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UK Pensions Speefbrief - A more interventionist Pensions Regulator? Our recent experience

  • United Kingdom
  • Pensions


Partly as a result of some of the criticisms levelled at it by the Work and Pensions Select Committee in the course of the BHS inquiry, we are witnessing a shift in the way the Pensions Regulator (“TPR”) is handling defined benefit pension scheme valuations.

Members of the Eversheds Sutherland pensions team are involved in a wide range of valuation cases entailing varying levels of TPR engagement.  It is clear from the cases in which we are directly involved and our wider engagement with the industry generally that:

  • TPR is committed to intervening in more valuation cases than in the past
  • where TPR does get involved, it is doing so in a more interventionist, rigorous and proactive manner than before, with much less tolerance for late valuations, and
  • it is willing to consider escalating action more quickly and exercising the full range of its powers – including those which have never been used in the past.  This includes its powers under section 231 of the Pensions Act 2004 (“section 231”) to determine valuation assumptions in the event of a “failure to agree” by the parties.   

This is all consistent with the commitment set out in TPR’s 2017-2020 Corporate Plan to engage in focused, faster and more frequent intervention and with the additional £3.5m budget it has allocated mainly to front line intervention.  It also chimes with the concerns TPR has expressed in its 2017 Annual Funding Statement to ensure that pension schemes are “treated fairly”.

Whilst most of this activity is substantive, some of it may be more presentational in nature – based on a need to be seen to be doing something as an “anti-embarrassment” defence in case things go awry later on.  That said, even presentational activity by TPR will need careful handling by both trustees and sponsors to minimise the risk of sanctions. 

It will be important for all parties in the valuation process to have a properly documented procedure in place, to have taken appropriate advice, to be able to produce a rigorous audit trail of the steps taken to progress matters, and to be able to justify any outcome as reasonable in all the circumstances.  Trustees – who are at risk of fines under the legislation – will be particularly keen to demonstrate that they have taken “all reasonable steps” to conclude a statutory valuation.

TPR also seems very keen on issuing formal demands for information under section 72 of the Pensions Act 2004 (“section 72”) - no less than 123 such orders were used in the BHS investigation.  In our experience, these can be disproportionately expensive and time consuming to deal with if not handled carefully.   

Recent experience

We describe below just a handful of the cases in which members of our team have been involved, to provide a flavour of the breadth of our experience in the new environment.

  • We advised the trustees of two pension plans sponsored by a major retailer in relation to an investigation by TPR into the possible use of its moral hazard powers. The investigation involved responding to multiple section 72 notices and collating over 100,000 documents. Our involvement included a review of responsive documents, liaison with TPR, redaction of irrelevant aspects of documents and reaching agreements in relation to confidentiality requirements.
  • Members of our team advised trustees in relation to section 231 proceedings initiated by TPR and litigation (which eventually settled) in relation to obtaining funding through powers under the plan’s governing documentation. This included reviewing and commenting on a warning notice issued under section 231, draft instructions to experts, mediation and settlement. The matter was the subject of a report by TPR under section 89 of the Pensions Act 2004, as the valuation documentation reflecting the settlement was sufficient to satisfy the statutory funding objective.
  • We advised an investor and shareholder in relation to a section 72 notice which related to an investigation around an insolvency and pre-pack sale from administration. This included obtaining an extension of time, liaison with the client to identify and collate relevant material and assistance in preparing the response.
  • We advised on complex valuation negotiations which included the drafting of detailed guarantee documents, considering issues relating to the triggering of a “poison pill” provision under which all jointly held powers became held by the trustees alone and negotiating the bulk transfer of certain assets and liabilities to a scheme providing mirror image benefits but with a more employer-friendly balance of powers.
  • We are also advising trustees and corporates in a number of other contentious valuation cases where the parties have been unable to reach agreement and/or are running late. Among other factors, these have involved one or more of the following:
    • frequent case management meetings with teams from TPR which need to be handled carefully and prepared for properly
    • the receipt of warning notices prefacing the use of TPR’s powers under section 231, and
    • the extensive use of notices under section 72.