Update on notifiable events and other new Regulator powers in Pension Schemes Act 2021

• United Kingdom

• Pensions

09-09-2021

New Pensions Regulator powers: an overview

The Pension Schemes Act 2021 provides the Pensions Regulator with increased powers in relation to corporate activity. This is a key theme of the Act in response to criticism that the Regulator failed to adequately protect members in several high-profile corporate collapses.  

Key dates to be aware of in relation to these new powers and sanctions are:

• 1 October 2021: The new £1 million penalties, contribution notice powers and criminal sanctions will come into force, as will the Regulator’s new powers to request people to attend interviews, inspect premises and provide information.
• 6 April 2022: The proposed date for a number of new corporate notifiable events to come into force along with a requirement to notify the trustees of those events.  Sponsors and their wider group need to be aware of these new events are and implement processes to identify when the Regulator needs to be notified. 

The new provisions are relevant to both sponsors and trustees and both will need to ensure that key people are aware of the new powers and sanctions available to the Regulator.  Sponsors and trustees should also ensure that there are effective lines of communication between them to mitigate the risk of problems arising.

The detail: new notifiable events requirements

Following a number of high profile corporate failures, the Pension Schemes Act 2021 includes provisions seeking to provide the Regulator and trustees with early warning of transactions that might affect DB schemes.  The Act provides that where there is a DB scheme, employers, and those connected or associated with them will need to notify the Regulator of certain employer related events but the detail was left to regulations.

New events: A consultation paper has been issued setting out further detail.  Affected parties will need to notify the Regulator (with a copy provided to the trustees) where there is:

• a decision in principle by a controlling company to relinquish control of an employer;
• an offer to acquire control of the employer;
• a decision in principle by the employer to sell a material proportion of its business or assets; or
• a decision in principle by the employer to grant or extend a relevant security over its assets, where this would result in the creditor being ranked above the scheme in the order of priority.

In addition, as anticipated, wrongful trading will cease to be a notifiable event on the basis that those engaged in it are unlikely to notify the Regulator and the Regulator has confirmed that it has never so far received a notification under the existing provision.

A “decision in principle” is defined as “a decision prior to any negotiations or agreements being entered into with another party” i.e. when the employer or controlling company has decided a course of action, but has not yet taken it.  The rationale behind this is that as soon as action is decided upon, the impact on the scheme and appropriate mitigation should be considered.

A “material proportion” of the employer’s business is defined as 25% of its annual revenue and a “material proportion” of its assets is 25% of the gross value of assets as set out in the accounts. This is wider than the government’s initial proposal which would have required notification only where an employer had funding responsibility for at least 20% of the scheme’s liabilities.  The Government believes that it might be difficult to establish such a liability threshold but asks if there is a simple way to do this in practice.

When should notification be given? As soon as reasonably practicable. Concerns had been raised about what this would mean where price sensitive information is involved.  This is not addressed in the consultation but it is worth noting the Act says that any other duties a party is subject to will not be treated as contravened as a result of giving the required notifications.

Clearly, some notifiable events will arise under the new regime at a very early stage of corporate activity when there might not actually be a great deal to notify.  However, the obligation to notify extends to where there is a “material change” in any of the new events or their expected effects or if they are no longer going to take place.  A “material change” is “a change in the terms of the intended [event]… or a change in the steps taken to mitigate any adverse effects…”.

What information needs to be given? Any notification will need to be accompanied by a statement which provides a description of:

• the event, including the main terms proposed
• any adverse effects on the scheme
• any adverse effects on the employer’s ability to meet its obligations to support the scheme
• any steps taken to mitigate those adverse effects and
• any communication with the trustees about the event.

This list is designed to encourage sponsors to address the impact of corporate activity on the scheme at the earliest point possible.

Penalties: Knowingly or recklessly providing the Regulator with information that is false or misleading in a material way when complying with the new notifiable events requirements can give rise to criminal penalties.  In addition, failure to comply could lead to fines of up to £1 million. 

Other new Regulator powers and penalties coming into force

A commencement order will bring the majority of the Regulator’s new powers under the Act in force on 1 October 2021.  It also makes some attempt to address concerns about the extent to which such powers will be retrospective.

The key powers and sanctions which will come into force on 1 October are:

• new criminal offences in relation to avoiding a section 75 debt or risking accrued benefits
• Regulator powers to impose fines of up to £1 million
• new grounds for issuing contribution notices and sanctions for failing to comply with a contribution notice
• new powers to require people to attend interviews, inspect premises and gather information

Concern had been expressed that the new sanctions could apply to acts which occurred before the new legislation was brought into force.  The order says that where an act or failure to act or first act in a course of conduct occurred before 1 October 2021 the new sanctions will not apply and the provisions of the previous legislation will remain in force.

For more detail about these new powers and sanctions, see our guide to the Pension Schemes Act 2021. 

Next steps

The Regulator’s powers under the Pension Schemes Act 2021 are wide and trustees and sponsors need to ensure that they are aware of them, when they might apply and what they can do to avoid them being used.  This is very much an area where it will be useful for both trustees and sponsors to work together and to ensure that there are good, open lines of communications and robust governance frameworks at employer and scheme level.

The new notifiable events are far reaching - sponsors and their wider groups need to be aware of what they are and ensure that appropriate people are trained to recognise them and know how to make the required notifications.  They should also look out for the final version of the regulations and any changes that are made.