Pension Bonds
What is a Pension Bond?
A Pension Bond is a type of financial guarantee required by pension trustees or regulatory bodies to protect against an employer’s failure to make agreed contributions into a defined benefit pension scheme. Rather than making upfront cash payments or setting aside capital, employers can use a pension bond to provide the required security, preserving liquidity while satisfying trustee concerns.
These bonds act as an additional layer of financial assurance and are often used as part of the employer’s long-term funding strategy to support the pension scheme and meet regulatory obligations.
Key Features
01
Offers security to pension scheme trustees in place of upfront contributions or escrow
02
Frees up working capital and improves financial flexibility
03
Helps meet regulatory requirements from The Pensions Regulator (TPR)
04
Backed by a surety provider, reducing the need to tie up cash as a deposit
05
May help avoid triggering contribution acceleration clauses
06
Can be structured to support employer covenant and long-term recovery plans
What is a Bond?
Placing your first bond? Or just need a refresher? Read on for the what’s what of surety bonds.
Surety protects a business from financial losses, usually caused when one party fails to fulfil their end of a contract. By placing a surety (usually in the form of a bond), a business makes sure that all the project bills will be paid on time should there be any disruptions or problems fulfilling the contract.
Principal
The Principal is the business placing the bond. They are making a promise to the Obligee. To them, the Surety bond is like insurance.
Surety
The Surety promises to pay the Obligee should the Principal not do as they promise.
Obligee
The Obligee is the party that requests the bond from the Principal.
When might a Pension Bond be required?
A pension bond is typically used in the following scenarios:
- Deficit recovery plans, where an employer agrees to make contributions over time to cover a shortfall in the pension scheme
- Covenant support where trustees or The Pensions Regulator require additional financial guarantees
- Corporate transactions or restructuring where there’s a change of control, and pension trustees seek assurance that obligations will continue to be met
- Avoiding immediate cash contributions where companies need to conserve capital for operations or investment
- Reducing escrow or security trust arrangements by replacing them with a more efficient bonded solution
Can PS Surety help?
PS Surety is a dedicated surety bond brokerage and we would be delighted to assist any contractor with placing performance bonds. We are fully regulated by the FCA and we guarantee that we provide our clients with:
The best possible terms available in the market
An honest, open and joint approach to our client’s Surety needs
Detailed client dashboard providing information on every bond ever placed
Communication when bonds become overdue
A single touch point within our organisation for wording reviews, quotes and queries
Rapid responses
That sounds expensive!
Our service is completely free to contractors. We are paid a commission by the surety providers on each bond that we place with them on behalf of our clients, the details of which are fully disclosed in our client dashboard.
The surety providers are happy to pay our commission because we specialise in bringing them business which fits their ever changing underwriting criteria. We also deal with frequent queries, wording issues, bond drafting and general administration.
The price that you pay PS Surety for a bond is the same price that you would pay any Surety if going direct.
Frequently Asked Questions – Pension Bonds
What is a Pension Bond?
A Pension Bond is a surety-backed guarantee provided to the trustees of a defined benefit pension scheme. It assures them that the employer’s agreed contributions will be made, even if the employer faces financial difficulties.
Why would an employer use a pension bond?
It enables the employer to meet its pension security obligations without tying up cash or affecting borrowing capacity. It’s a cost-effective way to manage pension liabilities while supporting business liquidity.
Who typically requests a pension bond?
Pension scheme trustees, often on the advice of an actuary or covenant advisor, will request the bond as part of a recovery plan or in connection with a corporate event such as a refinancing or acquisition.
Are pension bonds regulated?
While pension bonds themselves aren’t regulated instruments, their usage is closely monitored by The Pensions Regulator, and they must comply with the scheme’s governing documents and accepted standards.
What factors affect the cost of a pension bond?
Pricing is based on the strength of the employer’s financials, the bond term, and the surety provider’s assessment of risk. Premiums are generally lower than the cost of using bank guarantees or escrow.
Can the bond be tailored to our scheme’s needs?
Yes. Pension bonds are bespoke instruments. PSS will work with trustees, legal advisors, and surety providers to ensure the bond wording and structure are appropriate for all parties.
How can we arrange a pension bond?
Get in touch with PSS. We’ll work closely with you and your advisors to assess your funding arrangement, liaise with trustees, and present your case to leading sureties to source the best terms available.
Pension Bonds Made Simple
We simplify placing bonds with a personalised service and the best price available in the market.