The Pensions Regulator has issued guidance for pension trustees on using Asset Backed Contributions (ABCs) to fund scheme deficits. Deloitte says the guidance will help them choose the right ABCs.
Feargus Mitchell, pensions partner at Deloitte, said:
“The Pensions Regulator’s updated guidance provides more clarity to the market – clarity that is important when you consider the responsibility trustees have when selecting ABCs to fund the benefits of scheme members. Asset backed contributions are becoming a more a popular way for employers and schemes to address the problem of scheme deficits in a cash-efficient manner, and they are increasingly being used by smaller schemes to fund deficits of less than £100m.
“The objective of an ABC is to provide trustees with a proper investment supported by valuable assets such as real estate or loan stock that deliver a secure income. It should also provide collateral that can be used in the event of a default, such as an employer becoming insolvent and unable to fund its pension scheme. In those circumstances, the Trustees can use the asset to pay for any outstanding amounts owed to them. As a result, an appropriately structured ABC arrangement can significantly improve the protection of member benefits, as compared to an unsecured schedule of contributions.”
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