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Hold-Over Relief Liability Insurance

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Breach of Trust Insurance

Pension Fund Run-off Trustee Insurance
Key benefits
What the policy covers
Facts to conside

Pension Fund Run-off Trustee Insurance

Many companies are choosing to close their occupational pension schemes and are opting instead for the bulk purchase of annuities to provide the retirement benefits due to their pension scheme members. Although the trust governing the operation of the pension scheme is wound up, the pension fund trustees may retain a joint and several personal liability for claims on the pension fund when it is in run-off. Although the trust deed may appear to contain guarantees and/or indemnities, these do not always provide full protection to the trustees – for example will the guarantor remain solvent?

Where a pension fund has been wound up and the assets used to purchase retirement benefits from an annuity provider, the former trustees may be advised to protect any continuing liability to pension scheme members arising under the trust deed. Where deferred pensioners are involved the risk may be very long-term.


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Key benefits
  • Upon payment of a one-off premium cover is provided in perpetuity
  • Removes the risk to trustees of personal liability for certain breaches of duty
  • Ensures funds are available to meet future benefits to which scheme members may be legally entitled
  • Allows the scheme to be wound up when the sponsoring company requires

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What the policy covers

  • Any overlooked pension scheme members claiming they are entitled to receive retirement benefits where such benefits have not been provided for due to the members’ names having been omitted from the records held by the company
  • Members claiming their entitlement under the pension scheme has not been fully satisfied by the purchase of the retirement benefits

What is not covered

  • Any members successfully claiming that they are due additional benefit under the rules requiring the equalisation of retirement benefits between men and women, in accor­dance with the Barber Judgement, where such additional benefits have not been provided for by the purchase of the retirement benefits
  • Any legal liability to provide additional benefit to any member as a result of legislation which requires the equalisation of Guaranteed Minimum Pensions and defines the method of calculation of such equalised benefits subsequent to the inception of cover, resulting in the retirement benefits purchased being insuffi­cient to provide for such increased entitlement

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Facts to consider

The Barber Judgment saw the ECJ regulate for equal treatment between the sexes with regard to retirement benefits and applies to all benefits earned after 17 May 1990. It is further endorsed by subsequent legislation. Directions given by the Pensions Ombudsman in 2000 in the case of Williamson v Sedgwick were that Guaranteed Minimum Pensions should be subject to the equal treatment rule too. The High Court subsequently held in 2001 that the Ombudsman was not entitled to give that direction but failed to give a definitive ruling on whether the equal treatment rule does require GMPs to be equalised.

If in future it is determined that it does, the absence of any separate guidance on practical implementation means the exact method by which equalisation should be achieved is still uncertain. It has so far been left to the discretion of trustees and companies to decide what is best in each case. Since even pensions experts admit the question of exactly how GMPs should be equalised is fraught with difficulty, trustees are left with the possibility that future legislation may leave them exposed to claims from members – even in cases where they feel equalisation has been addressed prior to closure of the scheme.



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