4 May 2021: Argyll opens Leeds office

17 Jun 2020: TPR updates Contribution Deferral guidance

5 Aug 2019: TPR's tougher stance on recovery plans

7 Mar 2019: TPR’s Annual Funding Statement a game-changer

7 Dec 2018: DWP publishes superfund consultation

26 Jun 2017: TPR agrees settlement with Coats

30 Apr 2017: PM promises TPR M&A powers

28 Feb 2017: TPR agrees settlement with Sir Philip Green

9 Nov 2016: Brexit so far

8 Nov 2016: BHS ripple effect

2 Nov 2016: Sir Philip Green sent warning notice

1 Nov 2016: Argyll Financial becomes Argyll Covenant

3 Oct 2016: Tata Steel update

2 Jun 2016: BHS to be liquidated

29 Mar 2016: Tata plans sale of UK Steel

3 Sep 2015: TPR takes dim view of late valuations

13 Aug 2015: New TPR covenant guidance

28 May 2015: Contribution notice in Carrington Wire case

22 Dec 2014: Third warning notice for Guinness Peat

18 Dec 2014: New PPF rules for Asset-Backed Contributions

19 Aug 2014: TPR announces Lehman Brothers settlement

10 Jun 2014: TPR publishes revised funding code

27 Mar 2014: EC postpones holistic balance sheet

20 Mar 2014: PPF announces new insolvency risk model

17 Mar 2014: PPF guarantees harder to certify

7 Feb 2014: Argyll Financial submits consultation response

2 Dec 2013: Regulator publishes new draft funding code

19 Nov 2013: Asset-backed contributions guidance from TPR

22 Oct 2013: FSD warning helps MF Global scheme buyout

10 Sep 2013: TPR supportive of Kodak restructuring

31 Jul 2013: Schneider Electric acquires Invensys for £3.4bn

24 Jul 2013: Supreme Court overturns FSD super-priority

8 May 2013: Support for employers in TPR's Statement

19 Nov 2013: Asset-backed contributions guidance from TPR
TPR urges trustees to cast a critical eye over ‘ABC’ proposals in its guidance published today. 

Asset-backed contribution (‘ABC’) arrangements have been around for a number of years offering pension schemes access to an income stream backed by assets ranging from retail stores to casks of whisky.  Initially the preserve of large schemes (eg Marks and Spencer in 2007), ABC arrangements have become increasingly common as the costs of putting them in place have fallen.

TPR’s guidance recognises that ABC arrangements may improve a scheme’s security by providing access to valuable assets which were previously out of reach.  However it urges trustees to examine any ABC proposal carefully taking appropriate legal, covenant, asset valuation and actuarial advice to consider key risks:

· Is the effective deficit recovery period longer than trustees would agree to?
· Is there reduced flexibility in future funding discussions?
· Is the asset value linked to the employer’s covenant?
· What is the trustees’ legal ability to enforce their claim on the asset?
· Does capitalising the income stream obscure the actual funding position?
· Would the scheme be disadvantaged if a court finds employer-related investment provisions have been breached?

TPR expects deficits should be removed as quickly as an employer can reasonably afford, regardless of whether cash flows come from ordinary contributions or asset-backed arrangements.  Moreover, it expects ABC arrangements to contain an ‘underpin’ to ensure the scheme is not disadvantaged if the ABC arrangement is void due to illegality or a change in the law.  Where existing arrangements do not have an underpin, trustees and employers are expected to rectify this retrospectively.

Argyll comment:  TPR’s guidance has been a while coming given these structures have been around for a number of years.  Nonetheless it is a useful guide for trustees who might be considering one of these arrangements.
ABC structures can be a mutually beneficial way for employers and trustees to provide security for their pension schemes.  The benefit from the trustees’ perspective will depend very much on the nature of the underlying asset and in particular whether its value is correlated to the financial health of the employer.  The most valuable security is provided where the asset has a value independent of the employer on insolvency. However, even where the value is correlated an ABC structure may still improve the covenant by allowing trustees to access the covenant of the wider corporate group.
There is still a degree of uncertainty around the legal status of ABCs, as the guidance points out – there are untested issues around employer-related investment and these structures most commonly rely on Scottish Limited Partnerships whose status might be affected should Scotland become independent.  An underpin that ensures a scheme is not disadvantaged if the structure fails is an essential feature from the trustees’ perspective.

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