Know your ABC — new Pensions Regulator guidance on asset-backed contributions arrangements

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The Pensions Regulator has issued guidance on asset-backed contributions arrangements (ABCs). This comes three years after some brief commentary on such arrangements contained in the Regulator’s statement on employer-related investments, which referred to a need to underpin an ABC arrangement. ABCs are on the rise, with press reports confirming that these arrangements are being used in respect of smaller deficits than was previously the case. This trend may, perhaps, go some way towards explaining the Regulator’s decision to issue guidance at this stage. There has also been a certain amount of commentary about the (at least theoretical) risk that Scottish independence could present in relation to the legality of 415066ABCs — would the employer-related investment legislation be breached?

As well as highlighting the risks and restrictions that often come with ABCs, the Regulator is keen to raise trustees’ awareness of the real nature of their interest in the ABC they have signed up to or are considering signing up to. In pursuit of this, the Regulator tells trustees to ‘unpack’ the arrangement. The Regulator urges trustees not to confuse the value of the underlying asset with the value of their interest in the ABC, which will often be limited to the remaining payments due under the arrangement. These payments, in turn, are reliant on the continuing ability of the employer to make them and the Regulator wants trustees to look at the bigger picture — for instance, are other assets or factors relevant? Will the ABC arrangement itself affect the employer covenant? Are the payments back-end loaded? …

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