Also announced recently was the news that the Regulator is currently updating its guidance on clearance applications, which it aims to publish over the summer. Whilst making this announcement, the Regulator issued a reminder to all those considering corporate transactions that “the underlying principle for considering clearance is whether the event is financially detrimental to the ability of the pension scheme to meet its pension liabilities.”
In particular, the reminder stresses the “appropriateness” of a clearance application in any situation where the employer covenant is being significantly weakened, and it suggests that in some circumstances, it would be appropriate to seek a funding level higher than FRS17.
The Regulator states: “Where there is a significant weakening of the employer covenant as a result of a corporate transaction, for example, where a highly leveraged transaction occurs and/or the assets for which the scheme currently has recourse are being removed from the employer group, then clearance is an appropriate consideration irrespective of the funding position of the scheme involved. In addition trustees in these sorts of circumstances should consider whether to seek a materially enhanced level of mitigation in excess of FRS17/IAS19.”
A copy of the Regulator’s reminder on clearance applications can be downloaded at www.thepensionsregulator.gov.uk/guidance/clearance/index.aspx.