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Update: insolvency

David Archer looks at recent cases in corporate and personal insolvency, and considers the Pensions Regulator's ability to impose a financial support direction

26 April 2011

Pensions legislation compels employers to ensure that pension schemes are properly funded. When an employer enters into insolvency proceedings, known in pensions legislation as an ‘insolvent event’, (including CVAs, administration and liquidation) any pension scheme funding deficit is recalculated on a ‘full buy-out’ basis. This requires the employer debt to be calculated on the assumption that the company has an obligation to purchase annuities in the commercial market place, in order to meet the unfunded pension cost in relation to all members of the scheme. As a result, buy-out debts are normally much higher than in solvent, ongoing, funding levels.

As soon as the employer suffers an insolvency event, all the rights of the pension trustee vest in the pension protection fund (PPF). The PPF will meet a basic level of scheme member compensation, up to about £29,000 per member per annum.

The Pensions Regulator has a statutory right to issue a financial support d...

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