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s120 notices - the hidden danger for IPs

Darren Toms, director at Clumber Consultancy, shares a technical breakdown of the often problematic Section 120 of the Pension Scheme 2004

Darren Toms

Section 120 of the Pensions Act 2004 is a continuing administrative headache for insolvency practitioners and the latest findings have highlighted a dangerously growing trend of just relying on the Pension Protection Funds online facility to find a company pension scheme.

The Pensions Act 2004 came into play in 2005 and with that came the launch of the Pension PPF, a compensation scheme for Defined Benefit (Final Salary) pension schemes, where the sponsoring employer suffers an insolvency event. Since its inception, the Pension Protection Fund has paid out £793m in compensation.

IPs have a statutory duty under s120 of the Pensions Act 2004 to notify the Pension Protection Fund (PPF), the Pensions Regulator (TPR) and the Scheme Trustees about their appointment to an insolvent employer where the employer had an occupational pension scheme.

This statutory duty has to be complied with within 14 days of the insolvency appointment or within 14 days of becoming aware of a pension scheme. Upon receipt of the s120 notice the PPF will determine whether the pension scheme and its members are eligible for compensation. As at 31 March 2013, the PPF had a further 223 pension schemes in assessment with assets of £5bn and liabilities of £6.5bn.

To assist IPs, the PPF devised an online s120 facility that can detect any Trust Based registered company pension schemes. In principle this was a saving grace for IPs as the difficulty with company pension schemes is actually finding them in the first place. However, it transpires that some IPs are over reliant on the PPF’s online facility and overlook the statutory requirement to submit an s120 notice for a pension scheme that subsequently emerges where the PPF online facility failed to find a scheme.

To complicate matters for IPs the PPF have confirmed the following on their website: “If you are aware of a defined benefit scheme being associated with this employer and it is not showing in your online search please submit a paper s120 notice. “This is fraught with danger for a number of reasons: firstly, it is not clear to an IP when finding a pension scheme whether it is defined benefit or defined contribution and, secondly, there are hybrid pension schemes out there that can appear to be defined contribution schemes but actually have a defined benefit element to them.

The statutory obligation to s120 remains unchanged and states that an IP should still complete an s120 notice for “all” occupational pension schemes as it is not the role of the IP to determine whether the scheme is defined benefit, defined contribution or a hybrid pension scheme eligible for entry into the PPF.

To ensure that IPs don’t fall foul of their statutory obligations it is recommended to complete the s120 notification online within 14 days of their insolvency appointment and then download, complete and submit a paper s120 notice form for any other company pension schemes that are subsequently found.

Darren Toms, director of consultancy firm Clumber Consultancy, has been helping UK Insolvency Practitioners and Businesses with complex pension and insurance issues since the beginning of 2000, particularly within the area of of arranging insurance and winding-up Defined Contribution pension schemes to both the solvent and insolvent business markets.

Posted on 31st July 2014 by



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