Pensions Bulletin 2021/38
Our viewpoint
16 September 2021
- Temporary insolvency protection measures to be lifted
- Permanent rules for moratorium procedure finalised
- Post Brexit review of data protection regime kicks off
- Pension inequality a major issue when couples divorce
Temporary insolvency protection measures to be lifted
The Government has announced that temporary insolvency provisions, brought in via the Corporate Insolvency and Governance Act 2020, to prevent viable businesses from being unnecessarily forced into insolvency during the pandemic, are being phased out from 1 October 2021 as the economy returns to normal trading conditions. However, new measures are also being introduced to help smaller companies trade their way back to financial health before creditors can take action to wind them up.
Since March 2020 creditors have not been able to issue statutory demands and winding-up petitions where a company has been prevented from paying its bills by the pandemic. The latest extension to this temporary protection, announced in June, ends on 30 September 2021 and will not be renewed. Instead, new regulations will, until 31 March 2022:
- Protect businesses from creditors insisting on repayment of relatively small debts, by temporarily raising the current debt threshold for a winding up petition to £10,000
- Require creditors to seek proposals for payment from a debtor business, giving them 21 days for a response before they can proceed with winding up action
The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021 (SI 2021/1029) come into force on 29 September 2021.
The announcement also mentions the separate temporary provisions prohibiting the eviction of tenants of commercial properties for non-payment of rent which will also end next March (see Pensions Bulletin 2021/26). However, there is no further news about the Government’s plans, announced in June, to bring forward legislation in the 2021/22 Parliamentary session to support the orderly resolution of debts that have arisen as a result of Covid-19 business closures.
Comment
The Government is cautiously lifting the various insolvency protection measures which, along with the furlough scheme, have helped to keep many businesses afloat, including those sponsoring DB pension schemes. Now is the time for everyone involved with DB schemes to be aware that insolvencies could increase and for trustees in particular to keep a wary eye on the sponsoring employer’s covenant.
Permanent rules for moratorium procedure finalised
Regulations have been laid before Parliament which replace temporary rules for the operation of moratoriums, introduced by the Corporate Insolvency and Governance Act 2020, with a permanent set.
The aim of the moratorium is to provide struggling, but essentially viable, businesses with a formal breathing space to pursue a rescue plan during which time no legal action can be taken against the company (which continues to trade) without leave of the Court.
The Act contained essential temporary rules so that the moratorium procedure would be operational on commencement of the Act. These temporary rules are currently set to expire on 30 September 2021. The policy of the permanent rules, now set out in regulations, follows closely that of the temporary rules.
The Insolvency (England and Wales) (No.2) (Amendment) Rules 2021 (SI 2021/1028) come into force on 1 October 2021. Two separate sets of regulations for Scotland come into force on the same day.
Comment
The publication of the permanent rules is a useful reminder of the potentially adverse implications for DB schemes of the moratorium facility. These include that employer contributions expected to be received whilst the employer continues to trade are unlikely to be paid and insolvency-related triggers for contingent assets are unlikely to operate during the moratorium.
Trustees should be notified of the existence of a moratorium, and where this happens it will be important for them to understand what it means for the DB scheme, both during the moratorium and as any rescue plan is worked up.
Post Brexit review of data protection regime kicks off
The Department for Digital, Culture, Media and Sport has launched a wide-ranging consultation “on reforms to create an ambitious, pro-growth and innovation friendly data protection regime that underpins the trustworthy use of data”.
Although the reforms are heralded as building on the existing UK General Data Protection Regulation (which emanates from the EU), a number of the proposals suggest that there may be significant divergence from the GDPR in future.
The consultation document has the following chapters:
- Reducing barriers to responsible innovation – where, amongst other things, various ‘clarifications’ and adjustments are proposed to the UK GDPR
- Reducing burdens on businesses and delivering better outcomes for people – in which, amongst other things, the GDPR is criticised for encouraging a ‘box-ticking’ compliance regime and the promise is held out to develop a more flexible approach to data protection
- Boosting trade and reducing barriers to data flows – in which there is discussion about the importance of global data flows and the need for the UK Government to ensure that third countries provide adequate standards of data protection. On this the Government believes that it “is perfectly possible and reasonable to expect the UK to maintain EU adequacy” if the UK’s data protection regime diverges from the EU’s
- Delivering better public services
- Reform of the Information Commissioner's Office
There is a ten week consultation period, closing on 19 November 2021.
Comment
This looks like a significant review of the UK’s data protection law, with a post EU message at its core. Although the outcome of this review may eventually impact pension scheme trustees and sponsors, one of the guiding principles is that organisations that are compliant with the current regime should still be largely compliant with the future regime.
No timescales are intimated, and it is not clear whether an Act of Parliament will be needed.
Pension inequality a major issue when couples divorce
A new report has found that, within couples, men have substantially more private pension wealth than women, which poses particular challenges should they divorce.
The researchers, based at the University of Manchester, analysed the pension wealth of almost 30,000 people over the age of 30. They found that married men have the most, with those aged 45-54 having a median pension wealth of about £86,000 (compared with £40,000 for married women) and those aged 55-64 having £185,000 (compared with £55,800 for women). For those aged 65-69, the gap is even wider – median pension wealth for men of that age is just over £212,000, compared to just £35,000 for women.
The data also showed that while around 90% of couples have some pension wealth between them, in about half of couples with pensions, one partner has more than 90% of the pension wealth. Fewer than 15% of couples have pensions that are approximately equal.
The researchers concluded that there is considerable potential for pension sharing when it comes to divorce, which could have a considerable positive impact on women’s finances in later life.
The report is accompanied by a particularly useful video which it is hoped will help divorcing couples understand the legal context for pension sharing. This in turn references the survival guide to pensions on divorce, also produced for the general public, that was published in January 2021 (see Pensions Bulletin 2021/01).
Comment
The issue here is not so much the pension inequality, but that divorcing couples often fail to take into account their pension wealth when dividing their money and property, despite a long-standing mechanism that is available for them to do so. Hopefully, this video will provide an immediately accessible introduction to the possibility of undertaking a pension share.