More than two years have passed since the original guidance was issued in April 2005, and the Regulator considers that it is time to focus again on its expectations of professional advisers working with trustees and employers in relation to events that may have a detrimental impact on a pension scheme.
The Regulator has been consulting on the proposed changes which are intended to move away from prescriptive tests towards a more principled approach. This is to provide greater clarity in relation to both the risk assessment that pension scheme trustees should undertake, and the level of mitigation that they should seek. The changes also clarify that where there is a “Type A” event (i.e. one in respect of which clearance may be sought), trustees may trigger a scheme valuation and renegotiate an existing recovery plan.
Under existing legislation, the Pensions Regulator is able to give clearance statements in advance of corporate transactions. A clearance statement is confirmation that the Regulator will not use its powers to require the applicant to make a financial contribution or to give other support to a pension scheme as a result of a proposed transaction where the transaction is detrimental to the employer’s covenant to the scheme.
Assuming that the proposed changes to the guidance remain largely in their current form, their impact should be fairly limited. Ultimately clearance is a voluntary process and if the transaction will not give rise to circumstances in which a financial support direction or contribution notice could be issued, parties to corporate transactions may choose not to apply for clearance. For trustees, the revised guidance will serve as a reminder that, where a transaction will lead to a reduction in the strength of the employer’s covenant to the pension scheme, they should look for the increased risk to the scheme to be mitigated in some way.
The consultation period on these changes closed on 2 November 2007.