Background
Section 69 of the Pensions Act 2004 requires trustees and employers in relation to a pension scheme to notify the Pensions Regulator of certain events which have the potential to cause harm to the scheme.
The Government is consulting on introducing two new notifiable events, removing one existing notifiable event and making changes to the way in which certain events are to be notified to the Pensions Regulator. The proposed changes are expected to come into force on 6 April 2022.
New notifiable events
The two new notifiable events proposed are:
- a decision in principle by a sponsoring employer to sell a “material proportion” of its business or assets and
- a decision in principle by a sponsoring employer to grant or extend a “relevant security” over its assets which would result in the secured creditor having priority over debt to the scheme if the employer became insolvent.
The draft regulations propose that a “material proportion” of an employer’s business is one that accounts for more than 25% of its annual revenue, while a “material proportion” of its assets is more than 25% of the gross value of its assets. In either case, the calculation should include other disposals made or agreed in the 12 months prior to the date of the notifiable event.
“Relevant security” is defined as security granted by the sponsoring employer, or by one or more subsidiaries of that employer, comprising more than 25% of either its consolidated revenue or its gross assets. This includes a fixed or floating charge over the employer’s assets but does not include refinancing existing debts, security for specific chattels or financing for company vehicles.
It is important to note, in relation to these new notifiable events, that the obligation to notify the Pensions Regulator is triggered not by the event itself but by the earlier decision in principle to proceed with it, prior to any negotiations or agreements being entered into with another party.
Notice and statement
The draft regulations provide also that a notice and statement must be given to the Pensions Regulator when the main terms of the relevant event have been proposed. This requirement applies to the two new notifiable events and to the existing notifiable event of a parent company relinquishing control of a sponsoring employer. (The initial notification of a parent company relinquishing control will therefore be required when a decision has been made in principle.)
The statement must describe the proposed transaction and indicate the impact on the scheme of the transaction and what action is being taken to mitigate any detrimental effects. A copy of the notice and statement must be given to the trustees or managers of the scheme at the same time.
Removal of an existing notifiable event
The existing notifiable event of wrongful trading is to be removed, on the grounds that no director is likely to admit to wrongful trading. The Regulator has confirmed that it has never received a notification under this provision.