Lesley Browning doubts whether some, or indeed any, of the proposed powers for TPR would have prevented collapses like BHS and Carillion.
The Department for Work and Pensions' (DWP) consultation, Protecting Defined Benefit Pension Schemes - A Stronger Pension Regulator, sets out a new suite of powers for The Pensions Regulator (TPR). The approach, which has been adopted by the DWP in response to suggestions by TPR, cannot come as a great surprise to the industry, particularly given recent corporate failures and the ensuing trouncing of TPR by the Work and Pensions Committee for not having acted earlier to save BHS. However, there is a clear risk of a knee-jerk reaction here, and I doubt whether some, or indeed any, of the new powers and sanctions which have been proposed would, in fact, have prevented collapses like that of BHS and Carillion.
The regulator arguably needs earlier insight into corporate events, if it is to act quickly to protect members' benefits. For that, the DWP suggest significant extensions to the existing notifiable events framework. However, the trigger points are not nearly as clear as the consultation paper suggests, and the DWP will need to put in significant further work to make it clear in precise terms what is intended.
One example is that corporates will be expected to give advance notice of the sale of a "material proportion of the business or assets of a scheme employer which has funding responsibility for at least 20% of the scheme's liabilities". What does that actually mean? And how do you measure it in the heat of a transaction? If any changes are to be made to the notifiable events framework, they need to be proportionate and, moreover, should only apply where there could be a potential impact on the scheme.
Another example is the idea that notice should be given to TPR when heads of terms have been agreed. That seems far too premature, even if you accept that TPR should have more advance warning of significantly detrimental events. There are simply too many practical problems here. Auction sales involving multiple bidders may not have heads of terms and transactions almost always change in structure during negotiations. At the heads of terms, stage financing may not be in place.
Such early reporting would also potentially put trustees and TPR to additional work, which ultimately may not be required if the transaction is abandoned, meaning unnecessary professional fees may also be incurred. My sense is that engagement with the trustees should only be required where the deal is close to being in agreed form. A more appropriate time to engage would perhaps be within one week after exchange of contracts. The current suggestion of engagement at the point of completion of due diligence and transaction financing are buyer-side activities, outside the control of the seller. Following exchange would be the appropriate time for the declaration of intent to be given, so the trustees have a clear understanding of the shape of the deal and its impact on the scheme.
Various changes are proposed to the moral hazard regime but none to clearance. I am disappointed that there is no change to the voluntary clearance structure. The current process is overly complex and it is clear from TPR's published statistics that latterly it has been used very infrequently. There is also a question of fair dealing if the changes proposed by the DWP come in. The watchdog should be able to give high-level clearance for corporate transactions. If increased obligations are placed on trustees and employers in terms of notifiable events and declarations of intent, some kind of acknowledgement or clearance should be given by TPR (if it has no objection) in return for the provision of this information.
This would be preferable to the current system where, if material detriment has been identified and a trustee workaround negotiated, TPR will then say that material detriment does not exist and therefore clearance cannot be given.
Lastly, there is the issue of increased penalties and criminal sanctions. This is a minefield. Clearly punitive fines must be reserved for wilful and reckless behaviour only. My worry is that as the issue of dividends is being looked at separately by the Business, Energy & Industrial Strategy Committee, there is a real risk of a lack of joined-up thinking here.
While more muscle might be required by TPR to fill gaps in its regulatory armour, the DWP needs to work hard on what has been prepared to date to make it fit for purpose.
Lesley Browning is partner in the pensions team at Norton Rose Fulbright
The Pensions Regulator (TPR) has substantially increased the usage of its powers against trustees – posting a sharp rise in the use of formal information gathering powers and High Court production orders during the three months to the end of September....
The Pension Schemes Bill has completed its third reading, crossing its latest hurdle in the House of Commons.
An amendment to the Pensions Schemes Bill which would have seen people given a pre-booked Pension Wise appointment ahead of accessing their retirement savings has been defeated.
A proposal to ensure savers receive a Pension Wise appointment prior to accessing their retirement pot has received cross-party support in parliament, while Labour seeks net-zero pensions by 2050.
Pension scams are not just about the money lost, but the lives devastated, says Nicola Parish, so the industry must unite to defeat this scourge.