significantly improved funding levels, and made it more affordable to secure insurance for all members’ benefits and wind-up the scheme.

The Prudential Regulation Authority (PRA) plays a crucial role in overseeing insurers and ensuring their financial stability. However, our advice adds value to our clients in two key ways:

• Enhanced understanding: By providing trustees with a deeper understanding of how insurers operate. Each insurer runs a unique business model. Our insurer financial risk reviews help trustees differentiate between these models, particularly in terms of risk exposure, solvency approaches, and capital strategies. This understanding is crucial for informed decision-making.
• Due diligence expectations: Trustees are placing significant sums of members’ assets - often hundreds of millions of pounds - with an insurer. Members would expect trustees to undertake at least basic due diligence to ensure confidence in their choice. Our advice helps trustees demonstrate that they have taken appropriate steps to evaluate the insurer’s financial position.

There are many reasons why a scheme may or may not choose to move to buy-out once it can afford to do so. This includes:

• Upside for members: Benefits are locked in as part of a transaction removing the potential for future discretionary increases. Running the scheme on to generate surplus could lead to improved benefits for members. 
• Upside for sponsors: Sponsors may prefer to retain upside and risk, rather than pay away the potential surplus to an insurer. Possible benefits include cash savings by using the surplus to meet ongoing pension costs for current employees or refunds to support growth.
• Control: Trustees and sponsors may have concerns around relinquishing control of the scheme. This includes passing the administration and ongoing communications to a third party where they have no influence on standards or level of member experience.