Priority Order on wind up

Chapter 27, Section 4, Page 13 sets out the order of priority which classes AVC after PPF benefits. It says "Payment of benefits resulting from payment of AVCs" for windup post 6 April 2005.

I am not sure as to what AVCs is referred here. Is it added year AVCs or money purchase AVC? My feeling is a money purchase AVC should be (or was) classed with a higher priority than PPF benefits.

My first question is: has the order for Post 6 April 2005 wind-up changed? and what is the underlying reason?

and a second question is: Which regulation sets out this order?

Many thanks.
Quang

 

Priorities

Hi Quang

1. The order of priority did indeed change on 6 April 2005. This was driven in part by the introduction of the PPF at the same time. The priority order has remained unchanged since.

2. And like the introduction of the PPF, the priority order change is detailed in (Section 270 of) Pensions Act 2004

This is hard to read in isolation so you may be better looking at this.

http://www.pensionsadvisoryservice.org.uk/workplace-pension-schemes/final-salary-schemes/winding-up

Hope this helps

Best wishes

Stuart

 

Thanks Stuart

One of my colleagues pointed out that Paragraph 10 of Section 73 (Section 270 of PA04) specifically excludes money purchase assets & liabilities.

He explained it is assumed that these are self-balancing and discharged separately to the defined benefits assets & liabilities. This ties in with how the PPF treat money-purchase AVCs; they have to be secured outside the PPF, and are the first call on the Scheme’s assets.

So he thinks money purchase AVCs have first priority on winding-up, but any defined benefit AVCs rank after PPF benefits.

Do you agree?

Quang

 

Hi Quang

I think this is correct. Version H4 of the PPF's guidance for completing a Section 143 valuation also appears to back this up.

However - the detail here feels a bit beyond the scope of Subject SA4. So if you have a client in this situation you will I'm sure consult one or more of:
- your pensions research team (we don't have one of these at ActEd!)
- your PPF caseworker
- your client's legal advisers
as you see fit.

Best wishes

Stuart