Completing a Defined Benefit scheme wind up as a professional trustee

2021 has been a productive year! A few months after completing my first bulk annuity purchase as a professional trustee, I have got a few more of those under my belt, have completed my first buyout as a professional trustee and I am a few weeks away from finalising a wind up of the same scheme. Some reflections are set out below, in no particular order:

• Trustees should take a proactive role throughout – while this is especially true for an experienced professional trustee, it is also true in general. Trustees can input into the project plan via their knowledge of the scheme and the membership; they can manage the plan, as they are sitting in the middle of the wider project; they are best placed to choose the tone of member correspondence; they can nudge advisers if required and ensure that the exercise progresses with no delays.
• Plan your residual data cleanse carefully – this is absolutely necessary in an environment where pensions administrators are usually creaking under the strain of numerous projects. Investing some planning time at outset will avoid having to revisit previous work, will minimise costs and maximise efficiency.
• Plan your member communications – reducing the number of member letters by conflating multiple issues in one piece of correspondence has a certain logic in a complicated process such as a scheme wind up. My preference, however, is for short regular correspondence with clear instructions, which may in practice be less time consuming to agree, and has more chance of actually being read!
• Industry practice on GMP equalisation is developing fast – this is excellent news, as the advisory process is by necessity broken up given the legal and actuarial angles, plus the need to get full sponsor sign off if a conversion approach is followed. However, GMP equalisation is still problematic for previous transfers in/out cases, due to both lack of data and the practical difficulties in making a payment even when a satisfactory amount has been agreed. 
• If your scheme holds individual policies, engage with the insurers early – remember that the work you are asking them to do on checking the policies, reconciling benefits, completing an assignment, is not urgent from their perspective and there is no direct benefit to them. Identifying the right department/individual and discussing processes and suitable timescales can pay real dividends later on. 
• Don’t forget your AVCs – if there is a desire to preserve the link between AVCs and tax-free cash post buyout, terms should ideally be negotiated with the bulk annuity provider before a transaction takes place. Having said that, insurers will be helpful when they can, so some flexibility may be offered post transaction, if needed. If the AVCs are to be assigned or transferred elsewhere, a proportionate approach should be used and members kept up to date throughout.
• Pragmatism must prevail – tricky issues need to be closed off, and where a perfect solution cannot be found, trustees should err on the side of caution, although this may have a cost. For example, rectifying members’ benefits to the nth degree may be more time consuming and costly than agreeing to apply a slightly more generous approach. Avoiding any upset or confusion among the membership, which may result in drawn-out queries or even complaints, is key.
• Keep the sponsor involved – openness and trust on both sides will lead to more efficient decision-making and reduce the number of “difficult” discussions. Responsibilities need to be clearly allocated at outset and the sponsor should have proper advance notice of any activity needed from their part. Early discussion and agreement of the approach to wind up insurance (potentially alongside a general or specific company indemnity) is recommended.
• The process for transferring full admin to the insurer can be stressful – there are risks, particularly around the transfer of payroll, and any ongoing member activity needs to be managed very carefully indeed. Understanding what the process entails, and co-managing alongside the scheme administrator, will reduce the risk that anything is missed.

While completing a significant project such as this is sad in a way, there is a lot of comfort in knowing that members’ benefits are as secure as can be, and that all loose ends have been tied. I’m looking forward to the next one already!