Trustees have a duty to agree with their principal employer a “Statement of Funding Principles” from which the contribution rates are determined.
achieve this, the Pensions Regulator will expect trustees to:
- Understand the basis of the actuary’s valuation and recommendations
- Undertake commercial negotiations with the employer
- Act independently and for the good of the scheme
- Form a view as to what the employer will be able to pay to fund the pension scheme
- Monitor closely the employer covenant and to react to ‘Type A’ events
- The Pensions Regulator will also expect trustees to be fully aware of all the financial implications of any decisions made.
What trustees need to know?
- What is the current financial position of
- What assets are there?
- What is the true value of the assets?
- How does the scheme rank against all the other creditors?
- What is the expected future position of the
- What are its future prospects if no action is taken?
- What will be the effect of any proposed action(s)?
- What alternatives are there for the employer and the scheme?
- If insolvent, what would be the outcome for the scheme?
- The trustees need to fully understand the risks and the outcome of each of the potential options.
What actions can be taken?
- Strengthen the scheme’s position over future
- Obtain the right to veto employer’s future actions that may affect the scheme such as dividend payments
- Get agreement for contingent contributions to be made should a specific event occur
- Improve the scheme’s current position:
- Get funds or assets set aside
- Obtain security over uncharged assets
- Agree priority agreements with other secured lenders
- Obtain additional third party security:
- Guarantees from parent companies
- Insurance bonds