TPR consults on new Contribution Notice tests

The Pensions Regulator (TPR) has launched a consultation on changes to its Code of Practice 12, following the introduction of new tests in relation to its Contribution Notice (CN) powers by the Pension Schemes Act 2021.

The legislation has seen the introduction of two new ways in which TPR can assess the impact of an act, the employer insolvency test and the employer resources test, in addition to the existing main purpose and material detriment tests.

As a result of this, TPR has updated its Code of Practice to explain the circumstances in which it will be considering issuing a CN on the basis of the new tests.

The regulator has also taken the opportunity to update and clarify the broader circumstances in the code, updating these to include the removal or substantial reduction of sponsor support or where it becomes nominal, and weakening of the scheme's creditor position.

The consultation will run until 7 July 2021, with the new powers expected to take effect from Autumn 2021.

Commenting on the plans, TPR executive director for regulatory policy, David Fairs, said: “We know from our casework that there are certain acts that affect an employer’s ability to deliver the retirement outcomes savers expect.

“The existing tests for the use of our CN power do not focus solely on the effect of a specific act on the employer.

"The new employer insolvency and employer resources tests build on the current legislation to capture situations in which an act affects an employer covenant in a sufficiently material way.

"They look at the impact of the act on the employer at the time the act takes place, like a snapshot."

Fairs clarified that whilst TPR doesn't expect the new tests to "significantly change" its current approach for assessing potential CN cases, it is "important" that it consults with the industry and give examples of where the new tests could apply.

“A CN will not be automatically issued if one of these tests is met," he added. "The legislation sets out a number of tests which must be met, including that it is reasonable to issue a CN."

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