CDC code in force: 1 August 2022
An employer may put in place a suitable financial vehicle or contract guaranteeing the trustees access to sufficient funds to run the scheme and/or to replace the scheme’s financial reserves. Any such support will need to ringfence and guaranteeEM1 the necessary resources for the financial sustainability of the scheme.
Financial reserves are not required where there are legally enforceable commitments or guarantees in place from employers or group companies to cover the costs arising from a triggering event.
We will expect to see evidence that the trustees have first call on the necessary supportEM2. In all cases, we will need to be satisfied that the trustees will be able to access the necessary support, and that the employer or guarantor can provide itEM3, if there is a triggering event of any type.
Information about the employer
Where a participating employer has agreed to provide support for the ongoing costs of the scheme or provide some, or all, of the required financial resources trustees must provide the following financial information about the employerEM4:
- a cash flow statement for the previous 12 months, including any undrawn overdraft facility or revolving credit facility
- forecast and actual profit and loss for the previous 12 months
- budget for the year to date and any variation from that budget
- cash resources
- cash flow forecast for the following four quarters
- operating costs
- inter-company loans and other forms of funding
- the employer’s most recent annual report and financial statements
- details of any significant risks the employer is exposed to and its strategy for mitigating them
- the annual report and financial statements of any third-party providing material financial support to the employer
- where any item in this list is unavailable, an explanation of why it cannot be provided
In addition, we are more likely to be satisfied that this criterion is met if trustees provide:
- any additional information that we ask for to be satisfied that the employer or group can provide adequate financial support to the scheme
- any further evidence that supports an application
We are not obliged to consider evidence that we have not asked for, but we will not reject it unreasonably.
Where the supporting employer is part of a corporate group, the financial information above must be provided at a level appropriate to the employer’s position in the groupEM5. We may also ask for information about other group companies if we feel their operations or liabilities may affect the scheme or limit the ability of the employer to support it.
We do not require this financial information where an employer’s only commitment is to pay contributions for the members it employs.
A scheme may be supported by more than one employer, and we will consider the financial position of each employer that we consider relevantEM6. We may choose to accept any case made by the trustees that stronger employers can absorb more potential costs. We will require evidence of the legal enforceability of a debt on any such employerEM7.
Accounts
Where the auditor expresses a qualified or adverse opinion or disclaims their opinion on any supporting employer’s financial statements, or the auditor’s report contains a material uncertainty related to going concern paragraph, or an emphasis of matter we consider to be significant or relevant, we will consider whether the employer is able to support the scheme.
Any supporting employer should disclose any reliance on third-party financial support. We will need to see the accounts of any such third party.
Legal references
EM1 Paragraph 4(c) of Schedule 3 to the Regulations
EM2 Paragraph 4(b) of Schedule 3 to the Regulations
EM3 Paragraphs 2(f) and 3(e) of Schedule 3 to the Regulations
EM4 Paragraph 1(a)(vii) of Schedule 3 to the Regulations
EM5 Paragraph 1(a)(vii)(ii) of Schedule 3 to the Regulations
EM6 Paragraphs 2(f) and 3(e) of Schedule 3 to the Regulations
EM7 Paragraphs 2(h) and 3(f) of Schedule 3 to the Regulations