Asset-backed contributions for pension schemes
Produced in partnership with Nick Stones and Richard Williams of Pinsent Masons
Asset-backed contributions for pension schemes

The following Pensions guidance note Produced in partnership with Nick Stones and Richard Williams of Pinsent Masons provides comprehensive and up to date legal information covering:

  • Asset-backed contributions for pension schemes
  • What is an asset-backed contribution arrangement?
  • Why are asset-backed contributions popular?
  • Main considerations when setting up an asset-backed contribution arrangement
  • Is an asset-backed contribution arrangement suitable?
  • Restriction on employer-related investments
  • Investment requirements
  • Documentation and negotiation
  • Risks
  • The Pensions Regulator and asset-backed contributions
  • more

THIS PRACTICE NOTE APPLIES ONLY TO DEFINED BENEFIT OCCUPATIONAL PENSION SCHEMES

Asset-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. 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 set up to provide an income stream to the pension scheme. The special purpose vehicle usually takes the form of a partnership, into which one or more assets of the sponsoring employer (or its wider group) are transferred. Such a partnership is known as an asset-backed partnership.

The transfer of asset(s) into the