Insolvency practitioners working for schemes' troubled sponsors are being encouraged by the Pensions Regulator to take the initiative in appointing trustees, which in many cases could shorten Pension Protection Fund assessment periods.
The regulator has the power to appoint a trustee to a scheme where its employer has entered insolvency, but earlier this month it said it would not always do so, adding that insolvency practitioners should consider appointing trustees to the scheme or acting as the trustee themselves.
However, lawyers doubt insolvency practitioners would appoint themselves to schemes due to potential conflicts of interest.
There’s an argument that schemes should go through assessment more quickly and members should have assurance more quickly. If you have an experienced trustee that’s likely to be the result
Jonathan Hazlett, Osborne Clarke
The regulator's statement said: “When an IP is appointed in respect of an insolvent employer, it does not always mean that we will appoint a trustee to the scheme. Making this type of trustee appointment is discretionary on our part. Whether we do so will be determined on the scheme’s circumstances – for example, because the employer is also the trustee, or because the trustee indicates he is not willing or able to continue to act."
Approved trustees
Jonathan Hazlett, head of pensions at law firm Osborne Clarke, said historically it had been more common for schemes and insolvency practitioners to wait for the regulator to appoint a trustee, but this latest statement could lead to an increase in the number of schemes appointing trustees from the Pension Protection Fund’s trustee advisory panel, or the regulator’s trustee register.
“They [the PPF] want people who have experience of taking people through assessment and can do it quickly and for an agreed cost,” he said.
“It’s a statement to the insolvency practitioner community saying when a company goes bust they shouldn’t rely on the regulator using its power to appoint a trustee; what it would prefer them to do is appoint the trustee themselves.”
A spokesperson for the regulator said: “While the regulator has a statutory power to appoint an independent trustee in certain circumstances, in cases of corporate insolvency the functions of a trustee can often be discharged appropriately without the need for us to use our powers.”
Hazlett said greater autonomy among failing schemes could also lead to an increased level of influence from the PPF as it is a major creditor for schemes entering into the lifeboat fund.
He added that use of the PPF's preferred trustees could shorten the time schemes spend in assessment.
Hazlett said: “The safety of members’ benefits won’t be affected, but there’s an argument that schemes should go through assessment more quickly and members should have assurance more quickly. If you have an experienced trustee that’s likely to be the result."
A spokesperson for the PPF said: “We look forward to seeing the best practice of many IPs we work with being taken forward more broadly following this statement.”
Conflict of interest
However, Phillip Goodchild, partner at law firm Stephenson Harwood, said it was unlikely insolvency practitioners would appoint themselves to the scheme.
“I’d be surprised if any IP would want to act as the trustee themselves,” he said. “I would have thought the fact the trustee was owed so much money by the employer would make it difficult for the IP to act as trustee.”
