Following the White Paper the Department for Work & Pensions has consulted on new powers for the Pensions Regulator (“TPR”) and proposed changes to the Notifiable Events régime.
Notifiable Events
The Government proposes to add the following as new notifiable events:
- the sale of a material proportion of the business or assets of a scheme employer which has funding responsibility for at least 20% of the scheme’s liabilities,
- the grant of security on a debt to give it priority over debt to the scheme (excluding eg hire purchase financing for company vehicles),
- significant restructuring of the employer’s board of directors and certain senior management appointments and
- the sponsoring employer taking independent insolvency/restructuring advice (such as an independent business review).
In addition, it proposes also:
- to extend the current “breach of banking covenant” notifiable event to include covenant deferral, amendment or waiver and
- to remove “wrongful trading of the sponsoring employer” as a notifiable event.
The question of whether dividend payments should be notifiable remains under consideration.
At present, notifiable events need be notified only as soon as reasonably practicable after their occurrence. The Government wishes to bring this forward, to when a Heads of Terms agreement is first put in place, for the following list of transactions:
- the sale of controlling interest in a sponsoring employer,
- the sale of the business or assets of a sponsoring employer and
- the grant of security in priority to scheme debt.
Declarations of intent
For the above three notifiable transactions, the employer will have to issue a Declaration of Intent setting out the implications of the transaction for the scheme and how any risks will be mitigated. A Declaration of Intent will be required later than a notifiable event notification – after the parties have completed due diligence and transaction financing has been finalised but before signature of the sale and purchase contract – although Government expects employers’ engagement with trustees to start at the earliest opportunity.
The Declaration of Intent would be addressed to the trustees, and shared with the Regulator, and:
- explain the nature of the planned transaction,
- confirm that the corporate planner has consulted on its terms with the trustees and confirm the trustees’ agreement (or otherwise) to the planned transaction and
- explain any detriment to the scheme and how this is to be mitigated.
TPR’s powers
The Government proposes an extended penalty régime which will enable TPR or the Courts to consider the circumstances of each case and impose the most appropriate penalty from a suite of options:
- existing civil penalties for low-level non-compliance,
- a new power to issue a civil penalty of up to £1,000,000 (in line with similar breaches levied by other regulators such as the FCA) for more serious breaches and
- criminal sanctions.
Criminal sanctions would be used in cases of:
- wilful or grossly reckless behaviour in relation to a DB pension scheme,
- non-compliance with a Contribution Notice and
- failure to comply with the Notifiable Events framework.
The new, higher civil fines would apply in cases of:
- deliberately providing false information to TPR,
- deliberately providing false information, or failing to provide required information, to trustees,
- non-compliance with elements of the DB funding code and
- failure to provide a Declaration of Intent.
The Government proposes also to strengthen the Contribution Notice and Financial Support Direction régime.