Hope for the best, plan for the worst
The Pension Protection Fund has published new insolvency contingency planning guidance for trustees. Andrew Patten looks at its key recommendations.
Business fortunes vary over time. On the downside, sometimes there is a gradual decline caused by things such as changing consumer habits. Sometimes, companies considered the safest of safe, fail suddenly and unexpectedly - think Enron and its accounting scandal, Lehmans and the credit crunch and more recently and closer to home, Carillion and Patisserie Valerie.
Taking a lesson from these tales of corporate woe, in a new publication, the PPF encourages trustees to follow the maxim of, "Hope for the best, plan the worst". What it says is sensible stuff and should form part of trustees' wider risk planning. What steps are possible and appropriate will of course depend on a scheme's and its sponsor's specific circumstances with planning and implementation needing to ramp-up as a sponsor's ability to support its scheme declines. However, there are certain steps which all schemes should take. Here are the PPF's recommended actions.
|Communications||Good member communications are essential. Ensure members are contactable and that there is a strategy for communicating with them and regularly updating them. Transfers is likely to be a key area. Consider using a specialist communications company and digital media channels. Also have a strategy for dealing with the media.|
|Document & data access||Ensure there will be uninterrupted access to all necessary scheme documents and data and that these are complete and accurate.|
|Business as usual functions||Identify what business as usual functions could be compromised by a distressed or insolvent sponsor and have actionable workarounds. Consider matters such as loss of a sponsor provided pensioner payroll, health assessor, pension team or IT/email system and strains on resources. Have triggers for when workarounds should be implemented.|
|Skills set||Ensure your trustee board has or will have access to the right expertise to deal with a sponsor in financial difficulty. Make sure there are go-to advisors who can provide the right advice.|
|Covenant monitoring||Regularly review the scheme's employer covenant.|
|Security||Obtain security or parent company guarantees which will provide funding in the event of an employer insolvency.|
|Employer Liability||In multi-employer schemes, understand each employer's liability to the scheme.|