The Pension Protection Fund (PPF) has published a new guide for trustees on contingency planning for employer insolvency. This has been prepared with input from The Pensions Regulator (TPR) and should be read in conjunction with TPR’s guidance on managing defined benefit schemes.

Much of the advice contained in the new guide aims to minimise the practical difficulties caused by the sudden loss of access to the employer’s premises, IT, payroll and banking functions in the event of insolvency. The PPF recommends that trustees should include the following key steps in their contingency plans:

  • take steps to list and collate all governing documents and hold them in more than one place;
  • review payroll and banking arrangements to ensure that the payroll could still run if the employer fails. This is particularly important if payroll is run by the employer in-house. Trustees should take steps to ensure that there is access to member payroll information and that there are sufficient funds available to continue to run the payroll. If the trustee bank account is operated on the employer’s online banking platform, the trustees may also want to consider setting up a separate account and holding funds to cover three months’ payroll if insolvency looks imminent;
  • where scheme documents and member files are stored at the employer’s offices or on the employer’s electronic network, ensure that an up-to-date record of documents held is readily available and backups for electronic data are maintained;
  • if the scheme has had different participating employers over the years, take steps to understand which employers remain attached to the scheme and which members are attached to each employer. This may require a legal review;
  • ensure member data is accurate and kept up-to-date so that members will receive communications;
  • create a media strategy if required;
  • ensure trustees have access to all relevant documentation on charges or assets which are contingent on the employer’s insolvency;
  • ensure there are clear mechanisms for disinvestment; and
  • consider whether trustees and their advisers have sufficient experience and expertise in insolvency and ensure that appropriate measures are in place to deal with any conflicts of interest.

Trustees should read the PPF’s guide and review their contingency plans accordingly. Considering the practical operational risks posed by an employer’s insolvency and taking steps to minimise the risk and review the structures and processes involved in running the scheme is particularly relevant where the employer is already facing financial difficulties. However, trustees should consider contingency planning even if insolvency seems a remote possibility at present, as it is vital to good governance and an important part of the trustees’ role. Many trustees will already be looking at their approach to employer covenant monitoring as part of their integrated risk management.