The Pensions Regulator has issued guidance for trustees considering using asset-backed contribution arrangements to fund pension schemes.
Alex Henderson, partner at PwC, said:
“Employers and trustees will benefit from having a clearer framework on ABCs, especially given the rising popularity of these structures in the market, but it is important that they place the guidance in context.
“The guidance focuses on managing the risks in the structure as you would expect. It is important to remember that ABCs, when done properly, can be a great option for many pension schemes as they provide long-term funding while also freeing up cash which can be used to grow the business - benefitting employer and scheme trustees alike.
“The guidance emphasises that all current and future ABCs will now require a legally binding "plan B" in the event that a law change in the future means the ABC must be unwound. This will be helpful to secure any ABC in the long-term, but employers and trustees should not overwork this plan as it may not be needed and it is difficult to predict what will be needed in a future case of illegality.
“There are over 60 ABCs currently in the market, with assets totalling over £6bn, so the work involved making sure that they all now have an alternative plan in place should not be underestimated.”
James Berkley, a director in PwC’s pensions credit advisory team, said:
“The Regulator’s guidance is helpful in reminding trustees that they need to consider the complex relationship of any ABC with their employer covenant. Just parcelling up assets that are already part of the existing employer covenant may have limited additional benefit to the scheme.”
“Making sure schemes have accurately valued the underlying asset and impact of employer covenant, especially for an insolvency situation, and have a robust alternative plan in place, should help create more confidence in ABC structures in the future.”
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