UK - The Pensions Regulator has drafted guidance to clarify how it would approach corporate activity, such as mergers and acquisitions.
The consultation document updates existing guidance published in April 2005 and the Pensions Regulator said it reflected changes seen in the market place since that time.
These changes include: encouragement to move away from reliance on prescriptive tests in deciding which events to be considered for clearance, to a more principles-based approach; and greater clarity in respect to the level of mitigation that trustees should look for.
Commenting on the revised guidance, Tony Hobman, chief executive of the Pensions Regulator, said the world had moved on since April 2005 although the concerns voiced at the time on the potentially negative impact on corporate activity had not materialised.
Hobman said the revised guidance, which it was seeking comments on, reinforced the need for mitigation to the pension scheme where there was detriment as a result of a “type A” corporate event.
Hobman said: “It sets out the principles that we expect all trustees, employers and advisers involved in corporate transactions to follow.”
The deadline for comment on the guidance is 2 November 2007.
Type A events are those which are considered financially detrimental to the ability of a defined benefit (DB) to meet its pension liabilities.
Responding to the guidance, Richard Jones, principal at Punter Southall, said while the revised guidance was welcome, it did not make any substantial changes to the way in which clearance has been operating in practice.
Jones said: “In summary, the guidance contains no real changes in practice and is generally helpful in clarifying the framework. For example, there is an increased focus on analysing the covenant in a fuller sense rather than applying simple rules (which were never definitive anyway but were broad guidelines that some people took too far) which may make clearance more difficult for those uncomfortable with detailed covenant issues.”
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