 The Assessment Period
If a qualifying insolvency event occurs in relation to an employer of an eligible scheme, this will trigger the beginning of an assessment period. During this period the Pension Protection Fund will assess whether or not it must assume responsibility for the scheme. Click here to see a list of schemes that are currently going through an assessment period.
What happens during an assessment period?
During the assessment period the Pension Protection Fund looks to determine whether a scheme is eligible for entry. During this period the scheme continues to be administered by its trustees, subject to various restrictions and controls.
During the assessment period the Pension Protection Fund will look to establish the answer to two main questions:
- Can the scheme be rescued? (For example, can the original employer continue as a going concern, or is another employer going to take the original employer over and assume responsibility for the scheme); and
- Can the scheme afford to secure benefits which are at least equal to the compensation that the Pension Protection Fund would pay if it assumed responsibility for the scheme?
If the answer to either of these questions is ‘yes’ then the Pension Protection Fund will cease to be involved with the scheme once the relevant processes and procedures have been completed.
However, if the answer to both the questions is ‘no’, and the relevant process and procedures have been completed, then the Pension Protection Fund will assume responsibility for the scheme and compensation will then become payable.
A Pension Protection Fund assessment period is likely to last a minimum of one year and could be longer, depending on the complexity of the financial situation of both the employer and the scheme, and the possibility of a scheme rescue.
The role of trustees
During an assessment period, the trustees of the scheme retain responsibility for the administration of the scheme and for communicating with and making pension payments to scheme members. The trustees must continue to act in the interests of all the scheme members.
However, during an assessment period, various restrictions and controls will apply in relation to the scheme. In particular, pensions will be restricted to Pension Protection Fund compensation levels [see compensation for more details].
The role of the Pensions Regulator
Once a scheme enters an assessment period, the Pension Protection Fund will work closely with the Regulator, keeping it informed of any relevant developments relating to the scheme. The Regulator may use its powers when problems arise on individual schemes.
For further information on the Pensions Regulator, visit its website at www.thepensionsregulator.gov.uk.
The role of the Pension Protection Fund
During an assessment period, the Pension Protection Fund will undertake a monitoring role in relation to the trustees of the scheme. This is to ensure that the trustees maintain the scheme in an appropriate manner for potential entry to the Pension Protection Fund. In certain circumstances, the Pension Protection Fund can issue directions to trustees in relation to areas such as the investment of the scheme's assets, the incurring of expenditure and the bringing or conduct of legal proceedings.
The Pension Protection Fund will also monitor the progress of the insolvency proceedings, liasing closely with the insolvency practitioner.
Where the Pension Protection Fund ultimately assumes responsibility for a scheme, arrangements will then be made to pay compensation to the scheme members.
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