After the wind up has formally been triggered, the next focus is on securing members benefits. This can be done in a number of different ways, and you may wish to offer your members different options.
This section of our guidance focuses on three main strands of work that you or your administrators will need to complete before you can move on to the final stage and complete the scheme wind up:
- Making sure the scheme is in a position to secure members benefits.
- Considering the options available.
- Securing members’ benefits.
Strands 1 and 2 are likely to be undertaken simultaneously, at least in part.
Making sure your scheme is in a position to secure members’ benefits
This strand of work is mainly about making sure that scheme data is up to date, that no employer contributions are owed and that the provisions and benefits of the existing scheme are understood. You may already have undertaken some of these activities as part of Stage 1. These activities will mainly be undertaken by the scheme's administrators although the trustees retain overall responsibility. However, it will be for the trustees to review the scheme rules to determine whether any changes are needed, for example to enable or facilitate their offering certain options to members.
Actions to consider when making sure your scheme can secure members' benefits
Review whether the scheme rules permit the trustees to offer members all available options for securing benefits / securing benefits without consent
Consider which options for securing benefits will be offered to members. If the scheme rules restrict the available options (eg they do not permit a transfer to a new scheme without consent), you may wish consider whether it would be helpful (or possible) to amend the scheme rules to change this.
Trace all 'missing' members using DWP or tracing agency as necessary
There are a number of different ways in which you or your administrators could try to trace members. These could include:
- checking public registers for former employees
- using the DWP tracing service (chargeable)
- contacting employers who have historically participated in the scheme, and are still in business, to ask them to pass on information to any members they now employ
- contacting alumni networks to ask them to pass on information or post it on their website
- asking members who can be traced to help find other members
- using social media to advertise for or track down former members
If, after all reasonable tracing routes are exhausted, you still don't have a last known address for some of the members, this isn't necessarily a barrier to the scheme winding up. However, you may want to consider taking legal advice on this issue.
Audit member data and reconcile individual accounts
Make sure the member data you hold is accurate. You should also make specific checks to ensure:
- all employer and employee contributions have been collected and allocated correctly
- all refunds of contributions due have been paid
- any additional voluntary contributions and insured benefits held in the plan have been identified
Publish a section 27 notice to establish claims from unknown / missing beneficiaries
If you place a notice in The London Gazette (a government records website) and make other efforts to notify unknown members, including by advertising in at least one newspaper relevant for your membership, you can gain statutory protection from claims to trust property from unknown beneficiaries. This does not protect you against members you are aware of but simply cannot locate (although, as stated earlier, this isn't necessarily a barrier to scheme wind up).
Considering the options available
As part of the process of winding up the scheme, you will need to present members with options to secure their benefits. There are many different ways of doing this and you should consider taking professional advice on the best range of options to offer.
When you present the available options to members, you should encourage them to consider carefully which option will be best for their particular circumstances. You may wish to refer them to MoneyHelper or suggest that they seek independent financial advice.
Some of the more common options to secure member benefits are as follows:
Buy-out policies
A common method for securing benefits for deferred members (who are no longer making contributions and have not yet taken their retirement benefits) is some kind of buy-out policy. A DC buy-out policy is usually a contract with an insurer in the member's own name, under which the insurer will invest the member's pension savings until they are ready to access them.
There are a number of providers that offer buy-out policies and you will need to review the terms and investment options carefully, with a view to ensuring that the policy you choose provides equivalent or better outcomes for members than your existing scheme. Most trustees will want to consider getting professional investment advice about the buy-out policy.
Transfer to a new arrangement
If, for example, the principal employer is continuing to operate and the reason the scheme is being wound up is that it provides poor value for members, it may be appropriate to transfer active members to a new pension arrangement which can continue to receive contributions. New arrangements could include group personal pension plans, master trusts or an existing scheme associated with the principal employer.
On 6 April 2018 amendments were made to regulations1 to simplify the conditions that apply to bulk transfers of DC benefits without guarantees to a new occupational pension arrangement2.
These changes enable you to transfer DC benefits without guarantees in bulk, without member consent, when any of the conditions listed below are met:
- The transfer is made to a master trust authorised by us.
- The principal employers of both the transferring and receiving schemes are within the same group, and the transferring members are current or former employees of employers in that group (ie where the need to transfer has arisen from a corporate restructure).
- You have taken written advice from an appropriate adviser independent of the receiving scheme.
These changes may significantly simplify winding up of many DC schemes. Read further information on bulk transfers without consent on GOV.UK.
Other options
- Retirement: depending on the scheme rules, members over minimum pension age (usually aged 55) may be able to choose to take their benefits.
- Uncrystallised funds pension lump sum: members over minimum pension age may choose to take all their fund as a cash payment, which would be subject to tax.
- Winding up lump sum: members with fund values of £18,000 or less could be given the option to take a cash payment.
- Short service refund: members with less than 30 days' accrual could be given the option to have their contributions refunded.
- Transfer with consent: members could also choose to transfer their benefits to a new pension arrangement of their choice.
Actions to consider when choosing a buy-out provider or new pension scheme
Scope the selection exercise
Set out the scope and purpose of the selection exercise, including the trustees' selection criteria.
Identify available buy-out options/alternative pension arrangements
Liaise with potential insurers or scheme providers and review variety of buy-out policy options/new arrangements that are available.
Appoint a professional investment adviser to provide a report on the options and make a recommendation, and consider that report
It is usual for trustees to take investment advice on a suitable buy-out policy. You may also wish to take advice on the suitability of any new pension arrangement where you are proposing to transfer members' benefits. However, although a professional investment adviser will recommend a course of action, you have the final responsibility for the decision.
It is important to consider the recommendation carefully in light of your knowledge of the scheme membership and not simply 'rubber stamp' the recommendation. You need to be comfortable that the decision you are making is in the best financial interests of your membership so should challenge or question the recommendation if you have any concerns.
Select buy-out policy provider / new arrangement
When selecting a policy or new arrangement, you will need to consider all relevant issues, including the overall suitability of the policy or arrangement, any default options, and member borne charges and transaction costs.
Other issues to consider specifically in relation to buy-out policies include:
- financial strength of insurer, and whether the policy will be covered by the Financial Services Compensation Scheme
- can members transfer out of the policy before they retire
- are the funds contained within the policy sufficiently matched to current funds
Communication to members
In some cases you may prefer to communicate with members yourself, rather than the insurer or provider of the new pension arrangement doing this on your behalf.
Footnotes for this section
- Amendments were made to regulation 12 of the Occupational Pension Schemes (Preservation of Benefit) Regulations 1991. This guidance does not cover the rules (under regulation 12(1) of those regulations) which applied to bulk transfers of money purchase benefits without consent prior to these amendments coming into force; however, it will remain possible to effect a bulk transfer of money purchase benefits under these rules until 30 September 2019.
- The new legislation applies to rights to money purchase benefits where the assets held for the purposes of providing those benefits do not include any guarantee or promise in relation to the amount of benefits to be provided, or the amount available for the provision of benefits.
Securing members' benefits
Once you are comfortable that members' benefits have been identified and can be fully provided, you need to let the members know about their options and then arrange for the benefits to actually be secured. Typically this will mean offering members the choice of any cash options, such as a winding-up lump sum, and advising them that if they do not respond, their benefits will be secured by way of a 'default option' – usually a transfer to a new pension arrangement (without consent) or a buy-out policy.
Actions to consider when securing members’ benefits
Issue member option forms
Issue option forms to members, setting out all options and informing them how their benefits will be secured if no express instructions are received (eg via buy out policy). The form should alert members to any specific consequences of the default option. You may also wish to recommend that members take financial advice.
Process any member requests for alternative options
Process any member requests for options other than the default option. This might include requests to transfer out (with consent), for winding up lump sums, or for retirement options. This will normally be done by the scheme's administrators.
Provide confirmation to members
Confirm to members once personal options have been processed.
Transfer remaining scheme assets and members to the selected new arrangement
Transfer remaining scheme assets and members to the selected arrangement – this might be a new pension scheme, or a buy-out policy.