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GLOSSARY

Asset-backed contributions definition

Published by a LexisNexis Pensions expert

What does Asset-backed contributions mean?

A system under which the sponsoring employer of a pension scheme uses its income-producing business assets (eg property) to generate a revenue stream payable to its pension scheme, as a way of dealing with any deficit in the scheme.

The advantages to the employer include: (1) Immediate tax relief on the value of the asset and on subsequent income stream; (2) No impact on the employer’s balance sheet; (3) The ability to spread deficit payments over several years; (4) Retention of day-to-day control of the assets.

For the pension schemes the benefits include: (1) An immediate deficit reduction; (2) A secure income stream; (3) The added security of a right to the underlying asset in certain circumstances, for example employer insolvency. In practice the set-up costs made it useable only by larger schemes. In 2011 the government announced some proposed changes to the system: (1) to avoid the mismatch between tax and accounting rules; and (2) to prevent employers obtaining tax relief twice. For example, the payment of instalments (such as rental payments) might be contingent,

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Asset-backed contributions for pension schemes

THIS PRACTICE NOTE APPLIES ONLY TO DEFINED BENEFIT OCCUPATIONAL PENSION SCHEMESAsset-backed contribution arrangements are a tool, which can be used to help reduce pension scheme deficits. There are risks involved, although these can be mitigated through seeking appropriate professional advice and structuring the arrangement correctly. However, the ultimate question, which will need to be carefully considered by the scheme trustee and its advisers, is whether investing in an asset-backed contribution arrangement puts the trustee and the scheme in a better position than simply signing up to a long recovery plan.Since Marks & Spencer led the way in 2008 with a property-backed contribution arrangement designed to reduce the deficit carried by its pension scheme by £500m, a number of other major names have followed suit, including John Lewis, Sainsbury’s and Whitbread. Today, employers use asset-backed contributions as an efficient way to fund growing deficits in defined benefit occupational pension schemes.What is an asset-backed contribution arrangement?An asset-backed contribution (ABC) arrangement is a contractual funding arrangement by which a special purpose vehicle is...

Employment cessation events—trustee decision-making process

Employment cessation events—trustee decision-making process THIS PRACTICE NOTE APPLIES IN RELATION TO MULTI-EMPLOYER DEFINED BENEFIT OCCUPATIONAL PENSION SCHEMES This Practice Note considers the issues which trustees of a multi-employer defined benefit (DB) pension scheme should consider where an employment cessation event occurs which triggers a section 75 debt. An employment cessation event will occur where the participating employer of a multi-employer DB scheme ceases to have active members at a time when another participating employer in the scheme still has at least one active member. On the occurrence of an employment cessation event, a statutory debt (known as a 'section 75 debt' or 'employer debt') is triggered under the Pensions Act 1995, ss 75–75A and the Occupational Pension Schemes (Employer Debt) Regulations 2005, SI 2005/678 (the Employer Debt Regulations) on that participating employer. The debt triggered is equal to the share of the scheme's full section 75 debt that is attributable to that employer. That share is referred to in legislation as the liability...

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TPR publishes final statement of strategy consultation response and launches 'submit a scheme valuation' digital service

The Pensions Regulator (TPR) has published its final response on 28 May 2025 to the consultation regarding the statement of strategy for defined benefit (DB) schemes, which is part of a broader initiative to assist trustees in long-term planning and risk management for DB scheme funding. The consultation, launched on 5 March 2024, received 55 responses from industry groups, advisers, and trustees, leading to the publication of an interim response on 23 September 2024 with revised templates and supporting documents. The final response addresses key themes raised during the consultation; outlines adjustments made to the strategy, and summarises responses to specific consultation questions.

Pensions weekly highlights—9 June 2022

Welcome to the Pensions weekly highlights from the Pensions team. This week's edition of Pensions highlights includes a review of key news stories, as well as dates for your diary and trackers.

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