Exclusive: Definition concerns raised over TPR notifiable event regs

The current definition of employer in draft regulations regarding The Pensions Regulator’s increased notifiable event powers could represent a “fundamental weakness”, the Society of Pension Professionals (SPP) has warned.

In its response to the government consultation on TPR's extended powers, seen by Pensions Age, the SPP explained that whilst the regulations do capture the policy intention, a number of concerns around the final details and definitions in the regulations remain.

Under the proposals, employer has been defined as an "employer of persons in the description of employment to which the scheme in question relates", which does not include deferred members or pensioners unless they are able to recommence active membership, meaning that DB schemes closed to future accrual could be exempt.

Given the current definition, the SPP warned that the regulations “may fall a long way short of meeting the policy intent”, particularly as former employers can, and often do, still have actual or potential obligations to fund such a closed scheme.

Concerns were also raised over the definition of materiality, as SPP warned that the definition based on 25 per cent of revenue or gross assets appears a "high threshold", as commercial lenders looking to include material group entities in a security net will look at much lower levels of group revenue, profit and/or asset values.

The association also argued that the requirement to notify when a decision in principle is made could create “huge uncertainty for corporates” and may require “significant changes” for corporates when approaching transactions due to the risk of failing to notify and the exposure to potential significant fines.

It warned that this could likely prompt a high volume of notifications, particularly as the main terms of a deal tend to evolve during a transaction requiring multiple statements to be submitted, which could place “significant strain” on TPR’s resources.

In addition to this, the SPP raised concerns over the fact that the notifiable events regime, as currently proposed, will not apply to the refinancing of secured debt, nor will it apply to cases where an employer becomes an obligor or guarantor of debt on an unsecured basis.

It stated: “A refinancing that involved a significant increase in debt or a substantial change in the terms of the debt could adversely impact on the ability of the employer to meet its obligations to the scheme and could significantly reduce the likely recoveries to the scheme in the event of an insolvency due to prior ranking claims.

“In cases where the employer, or its subsidiaries, have become obligors or guarantors of debt on an unsecured basis, the potential recovery to the scheme in an insolvency scenario could be adversely affected due to claims under the guarantee ranking either alongside the scheme’s claim, in the case of the employer guarantee, or ahead of the scheme’s claim if a lender claims under a guarantee provided by a subsidiary entity, due to structural subordination.”

Commenting in response to the concerns raised, a Department for Work and Pensions spokesperson said: “We launched this consultation to gather views from industry, and we will consider all feedback submitted before responding in due course”

The Association of Consulting Actuaries also recently said that comprehensive guidance on TPR's extended notifiable event powers would be "absolutely essential", calling for this to be published "as soon as possible".

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