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Do Pitmans’ Closure to Accrual lawyers have any particular areas of expertise?
Closure to Accrual
A large number of final salary schemes have closed to future pension accrual in recent years owing to the increase in funding deficits and resulting increase in contributions required from employers, and seemingly open-ended risk of running a final salary scheme.
We have considerable expertise in this area and have given advice to over 50 clients, including both employers and trustees. See also Trustees’ Powers and Duties. The key issues to consider are:
- Any restrictions in employment contracts
- The need to consult employees
- Obtaining the Trustees’ consent and negotiating any conditions to obtain that consent
- Considering any restrictions in the amendment power, eg as to whether, post closure, current employees must still have their pension linked to their salary at retirement rather than salary at closure date
- The Trustees seeking to review their funding and investment arrangements in the light of the changed circumstances post closure
- For a multi-employer scheme, ensuring that accrual ceases for employees of each employer at exactly the same time in order that no section 75 debt is triggered
- Terminating contracting-out of the S2P
Where restrictions on the amendment power or in contracts of employment would inhibit closure to accrual, a process to obtain consent from members to appropriate variations to their employment terms can also be effective to terminate further rights to accrue final salary benefits.
As regards section 75 of the Pensions Act 1995 triggering winding up would oblige the employers to make good the full buy out deficit upon the scheme being wound-up. Since this is likely to be a very significant sum, most employers are very keen to ensure that winding up is not inadvertently triggered. We would ensure that the closure to accrual process was structured so that no inadvertent wind-up could occur. See also Section 75 Debt.
However if wind-up is to be explored, we can advise on whether the necessary powers are present to facilitate the wind-up, and also advise on the terms of the insurance policy under which benefits will be secured. See also Winding up Pension Schemes and Buy-out and Buy-in.
Why choose Pitmans’ Closure to Accrual lawyers?
Pitmans’ Pensions lawyers can:
- Advise on all the issues listed above
- Draft a Deed of Amendment
- Draft communications with members and between employer and trustees
- Provide joined-up advice on pensions and employment law aspects