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Pensions Bulletin 2017/03

Our viewpoint

Silentnight – High Court turns down request for judicial review of Pensions Regulator’s actions

Nearly five years after the event that caused the Pensions Regulator to investigate under its moral hazard powers, and with the process still at the warning notice stage, the Regulator has succeeded in rebuffing an attempt in the High Court to overturn the second of its notices in relation to the Silentnight Group Defined Benefit Scheme.

The essentials of this story are as follows:

  • May 2011 – the business of the bed manufacturer Silentnight was sold to HIG, a US private equity firm. The terms of the deal, which reportedly involved a “pre-pack” administration, resulted in Silentnight’s underfunded DB scheme being cut off from sponsor support
  • 11 December 2014 – following an anti-avoidance investigation by the Pensions Regulator, a “warning notice” was served on the targets (various participants and employees of HIG) and was also sent to the scheme’s trustees

(A warning notice is a formal notice that the Regulator intends to exercise one of its regulatory functions – the Regulator’s case team procedure is explained here)

This notice included expert advice to the effect that the sale had been carried out at undervalue with a resulting loss to the pension scheme of £17.16m – this being the amount that the Regulator would seek via a Contribution Notice

  • 22 June 2016 – the Regulator served a second warning notice. This followed the scheme’s trustees filing their own representations on the issue.  This notice was accompanied by new evidence and documents, including another expert opinion, this time to the effect that the business could have been re-financed and need not have been sold.  This second notice warned of a potential liability equal to the scheme’s pension deficit.  The Regulator stated that it intended to run with the arguments set out in the second notice, with the arguments set out in the first as an alternative

The targets, using the judicial review route, applied to the High Court for the second warning notice to be quashed on the grounds that it was beyond the Regulator’s powers, or because the process leading up to its issue was so conspicuously unfair and lacking in even-handedness as to render it unlawful.

The Court rejected this on the grounds that the targets have an alternative remedy, to wit the statutory process which governs Regulator investigations.  The targets have the opportunity to put their arguments to the Case Team, argue them before the Determinations Panel, appeal to the Upper Tribunal and potentially from there to the Court of Appeal.  Nor did the Court accept that the costs of this action are prejudicial, despite the targets having spent £7m already and estimating that that the costs of fighting the Contribution Notices will cost them a further £2-4m.

Comment

Any pre-pack administration, or, indeed, in the current climate, any transaction which has the whiff of pension debt avoidance about it, which resulted in an underfunded pension scheme being cut loose, is likely to come under scrutiny.  Those involved in such transactions cannot expect judicial review to head off Regulator action at the pass unless there is something seriously wrong with the investigation.

Royal Assent for the Lifetime ISA enabling law

The Savings (Government Contributions) Act 2017, which was introduced to Parliament last September (see Pensions Bulletin 2016/36) completed its final stages in the House of Lords last week and received Royal Assent on Monday.

A press release, issued by HM Treasury, accompanies this development.

Comment

Now that the enabling legislation is in place we can expect to see the regulations governing the detailed operation of these accounts being finalised very shortly.  The FCA will also need to finalise its guidance on the promotion and distribution of Lifetime ISAs, the consultation on which closes on 25 January 2017.

HMRC finalises changes to provision of information regulations

The draft regulations on which HMRC consulted last November (see Pensions Bulletin 2016/45) have now been laid before Parliament in final form.  The final regulations are identical in every respect to the draft regulations other than the insertion of dates.

The Registered Pension Schemes (Provision of Information) (Amendment) Regulations 2017 (SI 2017/11) come into force on 6 February 2017.

Comment

As previously flagged, these regulations set down new disclosure requirements in relation to lump sum death benefits and the annual allowance pension savings statements.

This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law.  For further help, please contact David Everett at our London office or the partner who normally advises you.

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