Asset-backed contribution structures ("ABCs") for defined benefit pension schemes have grown in popularity over recent years, with one of the more well-known of these being Diageo's contribution of barrels of whisky to such a scheme, back in 2010.  A key element of these structures is the use of the Scottish Limited Partnership ("SLP").

Media reports around Scottish Limited Partnerships being used by criminals have led BEIS to launch a call for evidence to determine whether aspects of the legal characteristics of Scottish Limited Partnerships may act as enablers for criminal activity this week. The call for evidence appears to focus on the fact that SLPs have their own legal personality and also that general partners tend to be companies rather than individuals (with the suggestion that over 95% of SLPs do not have natural persons as partners).

A SLP is used in an ABC structure due to the fact that it has separate legal personality and is able to hold assets in its own name, but is not a body corporate.  These assets are then available to the pension scheme at the end of the term, but are returned to the employer in the event of a surplus.  

SLPs generally have two types of partners, general partners who are involved in the management of the partnership and who have unlimited liability, and limited partners who do not get involved and, generally, do not have unlimited liability.  In ABC structures, typically the pension trustees will be incorporated as a company and be a limited partner, whereas the employer will have a limited company act as the general partner.

Both of these features of SLPs are therefore key in making the ABC structure work.

BEIS notes that there has been a significant increase in the number of SLP registrations. At least some of this increase could be due to the increasing popularity of ABC schemes.

The impact of the allegations has resulted in calls to consider whether the current limited partnership framework needs to be reviewed with a view to increasing transparency and reporting requirements, or perhaps by amending some of the legal characteristics of partnerships. As BEIS notes, SLPs are used in a wide variety of economic sectors and as investment vehicles. 

Let's hope that any reform does not fundamentally change the legal characteristics of SLPs such that it would impede companies from making use of the ABC structure to help meet their pension obligations.

BEIS has said: