The Pensions Regulator (TPR) has published its draft code of practice on the circumstances in which it expects to use its new power to issue contribution notices (CNs) under the “material detriment test”.

Under the “material detriment test” TPR may issue CNs if it is of the opinion that an act or failure to act has detrimentally affected in a material way the likelihood of accrued scheme benefits being received (for background on changes to TPR moral hazard please see EPB briefing 177).

According to the draft code of practice (which is identical to the proposed content issued for discussion in October 2008) TPR confirms that it expects to issue CNs in the following circumstances:

  • the transfer out of the jurisdiction of the United Kingdom of the scheme;
  • the transfer out of the jurisdiction of the United Kingdom of the sponsoring employer, if by doing so there is a material reduction in the level of employer support or legal and regulatory protection for scheme members;
  • the severing of employer support for the scheme so that employer support is removed, is substantially reduced or becomes nominal;
  • the transfer of liabilities of the scheme to another scheme or arrangement which does not have sufficient employer support or is not sufficiently well funded; and
  • a business model or the operation of the scheme in such a way that is designed to create a financial benefit for the employer or some other person from the scheme, but where inadequate account has been taken of the interests of the members of the scheme, including where risks to members are increased.  

The consultation notes that the finalised code of practice will be admissible evidence in any legal proceedings and a court or tribunal, where relevant, must take account of it.

In the consultation document TPR also comments that, in its view, employers who carry out due diligence and discussions with trustees would in many cases be able to satisfy the requirements for a statutory defence to this new TPR power.

The consultation closes on 6 February 2009.