Hogan Lovells

Key Dates

Consultation issued on 26 June 2018.

Consultation period ends on 21 August 2018.

White Paper, "Protecting Defined Benefit Pension Schemes", issued on 19 March 2018.


Summary

The DWP has issued its first consultation  concerned with protecting defined benefit (DB) schemes, following on from the March 2018 White Paper.  The consultation sets out proposals to improve the powers of the Pensions Regulator (tPR) to enable it to:

Notifiable events framework: additional notifiable events

The range of notifiable employer-related events will be extended to include the following (potentially, only where transactions exceed a certain risk threshold – such as where the scheme is underfunded on a prescribed basis):

The current notifiable event of breach of a banking covenant will be extended to include covenant deferral, amendment or waiver.

Wrongful trading of the sponsoring employer will cease to be a notifiable event, since experience has shown that wrongful trading is highly unlikely to be made public, regardless of any notification duty.

The DWP acknowledges that there have been calls for dividend payments to be considered within the notifiable events framework but points out that the Department for Business, Energy and Industrial Strategy (BEIS) is currently considering responses to a consultation on corporate governance and will consider dividend payments as part of its consultation response.

Notifiable events: timing of notification

Currently, tPR must be told of notifiable events as soon as reasonably practicable after they have occurred.  The timing for notification will be brought forward and the reporting obligation will be extended to other parties (for example to directors of a sponsoring employer's parent company who are planning a transaction).

Under the proposals, the following events should be notified to tPR when a heads of terms agreement is first put in place ( although, the expectation is that pension trustees will be involved earlier in the negotiations):

Declaration of intent

The above transactions may also trigger a requirement for the employer to issue a "declaration of intent", if risk-based criteria (such as the funding level of the pension scheme) are met.

A declaration of intent will need to be addressed to the trustees from the transaction's corporate planners (usually the board of directors) and shared with tPR.  The declaration should:

The declaration should be issued after the parties have completed due diligence and the financing of the transaction is finalised but before sale and purchase contract signature. 

Voluntary clearance

tPR is expected to review its clearance guidance and to clarify or expand certain areas, including:

Sanctions

The DWP intends to use primary legislation to widen the circumstances in which fines and criminal proceedings may be used, so that tPR or the courts will be able to impose the most appropriate penalty, ranging from:

Potential targets would include all those with responsibility for a pension scheme, including directors, sponsoring employers, associated and connected persons and (in some circumstances) trustees.

Moral hazard powers

Proposals to strengthen the contribution notice (CN) regime include the following.

Proposals to strengthen the financial support direction (FSD) regime include the following



Date Accessed: 03/12/2021