8 April 2022
A delay by the Department for Work and Pensions (DWP) in publishing regulations arising from the Pension Schemes Act is leaving pension schemes and their sponsors in ‘limbo’ according to LCP partner, Laura Amin.
In September 2021, DWP published a consultation on ‘notifiable events’ – major changes to a company’s finances which would have to be notified to the Pensions Regulator (‘TPR’) because of their potential impact on the security of the company pension scheme. The draft regulations also introduced the requirement for an ‘Accompanying Statement’ to TPR and to Trustees in certain circumstances.
It was widely expected that DWP would produce final regulations in response to the consultation so that they could come into force this month. However, the regulations have yet to be published and by the time they appear and are followed up by guidance from the Pensions Regulator (TPR) it is now likely to be Autumn before the new rules come into force.
The two main types of events which sponsors will have to notify are:
- Where more than a quarter of the business is to be sold off;
- Where higher ranking security over a significant part of a sponsor’s (or subsidiary’s) assets is granted to someone other than the pension scheme (eg a bank)
There were concerns across the industry about the lack of clarity in the draft regulations. For example, the timing of the notification was due to be ‘when a decision has been made in principle’, but there is not necessarily a very precise moment when a business can be said to have made a decision ‘in principle’. The Accompanying Statement was deemed to be required when ‘main terms of the relevant event have been proposed’ – another subjective milestone.
There was also concern that the definition of the new notifiable events could be so broad that companies may not realise that they applied to them. For example, the breach of the 25% threshold for selling off assets need not be in a single transaction but could be in a series of transactions over a 12 month period. Similarly, the rule about notifying changes in ‘relevant security’ applied to subsidiary companies and not just the main company. In all these cases, clearer rules and clear guidance would be needed.
This delay also puts trustees in a difficult position in the intervening period as they may not be able to use the new regulations as leverage to be given information about corporate transactions which are being considered by the sponsor and which could affect the security of the pension scheme.
Commenting on this delay, Laura Amin said: “Pension schemes are having to cope with a torrent of new legislation and regulation arising from the Pension Schemes Act. It can be very hard for sponsors of DB schemes to plan for ensuring that all legal notification requirements are followed in respect of any corporate activity when both the timing and content of regulations is so uncertain. It is important that DWP is clear about its timetable for new regulations and sticks to it so that pension schemes and their sponsors know exactly where they stand. Until they do this, pension schemes are in limbo waiting for the outcome of DWP’s deliberations”.
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Notes to editors: Laura Amin’s analysis of the impact of the delay in the new regulations can be found here.