Trustees will need to be corporate finance experts under new TPR powers

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Amin: The new rules mean trustees will have to be corporate finance experts
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Amin: The new rules mean trustees will have to be corporate finance experts

Pension trustees will have much more involvement in business discussions and corporates will need to think more about pensions when the watchdog’s increased powers come into force, LCP says.

The new powers for The Pensions Regulator (TPR) under the Pensions Schemes Bill, which is likely to receive Royal Assent in the coming weeks, will have a far-reaching impact on corporate Britain, with directors, lenders and pension trustees potentially being criminally liable. The new powers, which cover around 5,000 businesses defined benefit schemes, need to be on the radar of all key decision-makers to avoid potential fines and/or jail time.

While TPR will publish detailed regulation and guidance before the new powers become effective, LCP principal Laura Amin warned sponsors and trustees and advisers need to understand the implications now.

She said trustees will likely have to have "increasing involvement" in discussions around some routine business activities.

In the annual funding statements last April, TPR said trustees have to know a business's cashflow, when deciding to give businesses a leeway on deficit repair contributions, for example.

"This involves looking at transactions that might mean money going to the parent company that's out of reach of the pension scheme," said Amin. "Suddenly, pension trustees will have to be corporate finance experts so trustees either themselves need to be really on top of all of this stuff and need to know the questions to ask, or have access to advisors who are on the cutting edge of corporate finance."

She said corporate Britain needs to be planning to incorporate the pensions dimension into everything going forward, and that they cannot afford to see pensions as a separate issue.

Amin added: "There is a whole set of people who have never had to think really deeply about the pension scheme's place in the pecking order, suddenly need to have the pension scheme metaphorically - if not literally in the room - when key corporate decisions are made.

"Every corporate decision now has to be made in the light of this pension legislation, including dividends decisions, restructuring, giving the bank security over assets. For example, if the company wants to borrow some money from a bank and put up a factory as security - if everything goes wrong in three years' time, and the pension scheme doesn't get its money, someone might well say ‘if you were willing to put the factory up security for the bank, why weren't you willing to leave it available for the pension scheme'?"

Directors and others will need to take action to avoid falling foul of the new TPR powers around contribution notices.

The circumstances in which TPR can impose contribution notices on companies and directors to require them to make cash payments to a scheme are very narrow. The Act broadens this power by introducing two new contribution notice tests which are more objective. For example, corporate decisions such as material restructuring or dividend decisions, may breach these new tests.

"Responding to these new rules appropriately will be particularly challenging for those businesses who are struggling to recover from Covid-19, or are badly hit by Brexit," said Amin.

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