The Pensions Regulator

The Pensions Regulator

When undertaking a corporate transaction, the impact on a DB pension scheme is a vital consideration. Pensions Regulator chief executive, Tony Hobman, explains the regulator's role and the voluntary clearance process.

The Pensions Regulator has powers to act if a company is attempting to avoid its defined benefit pensions liabilities. We may issue, where appropriate, a Financial Support Direction, directing that a connected party take responsibility for a scheme where the sponsoring employer is a service company or insufficiently resourced, or a Contribution Notice, directing that a specific sum of money be paid into the scheme.

We certainly cannot stop a transaction from proceeding – our concern is the impact on the pension scheme and its ability to pay members’ benefits. A company considering corporate activity can choose to request a clearance statement. We will consider the impact on the pension scheme, will want to see that the trustees are involved, and can issue this statement where sufficient mitigation has been offered. This gives assurance that our powers will not be used after the transaction has taken place. We strongly advise seeking clearance where there is an event that may be materially detrimental to the ability of the scheme to meet pensions liabilities – such as a change of ownership.

Clearance does not have to be a lengthy process. Where an application is received with all the relevant information and actions taken, as set out in our guidance, clearance can be issued in 48 hours, though we estimate that it is usually between 10 and 15 working days. We advise anyone wishing to seek clearance to come to us early in order that any problems may be identified and that all relevant parties are involved.

Regardless of any planned transactions, all DB schemes are subject to scheme specific funding requirements. This means that after the scheme valuation, where there is a deficit, trustees must submit to the regulator a recovery plan setting out how and over what period they plan to reach their proposed level of funding. If agreement cannot be reached between the trustees and the employer, the pensions regulator may impose appropriate measures.

Published: HR Director, issue 38, June, 2007