The Department for Work and Pensions has launched a consultation on new regulations, which will change the requirements to notify The Pensions Regulator (TPR) of certain transactions. Section 69 of the Pensions Act 2004 already requires the trustees and employers involved in a pension scheme to notify TPR when certain events take place. The government intends to expand the list of prescribed events, while also increasing the amount of information to be sent. The consultation runs until 27 October 2021.
Among several smaller definitional changes, the draft regulations set out two major new notifiable events. One relates to the sale of a material proportion of the business or assets of a scheme employer. The other relates to granting or extending security with priority over the scheme.
Originally, the sale of business or assets notifiable was an event that would only apply to employers with responsibility for over 20 per cent of the scheme's funding liabilities. That threshold has been removed to relieve employers of the complex task of calculating the proportion of liabilities which fall to them.
TPR may also have to be notified of a proposed transaction very early on. The draft regulation suggests the requirement to notify is triggered once ‘a decision in principle’ has been made – before any negotiations have begun in earnest. This earlier notification requirement applies to one of the existing notifiable events too, namely a decision by a controlling company to relinquish control of an employer company.
In addition, the proposals include a new requirement for the appropriate person – the employer or connected or associated person – to give notice to TPR of certain intended transactions for which ‘the main terms have been proposed’.
A copy of the notification will need to be sent to TPR with accompanying statements as well as to the scheme's trustees. The statement should set out details of the main terms of the transaction, any adverse effects on the scheme or employer and the proposed mitigation for any adverse effects.
A notice with an accompanying statement will also have to be given to TPR if there is a change to the proposed main terms of the transaction; the mitigation; or if the transaction does not proceed.
The consultation suggests that the notifiable event – triggered by a decision in principle – comes first and that the notice and accompanying statement must only be supplied to TPR once there is certainty that the transaction will proceed and after its effects on the scheme have been considered. The draft regulations define a ‘decision in principle’ as a ‘decision prior to any negotiations or agreements being entered into with another party’.
This means that TPR may not be involved much until it receives the notice and accompanying statement. Until then, TPR will not have sufficient information regarding the terms of the transaction and any mitigation measures and therefore will not be obliged to respond to the notice and accompanying statement. While TPR is likely to intervene if they aren't satisfied with the proposed mitigation, the timing of any intervention may be uncertain.
Complying with the new requirements will not be a substitute for a clearance application. It will give TPR information to consider whether there are grounds for exercising its powers. TPR may intervene where it believes the scheme’s interests have not been properly considered.
The proposed regulations mean that TPR will be notified earlier about a wider range of transactions, and that it will receive more information. It means it will have time to balance effective enforcement against unduly disrupting legitimate transactional activity, although much of this will depend on how pragmatic an approach TPR takes to implementing the new regime.
Max Ballad is legal director at Arc Pensions Law