When a company enters Liquidation, most of the attention of Liquidators is often focused on asset realisations, creditor claims and statutory investigations. Pension considerations during liquidation can easily slip down the list, yet they carry some of the sharpest deadlines and the greatest risk of things going wrong if they are missed. A missed Section 120 insolvency notice, an untraced Defined Benefit scheme, or unpaid employee contributions left unclaimed can all turn into problems that follow a case, and a Liquidator, long after the appointment of the Insolvency Practitioner.
We asked Darren Toms, Managing Director at Clumber Consultancy Limited, to set out what Liquidators need to have on their radar from day one. Clumber are well known to us here at Antony Batty & Company.
They work extensively with UK Insolvency Practitioners and businesses on employee and pension considerations during liquidation, helping Liquidators manage complex pension schemes with confidence and reduce the compliance risk that pensions can otherwise carry through a case. Darren has spent his career doing exactly this, and in this article he explains, why pension issues should always have a place in the initial case review, not an afterthought once other statutory duties are dealt with.
Identifying pension arrangements
“One of the first steps in any Liquidation should be establishing whether the company has operated, contributed to, or sponsored a pension scheme. If the company paid employees using a PAYE scheme, then by law they should have had an auto enrolment compliant pension scheme in place. However, from the first review of the company’s records it’s not always easy to determine if a pension scheme was in place and who the provider was. While some employers may have had a straightforward workplace pension arrangement, others may have historic occupational schemes, legacy Defined Benefit obligations or trust-based arrangements that are no longer actively used.
Strong communication with the Company Directors and HR representatives for the business supports finding pension schemes. Payroll records, pension provider correspondence, employee communications, accounts and board papers can also help identify whether pension obligations exist. The Department of Work and Pensions also support individuals, including insolvency professionals, track down company pension schemes using their online search page: https://www.gov.uk/find-pension-contact-details.
Despite all the various searches it is still possible for pension schemes to go untraced in an insolvency. Insolvency professionals are expected to undertake the above attempts to find company pension schemes and document their findings in order to avoid scrutiny from their Recognised Professional Body who undertake frequent independent audits of the work that they do.”
The Section 120 notice: a 14-day deadline
“Where an employer participates in an occupational pension scheme, the Insolvency Practitioner has a statutory duty to file a Section 120 notice under the Pensions Act 2004. The purpose of the notice is to inform The Pensions Regulator (TPR), the Pension Protection Fund (PPF), and the Trustees or Managers of the pension scheme, that an insolvency event has occurred in relation to an employer connected with an occupational pension scheme.
The s120 notice is required within 14 days of the insolvency appointment, or within 14 days of becoming aware of the Scheme. Once submitted, it allows the PPF to assess whether any pension scheme associated with the insolvent employer is a Defined Benefit Scheme and therefore eligible to enter a PPF assessment period. For Liquidators, this is an important early compliance step and should form part of the initial case review wherever there is any indication of an occupational pension scheme.”
Section 22 Pensions Act 1995: a separate obligation, not a duplicate
“A common misconception is that submitting an s120 notice deals with all relevant pension notification obligations. It does not. Section 22 of the Pensions Act 1995, as amended by s36(2)(d) Pensions Act 2004, remains a separate requirement where a Trust Based occupational pension scheme exists. Trust Based schemes are not just Defined Benefit Schemes, and they cover most Auto Enrolment Schemes as they are usually Master Trust arrangements. This distinction is important. The s120 process is focused on notifying the insolvency event for PPF purposes, whereas Section 22 deals with trustee independence and the governance of the pension scheme following insolvency. Treating the two obligations as interchangeable can leave a compliance gap.
To comply with Section 22 a Liquidator must notify their insolvency appointment in writing to the PPF, TPR and the Trustees of the Scheme. They must also give written notice of their plans to close the Liquidation to the same parties, under this legislation, usually 6 to 8 weeks prior to closure.”
Unpaid pension contribution claims
“Liquidators should review whether all employee and employer pension contributions have been paid to the pension provider. This is particularly important where the company experienced cash-flow difficulties before Liquidation, as pension arrears often arise alongside PAYE, NIC and wage arrears.
Employee contributions deducted from wages but not paid across to the pension scheme can be especially sensitive and heighten employee anxiety during the process. A careful review of payroll reports, pension schedules and provider statements will help quantify the position and ensure claims are treated properly. Forms RP15 and RP15a need to be completed by “someone competent to act” which is deemed a party that has access to all of the records referred to above. Once completed, these forms need to be reviewed and signed off by the Liquidator before submitting them to the Redundancy Payments Service (RPS).
The RPS pay unpaid pension contributions in full out of the National Insurance Fund usually within 12 weeks of receipt of the completed forms. Payment is made direct to the pension provider, and it is down to the Liquidator to ensure that the pension contributions are allocated correctly to each member split employee and employer contributions.
The Liquidator should then seek a Proof of Debt form from the RPS evidencing the unpaid pension contribution claim and the rank of creditor that the contributions fall into. Unpaid employee contributions in the 4 months prior to Liquidation rank as a preferential claim, whereas all Employer contributions rank as an unsecured claim. The RPS will pay unpaid pension contributions up to 12 months prior to the Liquidation and only for one insolvency for that company.”
Re-enrolment and auto-enrolment duties don’t stop at appointment
“Automatic enrolment duties should not be ignored simply because the company has entered Liquidation. If employees remain employed for any period, or if the business continues to trade while the Liquidation strategy is implemented, ongoing workplace pension duties may still need to be considered. Assumptions should not be made without first checking the employment position, payroll timeline and establishing when the 3-year anniversary from the Staging Date is, to determine the re-enrolment date.
In a Liquidation, the duties are likely to be limited because employees are dismissed quickly. Once there are no remaining employees for the business the Liquidators must notify the Pensions Regulator (tPR) that the company is no longer a company for auto enrolment purposes. This is done online at https://not-employer.ae.tpr.gov.uk/ Failure to do this can lead to a fixed penalty of £400 from TPR and the threat of escalation to daily fines.”
Defined Benefit schemes and the Pension Protection Fund
“Defined Benefit (DB) schemes (less than 5,000 left if the UK) create the greatest complexity in a Liquidation. Unlike Defined Contribution arrangements, DB schemes promise members a specified level of retirement benefit. Where the sponsoring employer becomes insolvent and the scheme is underfunded, the Pension Protection Fund (PPF) may become involved. The PPF was set up in 2005 to offer compensation to members of DB schemes where an insolvency event occurs, and the Scheme can no longer meet its retirement benefit promises.
Following the insolvency event, and submission of the relevant s120 notice by the Liquidator, the scheme may enter a PPF assessment period. During that period, the PPF will assume all creditor rights for the DB scheme and work with the Liquidator to determine the scheme’s funding position, eligibility and future treatment. The Liquidator may receive information requests from trustees, actuaries, the PPF and TPR. Pension liabilities can be substantial and may significantly exceed other unsecured liabilities.
If the Scheme after payment of an unsecured dividend can’t afford current PPF levels of compensation, which are currently 100% benefits to Pensioners and 90% to all other members with limited inflationary increases, then the Scheme will be absorbed into the PPF and benefits paid out at this level.”
Why Pension considerations during Liquidation matter for Liquidators
Asset realisations and creditor claims are the bread and butter of any appointment, but as Darren points out, pension schemes come with statutory deadlines of their own, and they don’t wait for the rest of the case to catch up. A missed s120 notice or an untraced Defined Benefit scheme is not just an administrative gap, it can mean regulatory scrutiny from a Liquidator’s own Recognised Professional Body, delays in getting a case closed, and cost that could have been avoided with an earlier check.
This is exactly why specialists like Darren and Clumber Consultancy exist within the insolvency market. Pension schemes, especially Defined Benefit and trust-based arrangements, are technical, and getting the detail wrong carries real consequences for directors, employees and the Liquidator alike. Firms like Antony Batty & Company draw on specialist pension support of this kind as and when a case demands it, because it means pension matters are handled properly from the outset rather than being unpicked later.
If you are a director facing Liquidation, or an adviser working with one, and pension arrangements are part of the picture, our team here at Antony Batty & Company would be glad to talk pension considerations during liquidation through with you, bringing in the expertise of Darren and his team as necessary. Get in touch for a free initial discussion.
Frequently asked questions about Pension considerations during liquidation
Q: What is a Section 120 notice, and when does it need to be filed?
A Section 120 notice is a statutory notification under the Pensions Act 2004, informing The Pensions Regulator, the Pension Protection Fund and the scheme’s Trustees or Managers that an insolvency event has occurred. It must be filed within 14 days of the insolvency appointment, or within 14 days of the Liquidator becoming aware of the scheme.
Q: Is a Section 120 notice enough to meet all pension notification duties?
No. Section 22 of the Pensions Act 1995 is a separate requirement wherever a Trust Based occupational pension scheme exists, including most Auto Enrolment Master Trust arrangements. It deals with trustee independence and governance, not just notification of the insolvency event, and requires separate written notice both on appointment and again 6 to 8 weeks before the Liquidation closes.
Q: What happens to unpaid employee pension contributions in a Liquidation?
Unpaid contributions can be claimed from the Redundancy Payments Service using forms RP15 and RP15a and can only be claimed by the Liquidator, or a competent person acting on their behalf e.g. the members can’t claim directly themselves. Unpaid employee contributions from the 4 months prior to Liquidation rank as a preferential claim, while unpaid employer contributions rank as unsecured. The RPS will generally pay valid claims within 12 weeks, covering contributions up to 12 months prior to Liquidation.
Q: Do auto-enrolment duties end when a company enters Liquidation?
Not automatically. If employees remain in place for any period, ongoing auto-enrolment duties, including re-enrolment dates, may still apply. Once there are no remaining employees, the Liquidator must notify The Pensions Regulator that the company is no longer an employer for auto-enrolment purposes or risk a fixed penalty.
Q: When does the Pension Protection Fund get involved?
Where a Defined Benefit scheme is identified, and the sponsoring employer becomes insolvent, the scheme may enter a PPF assessment period following the s120 notice. The PPF then works with the Liquidator on the scheme’s funding position and eligibility, and may ultimately absorb the scheme, paying compensation to members at PPF levels.
About Darren Toms
Darren started his career in pensions in 1996 and has been helping UK Insolvency Practitioners and businesses with complex pension related matters ever since. He is passionate, empathetic and positive about his work, particularly when creating cost effective, compliant solutions that offer minimal involvement and risk exposure for his clients.
Darren is the longest serving pension professional working exclusively in the pensions and insolvency market, and a proud member of the R3 Pensions Working Group, which tackles pension related matters affecting UK insolvency law. He is Managing Director of Clumber Consultancy Limited, which specialises in employee and pension solutions for the UK insolvency market.
