The Pension Schemes Act 2021 contains a framework for additional mandatory procedural steps to be taken where a company which supports a UK defined benefit pension scheme is contemplating certain corporate and restructuring activity, namely requirements to notify the Pensions Regulator (the Regulator) and prepare an ‘accompanying statement’ about the impact of the event on the pension scheme. These requirements supplement the existing requirements to notify the Regulator of certain events under the Pensions Act 2004.
The Department for Work and Pensions recently published a consultation and draft regulations (the Draft Regulations) which set out the detail of the new requirements, in particular, what events will be subject to the new requirements and the timing for the notifications and accompanying statements.
The Draft Regulations envisage three events which would trigger the requirements to both notify the Regulator and prepare an accompanying statement:
- the intended sale by the employer of a material proportion of its business or assets (‘material sales’);
- the intended granting or extending of a relevant security by the employer over its assets which would result in the secured creditor being ranked above the pension scheme in the order of priority for debt recovery (‘granting security’); and
- a decision by a controlling company to relinquish control of the employer company, or an offer to acquire control of the employer company, where the employer company has not made a decision to relinquish such control (‘change of control’).
What do corporate groups, restructuring professionals and other intermediaries need to know?
Corporate groups that operate a defined benefit pension scheme and restructuring professionals should take note of these new mandatory notification requirements, particularly because they may bite early in the timetable of any corporate transaction or restructuring.
It will be important not to miss the initial notification to the Regulator to be made at an early stage, namely as soon as reasonably practicable after a ‘decision in principle’ has been made. This is defined as a ‘decision prior to any negotiations or agreements being entered into with another party’. Given the rather vague drafting, this will require careful consideration by employers. When does considering an event, and perhaps exploring options, become a decision in principle?
The second notification and accompanying statement will need to be given as soon as reasonably practicable after ‘the main terms of the relevant event have been proposed’. This is clearly intended to be prior to signing but when there is greater certainty as to the terms of the proposed transaction (so that its impact on the pension scheme can be considered for the purposes of the accompanying statement). However, this is another vague concept which will require careful consideration by employers when planning corporate or restructuring activity.
There are civil penalties of up to £1m for a failure to comply with the new notification obligations to provide an accompanying statement to the Regulator. Providing false or misleading information to the Regulator in relation to these obligations will be a criminal offence.
The consultation on the Draft Regulations will close on 28 October 2021. No formal announcement has been made confirming when the new requirements would come into force, but we anticipate that it is likely to be from April 2022.