Under section 161 of the Pensions Act 2004 the PPF has the power to disapply or modify any term of a contract entered into by a scheme for which it assumes responsibility if it considers the terms “onerous”. Examples of such terms could be restrictions on the liability of a counterparty, or measures imposing unreasonable fees or penalties on the PPF or the scheme’s trustees.
While the PPF has not yet used its section 161 powers, it has received queries about their possible exercise. In addition, the existence of these powers has led some fund managers to insert additional clauses into investment management agreements (IMAs) specifying that the scheme’s entry to the PPF will automatically trigger the termination of the IMA.
In an open letter published for consultation, the PPF has invited comments on some draft standard wording to be inserted into IMAs. The proposed amended provisions set out that there would be no early termination or event of default on transfer of a scheme to the PPF, provided that the PPF had notified the fund manager that it would not use its section 161 powers.
The consultation period ends on 8 May 2009.
View the consultation letter (pdf)(64.0KB)