Key Dates

Pension Schemes Bill published on 15 October 2019.

Summary

The Pension Schemes Bill 2019 was introduced in the House of Lords on 15 October 2019. Part 3 contains provisions concerning powers of the Pensions Regulator (tPR).

Contribution Notices (CNs)

A new "employer insolvency test" and an "employer resources test" will be introduced. In addition to the existing circumstances in which a CN may be issued, tPR will be able to issue a CN where it is of the opinion that either of the new tests is met in relation to the act or failure to act.

Employer insolvency test

• The employer insolvency test will be met if tPR considers that immediately after the act or failure to act (the "relevant time"):
• the value of the scheme assets was less than the amount of the liabilities (as estimated by tPR, taking into account the section 75 basis of determination); and
• if a section 75 debt had fallen due from the employer, the target's act (or failure to act) would have materially reduced the amount of the debt likely to be recovered by the scheme.
• Provisions set out how a series of acts or failures to act are to be treated for the purposes of the employer insolvency test.

Employer insolvency test: defence

• tPR must not issue a CN in relation to the employer insolvency test where the target satisfies one of the defences below.
• The target will have a defence where it satisfies tPR that:
• Condition A: before becoming a party to the act (or failure to act), the target gave due consideration (taking such steps as a reasonably diligent person would have done) as to how, if a section 75 debt became due from the employer immediately after the relevant time, the act (or failure to act) might materially reduce the amount of a section 75 debt likely to be recovered;
• Condition B: where the target considers that the act (or failure to act) might materially reduce the amount of a section 75 debt likely to be recovered in these circumstances, the target took all reasonable steps to eliminate or minimise the potential for the act (or failure to act) to have such an effect; and
• Condition C: having regard to all relevant circumstances, it was reasonable for the target to conclude that the act (or failure to act) would not materially reduce the amount of section 75 debt likely to be recovered.
• The target will also have a defence if tPR is satisfied that immediately after the relevant time the value of the assets was at least equal to the value of the liabilities (Condition D). (The Bill does not set out on what basis the value of the assets and liabilities is to be determined for the purposes of Condition D).

Employer resources test

• The employer resources test will be met if tPR considers that:
• the act (or failure to act) reduced the value of the employer's resources (as determined in accordance with regulations); and
• that reduction was a material reduction relative to the amount of the estimated section 75 debt which would be due from the employer on a winding up as at the date of the act (or failure to act).
• Provisions set out how a series of acts or failures to act are to be treated for the purposes of the employer insolvency test.

Employer resources test: defence

• tPR must not issue a CN in relation to the employer resources test where the target satisfies tPR that:
• Condition A: before becoming a party to the act (or failure to act), the target gave due consideration (taking such steps as a reasonably diligent person would have done) to the extent to which the act (or failure to act) might reduce the value of the employer's resources relative to the amount of the estimated section 75 debt;
• Condition B: where the target considers that the act (or failure to act) might reduce the value of the employer's resources in this way, the target took all reasonable steps to eliminate or minimise the potential for the act (or failure to act) to have such an effect; and
• Condition C: having regard to all relevant circumstances, it was reasonable for the target to conclude that the act (or failure to act) would not bring about a reduction in the value of the employer's resources relative to the estimated section 75 debt.

Reasonableness of issuing a CN

• When considering whether it is reasonable to impose a CN, tPR must have regard to other matters it considers relevant, including matters within section 38(7) Pensions Act 2004. Section 38(7) will be amended to include:
• failure to comply with the notifiable event requirements of section 69A Pensions Act 2004 (please see separate entry), where the act (or failure to act) was a notifiable event for the purposes of section 69A; and
• the effect of the act (or failure to act) on the value of assets or liabilities of a relevant transferee scheme (any work-based scheme to which accrued rights under the scheme are transferred).

Other amendments affecting CNs

• The relevant time for calculating a s75 debt for CN purposes will be changed to the end of the last scheme year before the determination notice was issued.
• A CN will have to specify a date by which the required sum must be paid.
• Failure to pay the required sum, without reasonable excuse, by the date specified in the CN will be an offence punishable by a fine and may also be subject to new civil financial penalties of up to £1m (or a higher prescribed amount). (Please see the separate entry on new penalties).
• Section 41(7) Pensions Act 2004 allows a recipient of a CN to apply to the Regulator for a reduction in the amount specified in the CN. A new subsection 47(8A) will provide that a section 41(7) application may not be made after the date for payment specified in the CN. Where an application is made under section 41(7), the Regulator will have power to revise the payment date in the CN.

Codes of practice

• Section 90 Pensions Act 2004 will be amended to require the Regulator to cover the circumstances in which it expects to issue a CN in relation to the employer resources test or the employer insolvency test in a code of practice.

Date Accessed: 28/05/2022