Scheme apportionments
A Flexible Apportionment Arrangement (FAA) is a mechanism for transferring an employer’s responsibility for its pension scheme to another company without triggering a section 75 (insurance buyout) liability. Trustee consent is required and trustees must be satisfied that in agreeing to an FAA the Statutory Funding Test is met (broadly that the scheme and its members will not be disadvantaged by the FAA). FAAs are very common in particular where groups undergo a corporate restructuring.
A Regulated Apportionment Arrangement (RAA) is a restructuring mechanism that allows a financially distressed employer to separate itself from its liabilities in relation to its pension scheme, without triggering an exposure to TPR’s moral hazard powers or making the scheme ineligible for the PPF. RAAs are much rarer and usually involve an employer that is at serious risk of inevitable insolvency. In such a situation the scheme will usually enter the PPF in a controlled way. TPR will want to be satisfied that the employer’s insolvency is inevitable and that the RAA provides a better outcome for the scheme than an insolvency process or the use of its anti-avoidance powers.
We have considerable experience of advising on both FAAs and RAAs. For FAAs we are skilled in recommending appropriate mitigation to ensure the Funding Test is met, and for both FAAs and RAAS in supporting trustees in their discussions with the employer.