ABCs – taking stock and moving forwards

Asset-backed contributions (ABCs) have come of age. New guidance from the Pensions Regulator (tPR) and the recent tax law changes have provided clarity, consequently making ABCs more accessible to a broader range of businesses. Over the next few weeks, I and my colleagues who work with ABCs day to day will be releasing a series of blogs which look at how ABCs interact with recovery plans and some of the cutting edge solutions my team and I have been designing over the last 12 months.

Most ABCs have been implemented with fixed annual payments without dealing with the inherent volatility of the deficit over time. Generally, company and trustees have agreed that incremental deficit emerging in future years can be dealt with outside of the ABC via an alternative route (e.g. cash contribution schedule). This is one of the points addressed in tPR’s guidance.

It’s possible though to have a structure whereby the annual payments to the pension scheme increase/decrease in line with the rising/falling deficit of the scheme with the scheme’s interest in the ABC being of sufficient size to remove the deficit on day one. This flexibility safeguards the trustees’ position but allows for a longer deficit recovery period.

This type of structure also fits well with some of tPR’s new guidance. There’s scope for thinking about reducing investment risk within the scheme which can be the catalyst for an open dialogue with the company regarding the future plans of the scheme.  

Simon De Young is a partner at PwC and leads the ABC team; you can contact him on 020 7804 5890 or [email protected]

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