The Pension Protection Fund (PPF) has published new guidance on contingency planning to help trustees prepare better in the event of employer insolvency.

The lifeboat fund said it has found that trustees who plan for employer distress are more likely to provide a better experience for members when there is cause for concern over the employer covenant.

It has published the guide, Contingency planning for employer insolvency, as it sees many examples of schemes entering PPF assessment where no planning has taken place. It hopes the guidance will support trustees in being better prepared.

For example, the PPF has seen in-house pensioner payrolls put at risk because the employer has entered insolvency without warning and the trustee has lost access to the premises, along with the IT, finance and banking functions. In more than 10 per cent of cases in recent years the PPF has had to step in to ensure pensioners were paid.

PPF director of scheme services, Sue Rivas, said the guidance gives information about the simple but effective steps it recommends trustees should put in place to mitigate some of the risks resulting from employer distress, particularly those areas which affect members and risk delaying completion of a PPF assessment period.

In addition, The Pensions Regulator executive director of policy, David Fairs, said: “We are pleased to have worked with the PPF on its new contingency planning guidance. It highlights the need for trustees to maintain the high standards of governance and administration we expect, even during unexpected situations such as employer insolvency or a loss of infrastructure. Adequate risk management is vital so trustees should read our and the PPF’s guidance and update their contingency plans.”

The guidance includes a checklist for trustees to follow such as collating all governing documents, which are kept in more than one place; making sure they have access to payroll information and a way of pensioners that does not depend on the employer; they are also advised to set up a separate bank account, ideally containing funds to cover three months’ payroll, especially if employer insolvency is imminent.

Other checklist items include having a complete list of employers attached to the scheme and which member is attached to which employer; making sure trustees have an up-to-date list of scheme documents and a back-up of all electronic data; creating a strategy for communicating with members and the media in the event of employer insolvency, and to speak to the PPF to make sure trustees are adequately prepared for entering PPF assessment.

Commenting on the publication of the guidance, Dalriada Trustees director, Tom Lukic, said: “The old army adage that prior planning and preparation prevents poor performance is a truism for military strategy but also rings true for another ‘P,’ pensions. The PPF guidance on Contingency planning for employer insolvency is a useful reminder on the importance of developing a plan that should the worst happen, scheme members are supported. While the detail set out may be more relevant to some (with weak employer covenants) than others, this is an important area all trustees should at least have an awareness of.”

“The PPF plays a valuable and hugely important role in our DB system, providing a safety net for many members’ pensions provision where the employer or scheme is simply unable to do so. Trustees cannot change the PPF compensation available to our members – but we can play our part to help minimise disruption whilst keeping everyone informed throughout what is often a challenging and stressful period for many members. The best contingency plan is the one you lock away and never have to use, but the key is to have one.”

The PPF is inviting trustees and scheme advisers to find out more at an event in central London on the morning of 14 May. The guidance document, Contingency planning for employer insolvency can be found here.

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