Introduction:

The Government has launched a new consultation on a number of technical and regulatory changes affecting pensions legislation. One of the proposed changes is to amend the entry rules in relation to the Pension Protection Fund (PPF). The consultation follows on from the recent Supreme Court decision in Olympic Airlines and the introduction of specific legislation to ensure the beneficiaries of that particular scheme received protection in circumstances where the entry rules otherwise excluded them.

Why is there a consultation now?

The consultation covers a range of areas, including eligibility to the PPF. The current legislation only allows access where there is a qualifying insolvency event. As was the case in Olympic Airlines, a scheme is not eligible where the company’s centre of main interests (COMI) is located outside of the UK in another EC Member State and there is no ‘establishment’ in the UK to allow the opening of secondary proceedings. After the Court of Appeal’s decision confirming that no establishment was present at the relevant time in that case, a statutory power under the Pensions Act 2004 was exercised providing for an additional insolvency event. This insolvency event was defined in such a way so as to only apply to the beneficiaries of the Olympic scheme (see the Pension Fund (Entry Rules) (Amendment) Rules 2014 (SI 2014/1664)).

As part of the package of proposed pensions reforms, the Government considers it should also address the issue of entry eligibility in relation to the PPF.

How is the Government proposing to address the Olympic Airlines problem?

The proposed new rules do not extend qualifying insolvency events to include insolvency proceedings being carried on in another EC Member State, but instead seek to extend the reach of the alternative qualifying route which presently applies to employers who are unable to have a qualifying insolvency event. These types of employers are set out in Regulation 7 of the PPF Entry Rules Regulations 2005 and include public bodies. 

The Government hopes to make Regulation 7 a ‘catch all’ thereby avoiding the need to amend it further in the future. The proposal is for Regulation 7 to describe those employers who are excluded from having an insolvency event rather than listing those types of employers who are eligible under the alternative route. The Government is also proposing to amend the Regulations to ensure consistency, for example by amending Regulation 10 (which sets out the requirements to be met for a scheme failure notice to be issued) to ensure it aligns with new Regulation 7.

The consultation describes the effect of its changes as being that where an "Olympic Airlines" scenario arises, or where other circumstances arise in which a company which would ordinarily be able to experience an insolvency event for PPF purposes cannot, a scheme will be able to use the alternative qualifying route.

What other changes are proposed in relation to PPF entry?

Insolvency Practitioners are required to issue a notice where insolvency proceedings are stayed or come to an end in certain circumstances and the IP cannot confirm whether the scheme has failed or been rescued. Regulation 6 sets out the circumstances in which insolvency proceedings are stayed or come to an end in relation to employers which are companies, individuals, partnerships and building societies. The Government is considering extending this list to cover friendly societies, industrial and provident societies, credit unions, LLPs, persons authorised under Part 4A of the Financial Services and Markets Act 2000 and Society of Lloyd’s and Lloyd’s members. The Government is seeking views on whether it is possible for the insolvency events of these bodies to be stayed or come to an end.

When does the consultation close?

The consultation closes on 11 January 2016 and you can access the consultation here. We would encourage all interested parties to respond.