The government has committed to working closely with The Pensions Regulator, Pension Protection Fund and the rest of the industry to make improvements to the Regulated Apportionment Arrangement (RAA).

In a white paper on Protecting Defined Benefit Pension Schemes, published today, 19 March, the government said it wants to look at whether it is possible to make improvements to the process, without increasing risk to scheme members. It also hopes that such improvements would increase the potential for positive outcomes for businesses which might otherwise fail.

Under current scheme funding arrangements, an employer faced with impending insolvency can apply to use the RAA process to separate themselves from their DB scheme. An RAA can be considered where the scheme trustees believe that there is a reasonable likelihood of the sponsoring employer becoming insolvent within 12 months.

When the employer separates itself from the scheme it generally pays a capital sum upfront and surrenders an equity stake in its business to the scheme. The scheme then either enters the PPF assessment period or in exceptional circumstances, a new successor scheme can be created (or some combination of the two). Requiring the employer to provide an equity stake ensures that the PPF or the scheme benefits from financial upside if the employer recovers. They can only take place with the approval of TPR and the consent of the PPF.

However, as it has been noted that an RAA is an expensive process due to the need for expert analysis and advice, the government discussed the idea of making changes to the RAA process in its original DB green paper.

“Around half of the respondents suggested that the current process is too complex, and that this complexity can prevent employers from making use of an RAA even where it would be in both the employer and the scheme’s interest. They argued that making the process simpler could enable more businesses who would otherwise fail due to loss of investment or restructuring to benefit from RAAs, leading to better outcomes for current and future employees,” the report said.

“However, the other half of respondents were opposed the idea of any changes to the RAA process. Respondents argued that making it easier for employers to go through an RAA increased the risk that unscrupulous employers could seek to manipulate their circumstances in order to be able to separate themselves from their scheme.”

As a result, the government wants to ensure that RAAs can be accessed by the right employers at the right time where an objective assessment suggests that they are at risk of insolvency and are not likely to be able to continue to support their DB scheme. However, it recognises that there is a risk in allowing more employers to go through an RAA process, and noted that it is “important that we do not increase the risk to members by making changes”.

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