Pinsent Masons explains that when an employer stops participating in a scheme (on an insolvency, for example), the payment of its scheme funding debt can be deferred or apportioned among the employers remaining in the scheme. A Regulated Apportionment Arrangement is one way of doing this.
Alastair Meeks, pensions expert at Pinsent Masons comments: "Some corporate advisers tout Regulated Apportionment Arrangements as a magic bullet for solvent restructurings. But employers and trustees need to be aware that getting one is like threading a needle, with very exacting requirements that need to be met. They attract disproportionate hype, perhaps because they have been used in some high profile cases – such as Kodak, Uniq and BMI – but the Regulator has now confirmed they are very rare. Struggling employers need to be wary of wasting management time and money pursuing a goal with low prospects of success."
The attraction of Regulated Apportionment Arrangements lies in the potential to use them to transfer liabilities to the Pension Protection Fund (PPF) without a disruptive business insolvency – normally only schemes with insolvent employers can qualify for entry to the PPF. Regulated Apportionment Arrangements also mean the employer will not need to meet the full statutory employer debt, calculated by reference to the cost of buying out members benefits with an insurer.
Alastair Meeks adds: "The Regulator's own guidance statement on Regulated Apportionment Arrangements and employer insolvency makes it clear that this is an "extremely uncommon" way of trying to resolve a scheme's funding problems. The PPF agrees that Regulated Apportionment Arrangements are deliberately rare. The figures now back this up."
Regulated Apportionment Arrangements require the approval of the Pensions Regulator, and the PPF must not object. The scheme should be being assessed for entry to the PPF, or likely to begin an assessment period within the next 12 months.
For a Regulated Apportionment Arrangement to be approved, employer insolvency must be inevitable and the outcome under the arrangement must be demonstrably better than insolvency, without exposing the trustees or the PPF to undue risk. A better outcome for the trustees and PPF should not be possible by other means, including the use of the Regulator's other powers.
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