Abandonment of DB pension schemes

Guidance

This guidance outlines how trustees should deal with a proposal which involves the abandonment of a defined benefit pension scheme.

Issued: December 2008

Key points

Abandonment of a pension scheme occurs where the sponsoring employer severs its link with the scheme without providing the scheme with sufficient funds or assets to compensate for losing the ongoing support of its employer.
This guidance is aimed at trustees and advisers involved in any arrangement that may result in a scheme being abandoned. It is also relevant to employers considering such arrangements.
Trustees should consider the operation and effect of all employer transactions and should take independent advice before agreeing to any proposed abandonment arrangement.
Abandonment is not likely to be in the members' best interests where the new sponsoring employer is a nominal employer.
We encourage early discussion to consider suitable alternatives if trustees believe an arrangement could result in abandonment.

Introduction

1. The trustees of a defined benefit pension scheme may be asked by the employer supporting the scheme to consider the following:

the transfer of liabilities in whole, or in part, to another employer; and/or
a change in control, or significant restructuring, of the employer (or group of companies associated with the employer), that results in the substantial reduction in the financial strength of the employer who will in future sponsor the scheme.

2. The above arrangements can be the result of a range of commercial activities. For example, the acquisition of the whole or part of the current employer by another company not associated with the current employer, for an obvious business reason with fair consideration having been given. These arrangements can be materially financially detrimental to the pension scheme and trustees are expected to negotiate robustly and seek adequate mitigation.

3. Some arrangements may result in the current employer severing its links with the pension scheme (or a section of the scheme or membership) without meeting its obligations to the scheme, or that portion of its membership. In such a case, the scheme, or a portion of it, may be transferred to a nominal employer, without being funded to a level sufficient to insure members' benefits with an insurer regulated by the Financial Services Authority. In other words, the scheme would not be able to meet the cost of buying out the full level of benefits with a regulated insurer. Alternatively the existing employer may be restructured so that it becomes a nominal employer.

4. Trustees need to be able to recognise such arrangements that may result in abandonment. These arrangements may not be in the members' best interests in terms of improving the chances of securing members' benefits in the short or long term and they may expose members to an increased risk that their benefits will not be provided in full. The weakened employer covenant may also mean there is an increased risk of entry to the Pension Protection Fund, with the consequent possibility of some members receiving less benefit than they would in an ongoing scheme.

5. The Pensions Regulator ('the regulator') expects trustees' starting point to be that any arrangement that breaks the link with the existing employer may not be in members' interests, unless the full section 75 debt (the full amount necessary to insure members' benefits with a regulated insurer) is paid, or unless the scheme remains supported by an employer of substance and is suitably compensated for any change in the employer's covenant. Trustees must consider the situation with great care.

6. The regulator recognises that this is a difficult area. Any proposal or arrangement that will result in breaking the link between the scheme (or a significant proportion of scheme members) and the current employer must be considered on its individual merits. This guidance does not, therefore, set out fixed rules on when a proposed arrangement will or will not result in abandonment. It simply provides guidance to help trustees identify potential abandonment and sets out what trustees should take into account when reviewing the merits of such arrangements.

7. The guidance is applicable to all cases where an arrangement could result in the employer breaking the link with the scheme (or a significant proportion of the members of the scheme), without payment of an appropriate proportion of the scheme's potential section 75 debt or, where a debt has actually fallen due, without obtaining approval for a withdrawal arrangement. It is also applicable where there will be a restructuring of the employer, or group of companies associated with the employer, such that the scheme is no longer supported by an employer of substance.

8. In all such cases trustees are expected to consider the guidance on recognising potential abandonment of the pension scheme. If trustees believe that any proposed arrangement may result in abandonment then they are expected to consider the remainder of the guidance included here.

9. The guidance is intended to operate together with our clearance guidance.

Recognising arrangements that could result in abandonment

10. There are a number of ways in which an arrangement can be structured so that the end result is the abandonment of the pension scheme by the existing employers. Consequently, whether an arrangement will result in abandonment is best judged by reviewing the substance of the likely outcome for the scheme of any arrangement, rather than just the form or legal structure of the arrangement. In particular, mechanisms that could result in abandonment may be the same as those that would otherwise be considered normal commercial transactions, and trustees should be aware of this.

11. If the full amount necessary to insure affected members' benefits with a regulated insurer for the whole scheme (or affected section of the scheme) is paid up as part of any arrangement, or if the regulator has approved a withdrawal agreement, then the arrangement cannot be viewed as abandonment. It would be viewed, instead, as a settlement of the employer's obligations to the scheme, as paying such a debt should allow the scheme (or the relevant part of the scheme) to be bought out with a regulated insurer.

12. If the full amount necessary to insure affected members' benefits with a regulated insurer for the whole scheme (or affected section of the scheme) has not been paid up as part of any arrangement, or if the regulator has not approved a withdrawal arrangement, then trustees are expected to consider the substance of the outcome of any proposed arrangement to determine whether it may result in abandonment. This applies whether the arrangement relates to the scheme as a whole, a section of the scheme, or a portion of the membership of the scheme.

13. In particular, it is the substance of the employer sponsoring the scheme (or affected part of the scheme or membership) pre and post the arrangement that is important. If, as a result of the arrangement, an employer of substance is replaced by an employer currently not of substance, even if it could recover to one of substance (without any sum referable to the potential or actual section 75 debt of the scheme or the affected section of the scheme being paid), then the arrangement could result in abandonment of the pension scheme.

14. A nominal employer can be an employer whose principal activity directly relates to the pension scheme (for example, the administration of scheme benefits or management of scheme assets) or it could be an employer that has little or no value as a business, excluding the pension scheme. Where the employer does have some value, but the covenant is substantially weakened, this could be considered similar to abandonment.

15. If, following the above guidelines, trustees believe that any proposed arrangement could result in abandonment, or if they are unsure as to whether a proposed arrangement could result in abandonment, they are encouraged to follow our guidance when considering the merits of the arrangement and any mitigation offered to the scheme.

Obtaining independent advice

16. The arrangements that may lead to abandonment are often very complex and trustees are expected to take independent advice before agreeing to any proposed abandonment arrangement. The advice should be appropriate and commensurate to the arrangement being proposed. In most cases commensurate advice is expected to result in a thorough review of the proposed arrangement and of the implications for the scheme, covering the factors set out in this guidance.

17. Before any work is done by advisers, trustees should scope and cost such advice. Costs issues do not remove trustees' fiduciary duty but trustees should expect that the costs would normally be paid by the employer or party looking to implement the arrangement, and should obtain confirmation of this. Trustees should not agree to any proposed abandonment arrangement without suitable advice, and should not agree to consider the arrangement without ensuring they have secured the resources to finance the advice without jeopardising the scheme's security.

18. Trustees should seek their own independent advisers. However, this does not prevent each party's set of advisers relying on work produced by one firm, provided the scope and nature of that work is common to all parties and the advisers confirm that they are not conflicted or constrained. Whilst parties should not have to replicate work there should be rigorous testing of assumptions relied on by advisers.

19. Trustees should remember that advisers themselves can be subject to conflict where corporate transactions are involved. Trustees are encouraged to seek disclosures, if necessary, from employer's advisers but should be mindful that the same advisers may be subject to conflict and that trustees may not be able to rely upon their advice.

20. Trustees are encouraged to consult with scheme members and make them aware of the type and extent of advice they have obtained.

Factors trustees should take into account

21. The overriding message of this guidance is that trustees' starting point in considering any arrangement that results in abandonment of the scheme (or a part of the scheme) should be that it may not be in the best interests of members. Trustees should therefore apply a high level of scrutiny to any proposed arrangement.

22. Trustees will need to carry out due diligence in deciding whether the arrangement results in abandonment of their scheme in their circumstances. In carrying out due diligence, it is expected that trustees will consider a number of factors before rejecting or agreeing to any proposed arrangement. Arrangements involving abandonment, by their nature, are expected to create value by removing some risk and creating certainty for the parties involved through what can be achieved with the pension scheme.

23. Trustees will need to carry out appropriate, commensurate and rigorous due diligence to make sure that the proposals are in members' best interests. The regulator expects trustees to consider the factors set out in this guidance when they evaluate a proposed abandonment arrangement.

24. The factors highlighted on the following pages are expected to be reasonably comprehensive, but this does not remove trustees' responsibility to consider any other factors that may be relevant. Trustees will need to satisfy themselves that their review of the proposed arrangement is comprehensive.

The mechanism by which the link to the current employer covenant is reduced or removed

25. Trustees should do the following:

Establish whether the mechanism crystallises a s75 debt. If a debt is crystallised the trustees' negotiating position may be significantly strengthened.
Understand whose debt has been crystallised and why this has happened, just as they had to establish who is responsible for making up funding shortfalls before obtaining the first actuarial valuation under part 3 of the Pensions Act 2004, as set out in Code of practice: Funding defined benefits.
Appraise the ability of all the employers involved in the arrangement to pay any debt which may fall due from them. If trustees are asked to agree to a reapportionment of any actual or contingent debt, they should carefully consider the value of the debt that is being reapportioned and the impact that any request for them to agree to a reapportionment has on their negotiating position.
Check whether past employers are truly past employers and that they paid their debt when they left.
Consider, where a s75 debt crystallises, the issue of whether the transaction results in a compromise and whether the transaction will have any effect on eligibility for entry into the Pension Protection Fund.
Consider the interaction of the proposed arrangement with the scheme's governing documents, and whether trustees' agreement to the arrangement is required. If their agreement is not required then trustees may wish to consider other powers they have which may improve their negotiating position, for example wind-up powers, powers to request a new funding valuation and investment powers.

Current employer's covenant

26. Under any arrangement resulting in abandonment, the scheme (or a part of the scheme) will lose any protection provided by the covenant of the existing employer. The existing employer underwrites the risks that the scheme is exposed to, including longevity risk, investment risk and inflation risk. It is highly unlikely that the loss of this protection will be justifiable unless there are serious doubts about its future sustainability or it is already of little value.

27. Trustees should therefore form an independent opinion of the value of the covenant of the existing employer to the pension scheme.

28. The methodology and presentation of any assessment of the value of the covenant to the scheme is expected to vary depending on the approach and adviser used. Notwithstanding this, trustees are expected to form a view on the ongoing financial strength of the employer and its future viability.

29. There are several relevant factors to consider in analysing the ongoing viability of the employer. Depending on the specific circumstances they can include:

the nature and prospects of the industry in which it operates;
the employer's competitive position and relative size within that industry;
management ability and track record;
the financial policy of the employer;
its profitability, capital structure, cash flow, and financial flexibility; and
the employer's credit rating (if any), which may have some bearing on these considerations, but the rating score on its own should not be seen as a substitute for independent review, unless the detail of the analysis behind the rating is made available and is acceptable to the trustees.

30. Trustees should be focused on the likelihood of failure of the employer. It may also be relevant to consider the consequence to the scheme of the employer's failure, but this should be analysed in context. If failure of the employer is unlikely (taking account of the employer's obligation to the scheme) then recovery analysis is expected to be less relevant to consideration of the proposed arrangement.

31. In addition, trustees are expected both to review the ability of the employer to meet any current shortfall in technical provisions and to form a view on the extent to which it could restore the position of the pension scheme if costs increased substantially. Such increased costs may result from adverse experience in relation to the main risk factors faced by the scheme. These risk factors are expected to include longevity risk, inflation risk and investment risk. There may be significant risks unique to a scheme (for example outstanding sex equalisation issues) and trustees should satisfy themselves that they take account of all significant risks against which the employer provides protection.

32. Trustees should also review the nature and structure of any group associated with the current employer if this exists. The aim should be to establish any possible additional security that may be available to the scheme from such a group which may potentially be lost as a result of the transaction.

Replacement employer's covenant

33. The term 'replacement employer' is used to refer both to a new employer to the scheme (or section of the scheme or membership) and to the existing employer following a restructuring.

34. Trustees should carry out a similar analysis of the covenant of the proposed replacement employer to that carried out for the current employer. In practice, where a nominal employer is being proposed, it is likely that no value can be assigned to the covenant.

35. Trustees should compare and contrast the respective covenants. The aim should be to form a view on the change in the exposure of the scheme and members and the loss of any support provided by the employer to the scheme. Carrying out such an analysis is important for all transactions affecting the pension scheme, not just abandonment.

Nature and structure of new employer group and ultimate owners

36. An arrangement involving abandonment to a replacement employer is expected to involve a number of other parties to the deal. In concept, these can be defined as the replacement employer group and the ultimate owners of the replacement employer group.

37. The replacement employer group includes the replacement employer as defined in the scheme's documents and any associated legal group. In some cases this may be a special purpose vehicle, the aim of which is to protect the ultimate owners of the replacement employer. For this purpose, the ultimate owners should be understood as the ultimate shareholders of, or providers of, capital to the legal group of which the replacement employer forms part.

38. The legal structure of the replacement employer group may be very complex and, if this is case, it is essential for the trustees to obtain independent advice to analyse and explain to them the implications of:

the legal domicile of companies within the group;
any restrictions or limits on capital and cash flows within the group, and the risk this creates in terms of preventing potential additional funds from being available to the scheme;
what additional funds, if any, exist within the replacement employer group that the scheme may have recourse to, either through a financial guarantee or other legal right;
what additional covenant, if any, is provided by the replacement employer group and whether the structure of the replacement employer group adds strength to the covenant of the replacement employer;
the effect on the existing employer; and
the role of any third-party provider.

39. Trustees should also analyse the ultimate owners of the replacement employer group. In particular, trustees are encouraged to review:

the legal domicile of the ultimate owners;
the investment timeframe of the ultimate owners, covering the manner in which they will extract returns on any capital invested, and particularly whether they will wish to remain invested over the timeframes which the trustees need for their investment strategy – and if not, whether the ultimate owners are taking on any legal commitments to guarantee the scheme investments over the timeframe they will remain invested; and
the potential for the scheme to have access to additional funds from the ultimate owners, the aim being to establish whether there is any risk capital that the owners would legally be required to pay to the replacement employer and any commitment to improve the funding position of the scheme in defined circumstances.

Potential gain by parties to the deal other than the pension scheme

40. It is important for trustees to review the potential gain to all parties involved in the arrangement and to ensure that any mitigation is commensurate with the loss in covenant. That is, trustees should look to achieve a fair deal for the scheme if there is a potential upside to other parties in any proposed arrangement.

41. The main parties to the deal other than the scheme are expected to be the current employer, the owners of the new employer group that the pension scheme is to be supported by, and the creditors of the existing and possibly new employer group. These parties will in all likelihood be looking to gain commercially from the arrangement.

42. Information on the potential gain to the current employer may already be obtained through analysis of the employer covenant and its business case for carrying out the arrangement. Trustees, however, should expect the employer to clearly set out its case for the proposed arrangement. As discussed in the section on possible alternatives to the proposed arrangement, trustees should consider other options open to the scheme and these should be viewed in the context of whether these options can also meet the employer's needs.

43. Trustees should make every effort to understand the potential gain to ultimate owners of the new employer group by which the pension scheme will be supported. Ideally, trustees should obtain access to documents prepared by these parties setting out their costing and expected income and profits as a result of the arrangement.

44. Trustees should also understand the potential gain to shareholders and other creditors of the current employer. Together with this, trustees should determine the priority of the pension scheme relative to the current employer's other creditors.

45. The aim of carrying out such assessments is to help trustees assess whether the arrangement results in a fair deal for the pension scheme and is in the best interests of its members.

Security or other mitigation provided to the pension scheme

46. The result of any abandonment arrangement is usually to leave the pension scheme supported by a nominal employer. It is therefore reasonable for the trustees to seek mitigation of equivalent or better value than the protection provided by the current employer.

47. If no sum referable to the potential or actual s75 debt of the scheme (or affected section of the scheme) is being paid immediately, or if it is less than the pro-rata share of potential s75 liability attributable to the affected membership, trustees should consider other forms of mitigation which may be available. These may take the form of additional funds provided to the pension scheme, contingent assets and covenants or guarantees provided by non-participating companies in the new employer group, or by the ultimate owners. Our clearance guidance sets out ways in which pension scheme security may be improved, and trustees are encouraged to refer to these examples.

48. In deciding on a package to mitigate the impact of any potential abandonment arrangement on the scheme, trustees should take account of:

the covenant of the existing employer;
the covenant of the new employer;
the covenant of the new employer group;
any security provided through the ownership structure of the new employer group;
the potential gain to the current employer and the owners of the new employer group;
the potential impact on the appropriate level of technical provisions; and
the level of new money, if any, that is being provided to the scheme.

49. 'New money' is defined as additional funding to the scheme that can only be made available as a result of the proposed arrangement. The current employer may propose increasing or making an early payment of agreed employer contributions. Whether this represents new money depends on how the current employer is now able to make additional funding available to the scheme. If the additional funding is promised out of the employer's existing resources, then it can be argued that the scheme is not gaining if it subsequently breaks the link with the employer. In such cases the employer will be crystallising only a part of the covenant that it already provides to the scheme. Trustees may be able to treat new contributions as new money if the resource to provide these only became available as a result of the arrangement (for example, by using a loan facility that would not otherwise have been granted), but this in itself does not justify breaking the link with that employer. Trustees should also bear this in mind when considering any mitigation or security provided as part of the arrangement.

50. The ideal starting point is that mitigation should be payment of the amount necessary to buy out the scheme benefits with a regulated insurance company, as in our clearance guidance.

Technical provisions

51. In general, a scheme's technical provisions and any recovery plan should reflect the covenant of the employer. If the covenant changes as a result of any proposed transaction, trustees should review the adequacy of both the technical provisions and the recovery plan.

52. It is expected that there will be a significant change in covenant as a result of any abandonment arrangement. Trustees should ascertain, as far as they can, any potential change to the technical provisions taking account of the change in covenant. They should consider this in the light of the form and type of mitigation being offered as part of the arrangement.

53. Trustees should ensure that a situation does not arise where it would not be possible for the scheme to meet its technical provisions using any reasonable recovery plan, given the covenant of the replacement employer.

54. Following on from this, trustees should be critical of any claim, that if the scheme does not have a deficit on an accounting basis (namely Financial Reporting Standard 17 or International Accounting Standard 19), then the abandonment will not be financially detrimental to the scheme.

55. Trustees are reminded that our current clearance guidance states in paragraph 53:
"Where there are reasonable doubts that the employer will continue as a going concern, where the scheme is in wind-up, or the event may result in scheme abandonment, then the s75 basis applies."

56. If, following any abandonment arrangement, the required technical provisions and the covenant of the employer are such that no recovery plan that would meet the appropriate technical provisions is affordable to the new employer, then the arrangement will be detrimental to the security of members' benefits. Trustees should ensure that any mitigation and structure of the scheme going forward prevents such a situation from arising.

57. Similarly, trustees should also consider the costs of paying the Pension Protection Fund levy. Where possible, they should try to assess the likely effect of the arrangement on the levy, and satisfy themselves that the scheme will have adequate funds or funding to meet this outcome.

Scheme investment strategy

58. Trustees should consider the impact of the proposed arrangement on the appropriate investment strategy for the scheme assets.

59. Following the reduction in or removal of the employer covenant, the scheme would have lost an important backstop to protect it against investment risks. It is expected that the investment strategy should reflect the increased exposure of the scheme and the limited protection that it has against these risks.

60. This will interact with any mitigation provided to the scheme as part of the arrangement and the need to consider the technical provisions. It may be that the appropriate investment strategy with a nominal employer prevents the opportunity to achieve the funding of the appropriate technical provisions. This would be a strong argument for trustees not agreeing to the arrangement.

Structure of trustee board

61. While discussion and negotiation on any proposed abandonment arrangement is ongoing, trustees should critically examine the make-up of the trustee board and any potential and actual conflicts that exist for individual members of the trustee board.

62. These conflicts are expected to include (but are not limited to):

a company-nominated trustee who is in conflict between the interests of the company proposing the arrangement and the members' interests;
a member-nominated trustee who may be in conflict between their own interests and the interests of other members; and
a member- or company-nominated trustee who is an employee of the company and may be in conflict between their interests as an employee and their interests as a member and trustee of the scheme.

63. The conflicts of interest module of our code of practice provides guidelines to trustees on conflicts of interest and managing these conflicts during any negotiations. In particular, if any trustees identify an actual conflict it is appropriate that they are not directly involved in any decision taken by the trustee board on the arrangement.

64. If there are potential conflicts, trustees should put processes and mechanisms in place to manage and communicate these conflicts.

65. It is expected that if the arrangement goes through, the new employer group may look to change the composition of the future trustee board. Trustees should consider whether it is appropriate for the trustees to control any change in the structure of the board if the arrangement goes ahead. The aim of any such change would be to prevent the employer from having undue influence on the executive management of the pension scheme in the future.

66. If any proposal provides the employer with undue influence, trustees should consider resisting agreeing to the arrangement.

Alternatives to the proposed arrangement

67. The pension scheme is expected to be a main focus and source of value of any proposed arrangement that results in abandonment. Trustees should therefore consider a full range of possible alternative options that may be open to the scheme and that may help achieve the employer's objectives without resulting in abandonment of the pension scheme.

68. Such alternatives may include (but are not limited to):

changing benefit accrual;
managing investment risk;
managing inflation risk;
managing longevity risk;
buying out benefits with a regulated insurance company;
using third-party insurances;
winding up the pension scheme; and
introducing more risk-sharing with the members of the pension scheme.

69. It is not reasonable for trustees to be forced to accept, at face value, abandonment as the only option open to the scheme in response to the circumstances or standing of the employer.

Factors trustees should not treat as primary benefits of abandonment

70. There are a number of factors that parties to the deal may present to the trustees of the scheme as reasons to agree to any proposed abandonment arrangement.

71. Trustees should be wary of treating certain factors as primary arguments for agreeing to any proposed abandonment arrangement.

72. In deciding whether any factor is a primary argument for allowing an abandonment arrangement, trustees should determine whether they would be able to achieve the proposed benefit of this factor without breaking the link with the current employer. If the scheme could access the benefit outlined without breaking the link with the employer, then trustees may not wish to give great weight to that particular benefit in reaching any decision.

73. Examples of factors that trustees should be wary of treating as primary reasons for agreeing to abandonment include the following:

Access to improved investment management. The new employer group may offer promises of access to better and newer asset management techniques that improve management of risk and promise better asset returns. It is likely that trustees will still be able to negotiate access to alternate investment managers and investment products if they do not break the link with the employer. In all cases, trustees should fulfil their trust duties in relation to investment at all times.
Access to improved scheme administration. The new employer group may offer access to improved administration of the pension scheme, for example through record cleaning, use of more up-to-date information technology, or introducing economies of scale to reduce costs. While some administration providers may not make pure administration services available to a scheme as a free-standing service, it is likely that trustees could come to a commercial agreement with a provider without breaking the link to the employer.
Access to more knowledgeable and experienced advisers. The advisers to the trustees should act in the best interests of their clients at all times. It is unlikely that an un-conflicted adviser will only offer to provide services to the trustees if they allow the abandonment as a precondition to providing this service.
Increased or earlier payment of contributions from the current employer. The current employer may propose increasing or making anearly payment of agreed employer contributions. Whether this is afactor that trustees should take into account depends on how thecurrent employer is now able to make the additional funding availableto the scheme. Trustees should determine whether the additional funding is new money that would otherwise not be available to the scheme.

Interacting with the Pensions Regulator

74. The Pensions Act 2004 gives the regulator a set of specific objectives.

Two objectives relevant to this guidance are to:

protect the benefits of members of work-based pension schemes; and
reduce the risk of situations arising that may lead to claims for compensation from the Pension Protection Fund.

75. In the light of these objectives, the regulator will consider any arrangement that may result, as set out in our clearance guidance. Queries and applications can be made by email to clearance@thepensionsregulator.gov.uk

76. The regulator has been granted anti-avoidance powers to meet its objectives. These include the ability to issue:

a financial support direction in cases where the employer associated with the scheme is insufficiently resourced; and
a contribution notice against a person who was a party to an act (or failure to act), one or the main purpose of which was to prevent the recovery of a s75 debt – or, to prevent such a debt becoming due, to compromise or otherwise settle such debt or to reduce the amount of such a debt that would otherwise become due - or, where the regulator is of the opinion that the act or failure has detrimentally affected in a material way the likelihood of accrued scheme benefits being received by or in respect of members.

The regulator also has powers to prohibit, suspend and appoint trustees of pension schemes, and to wind up a pension scheme.

77. In the light of this, trustees and employers are expected to report to and consult with the regulator on any arrangement that may result in the abandonment of the pension scheme, at an early stage in the process.

78. Trustees are reminded of other relevant legislation that may require them or the current employer to bring any proposed arrangement to our attention on these subjects. This includes:

notifiable events regulations (s69 of the Pensions Act 2004), regulator's directions (s69(1) of the Pensions Act 2004), codes of practice and guidance; and

whistleblowing requirements (s70 of the Pensions Act 2004).

79. Trustees are also directed to our clearance guidance and are expected to examine critically any arrangements that may lead to abandonment where the employer decides not to seek clearance from the regulator.

80. However, it is important for trustees to bear in mind that they need to analyse any proposed arrangement and reach a decision with other parties that is in the members' best interests. The regulator can act as a referee in any such arrangement, but cannot actively participate in decision-making concerning the proposed arrangement.