Occupational Pensions Trusts (OPT)

Pension scheme trustees are duty bound to act in the best interests of members, not the employer. Keeping a close eye on the employers covenant is therefore a key trustee responsibility.

Of course, a balance often has to be struck. Sometimes trustees have to accept that the members’ interests are best served by compromising on pension contribution levels to help the company survive and prosper.

But what if the employers covenant becomes dangerously weak and/or the company’s survival is threatened? What’s in the members’ best interests then?

The only way to guarantee the full benefit promised to members is to fund a buy-out with an insurance company. Most employers simply can not afford to do that. If they could they would probably not be in trouble.

If the employers’ business fails, the trustees will apply to join the Pensions Protection Fund. This is not a perfect solution. The scheme only covers 90% of ‘eligible’ benefits which in most cases are well below the level promised by the original scheme. Members will lose out – often significantly.

An alternative in either case is to apply to transfer the scheme to Occupational Pension Trusts (OPT). The cost of transfer is likely to be considerably less than buy-out but it gives the members a chance of still getting their full benefit PLUS it allows the employer to divest itself of the total liability once and for all.

This is how it works:

• OPT calculates how much the employer needs to pay into the scheme to make a transfer possible. This may not be a large amount of money and it may be possible to spread the payment over a number of years. In fact, it may not have to be cash at all. It will be less than the amount needed to buy-out with an insurance company, typically up to 75% less.
• The trustees agree to bulk transfer the scheme’s assets (and liabilities) into a new scheme with a nominal sponsoring employer.
• The trustees can now stand down.
• The company does not need to involve itself in the administration, governance or make FRS17 disclosures any longer. The scheme is no longer their responsibility.
• The new scheme would be run under OPT, and would have 'best of class' trustees and governance.
• Crucially, funds in the new scheme can be invested in a variety of assets and do not need to be 100% invested in gilts/bonds, giving a real chance of securing higher benefits in the long term.
• The new scheme would still benefit from PPF protection so members remain fully protected at PPF benefit levels, just as they were before.

It is important to note that the transaction is subject to ‘clearance’ by the Pensions Regulator.

Grove Corporate Pensions has been appointed to run schemes under OPT, utilising its unique proposition.

If your company’s future is threatened by servicing its DB deficit, or if you’re a trustee concerned about maximising benefits for members in a difficult situation, please talk to us. A transfer to OPT could save your business and give scheme members the best chance of realising their full benefits at retirement.

For more information, click contact us at the top of this page or call us now on 01959 534 082.