Circumstances in which Board assumes responsibility for eligible schemes
Section 127: Duty to assume responsibility for schemes following insolvency event
401.For members of occupational pension schemes to be entitled to compensation under Chapter 3 of Part 2 the Board must assume responsibility for the scheme. There are a number of circumstances in which the Board will assume responsibility for a scheme. These are set out in this section, and in sections 128, (duty to assume responsibility for a scheme) 152 (duty to assume responsibility following reconsideration) and 158 (duty to assume responsibility for closed schemes). These are the only circumstances in which the Board will assume responsibility for a scheme.
402.This section applies where a qualifying insolvency event (see subsection (3)) has occurred in relation to the employer in relation to an eligible scheme.
403.Subsection (2) states that the Board must assume responsibility for the scheme if:
the assets of the scheme immediately before the insolvency date (see section 121(8)) were not sufficient to meet the scheme’s protected liabilities (see section 131). (For this purpose assets relating to money purchase schemes are disregarded);
a scheme failure notice becomes binding; and
there has not been and there cannot be a withdrawal event resulting from a withdrawal notice issued before the schemes failure notice was issued.
404.By virtue of subsection (3)(a) an insolvency event which occurs before the day appointed under section 126(2) (eligible schemes) by order is not a qualifying “insolvency event” for these purposes. The insolvency event must also be the first insolvency event to occur in relation to the employer on or after that day, and must not occur during an assessment period (see section 132(assessment periods)) in relation to the scheme which began before the occurrence of the insolvency event in question. For example an employer in relation to a scheme could be subject to administration which then turns into liquidation. The commencement of the liquidation is an insolvency event. However, as the administration will already have been triggered the Board’s involvement and started an assessment period, there is no need for the subsequent insolvency event to start the process again.
Section 128: Duty to assume responsibility for schemes following application or notification
405.See notes for section 127 for information regarding the effect of the Board assuming responsibility for a scheme.
406.This section provides for the Board to assume responsibility for schemes whose sponsoring employers cease to be going concerns but cannot be subject to insolvency events as defined in section 121 – for example public sector schemes without a crown guarantee and schemes with employers based overseas and subject to foreign insolvency proceedings.
407.Subsection (1) provides that this section applies where the trustees or managers of such schemes make an application to the Board under section 129(1) or receive a notice from the Board under section 129(5)(a). Subsection (2) provides for the Board to assume responsibility for such a scheme if:
the value of the assets of the scheme is less than the amount of the protected liabilities (section 131) (for this purpose assets relating to money purchase benefits are disregarded);
a scheme failure notice becomes binding; and
there has not been and cannot be a withdrawal event resulting from a withdrawal notice issued before the scheme failure notice was issued.
408.Subsection (4) provides that where such a scheme is already subject to an assessment period (see section 132), any further applications or notifications under section 129 made during that period will be disregarded.
Section 129: Applications and notifications for the purposes of section 128
409.This section is directly linked to section 128 and lays out the application and notification process for schemes whose employers cannot be subject to insolvency events as defined in section 121. It mirrors the regime for schemes whose employers are subject to insolvency events as defined in section 121.
410.Subsection (1) provides for the trustees or managers of an eligible scheme to make an application to the Board for it to assume responsibility for the scheme if they become aware that the employer in relation to the scheme is unlikely to continue as a going concern and requirements prescribed in regulations under subsection (1)(b) are met. This provision is intended to apply in cases where the employer cannot be subject to an insolvency event (as defined in section 121) are met. The Board must give a copy of the application under subsection (1) to the Regulator and the employer.
411.Subsection (4) also provides that the Regulator must issue a notice to the Board in circumstances where it becomes aware that an employer in relation to an eligible scheme is unlikely to continue as a going concern and the requirements prescribed in regulations under subsection (1)(b) are met. The Board must give a copy of this notice to the trustees or managers of the scheme and the employer.
412.Subsections (6) and (7) are intended to prevent both an application under subsection (1) and a notification under subsection (4) in relation to the same set of facts
413.Regulations will prescribe the form and content of notices under this section.
Section 130: Board’s duty where application or notification received under section 129
414.This section relates to cases where an application is made under section 129(1) or a notification is given under section 129(4). As there is no insolvency event or insolvency practitioner in these cases the Board takes responsibility for issuing notices confirming the status of the scheme.
415.If the Board is able to confirm a scheme rescue is not possible, subsection (2) provides for it to issue, as soon as reasonably practicable, a “scheme failure notice” confirming this If the Board is able to confirm a scheme rescue has occurred subsection (3) provides for it to issue, as soon as reasonably practicable, a “withdrawal notice”. The Board must give a copy of any notice to the Regulator, the trustees or managers of the scheme and the employer. This notice is not binding until the period for review has expired and any review, reconsideration, reference to the PPF Ombudsman or appeal against the determination has been disposed of and the notice has not been revoked, varied or substituted.
416.Subsection (5) sets out that the Board can only confirm that a scheme rescue has occurred or is not possible when specific conditions (to be prescribed in regulations) are met.
417.Regulations will set out the format and contents of notices made under this section.
418.Subsection (7) states that where a notice issued under subsection (2) or (3) becomes binding, the Board must give a notice to that effect, along with a copy of the binding notice to the Regulator, the trustees or managers of the scheme and the employer. A notice in relation to a scheme rescue must also state when the Board ceases involvement with the scheme.
Section 131: Protected liabilities
419.This section explains how the “protected liabilities” of a scheme at any time are to be determined. The basic rule is that the Board will not assume responsibility for a scheme unless the assets of the scheme are insufficient to meet the protected liabilities at least equal to the value of compensation offered by the Pension Protection Fund.
420.Protected liabilities are:
the cost of providing benefits equivalent to the compensation which would be payable by the Board in respect of the scheme, out of the Pension Compensation Fund, if it assumed responsibility for the scheme;
any non-pension liabilities of the scheme;
the estimated cost of winding up the scheme.
