Winding-up priority order essentials
Section 73 of the PA95 sets out the priority in which the assets of a DB scheme should be applied on a winding-up and provides a prescribed order for the application of scheme assets by reference to a series of classes of scheme liabilities.
Where the DB assets are insufficient to satisfy the liabilities in a particular class in full, they are applied across the class in the same proportions and any lower ranking class of liabilities remains wholly unsatisfied. (In general, DC benefits are considered to be outside the statutory order of priority and dealt with separately.)
The start date of the winding-up determines which version of the statutory priority order in section 73 of the PA95 applies. For schemes which go into wind-up on or after 6 April 2005 the following priority order applies:
- Liabilities secured externally pre-6 April 1997 and which cannot be surrendered
- Liabilities for pensions or other benefits to the extent that the amount of the liability does not exceed the corresponding PPF liability
- AVCs
- Any other liability in respect of pensions or other benefits.
If there are excess assets after this order has been fulfilled then these assets are distributed in accordance with the scheme’s own priority order.
The statutory priority order has been changed a number of times since its introduction in the PA95.
Commonly used abbreviations in pensions
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