The proposal to force companies to gain clearance from The Pensions Regulator prior to deals that could impact pension schemes has been dismissed by the Department for Work and Pensions (DWP).

In its white paper, Protecting Defined Benefit Pension Schemes, published today 19 March 2018, the DWP explained that as the existing notifiable events framework and voluntary clearance processes currently work well, it will look to build on them. This is a direct rejection of its earlier proposal made in the DB green paper which looked at forcing companies to gain clearance ahead of transactions.

The DWP has stated that it will work with TPR to “strengthen the existing notifiable events framework and voluntary clearance regime” to ensure that employers appropriately consider pension responsibilities during relevant corporate transactions. In order to assist this, TPR’s anti-avoidance powers will be extended to include greater information-gathering powers and punitive fines.

The current notifiable events framework informs the regulator of certain events including scheme funding, employer solvency and employer covenant that could give it early warning of a possible fall into the Pension Protection Fund. Only schemes which are eligible for entry to the PPF, and their employers, are subject to the notifiable events duty.

Nonetheless, employers are required to inform the regulator when they are processing transactions that could have a detrimental impact on the pension scheme. TPR can then intervene to help parties agree appropriate action to reduce risk the scheme.

While the government considers this system to be “fundamentally sound”, the DWP has outlined that it will review the coverage of the notifiable events framework to see whether it covers all “relevant transactions” and to broaden its scope. In addition, it will consider the timing of this framework to ensure that TPR is made aware of transactions and an earlier stage to enable it to engage in discussions sooner. At present the framework requires businesses to inform the regulator “as soon as reasonably practical”.

The white paper adds that: “Where evidence of more serious wrongdoing is found and where this appears to be of relevance to the Insolvency Service, the Regulator will continue to pass evidence to them to take appropriate action to disqualify a director if necessary.

“We are not complacent about the efficacy of the current process of director disqualification and we will continue to work with the regulator and the Insolvency Service to strengthen the existing process to ensure that members continue to be protected and their interests are appropriately reflected in business decisions.”

The regulator’s ability to enforce DB scheme funding standards will also be enhanced through a revised code that focuses on how “prudence” is demonstrated when assessing liabilities, the appropriate factors to look at when considering recovery plans and to encourage the consideration of a long-term view when setting statutory funding objectives.

Moreover, the DWP is to introduce a requirement for sponsoring employers or parent companies to make a “statement of intent” in consultation with trustees, prior to transactions taking place showing that they have “appropriately considered the impacts to any DB pension scheme affected” and how the employer will mitigate any detrimental impact on the scheme.

This, the DWP noted, will improve communications between trustees and the regulator if the scheme is put at risk as a result of a transaction.

“We will work with the relevant parties to ensure that these measures do not have an adverse effect on legitimate business activity and the wider economy,” the DWP explained.

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