During Autumn 2007, the Pensions Regulator consulted on a revised version of its guidance on when clearance statements should be obtained for corporate events, such as mergers and acquisitions or restructurings, which could have an adverse impact on the ability of a company to meet its obligations towards its defined benefit pension scheme.

Following the implementation of the Pensions Act 2004, which introduced the Pensions Regulator with powers to prevent employers avoiding their pension liabilities, guidance was published indicating when parties contemplating certain corporate transactions should obtain clearance from the Pensions Regulator that the proposed action would not give rise to the issue of a demand to make up a shortfall in a defined pension scheme fund. Three classifications of transactions were identified: Type A (events which are financially detrimental to the scheme as they adversely affect the priority of the scheme as creditor, result in a return of capital, alter the control of the debtor or attempt to compromise employer debt), Type B (events which do not affect the pension creditor) and Type C (events which might affect the pension creditor). The clearance procedure was only available for Type A events.

The original guidance was published over two years ago. The updates reflect the changes to the market since April 2005 and set out the Pension Regulator’s expectations of how all parties to corporate events are to consider the possible detrimental effect of the event upon a pension scheme.

In revising its clearance guidance, the Pensions Regulator has proposed a simplification of its classification of events by removing Types B and C whilst expanding the description of Type A events to include compromises and arrangements and extending the list of employer related events that could be Type A events.

The Pensions Regulator appears to be moving towards a more principles-based approach in the updated guidance for determining which events should be considered for clearance, replacing the prescriptive tests set out in the original guidance. To support this, there is more guidance provided on how to assess the materiality of corporate events and greater clarity in respect of the level of financial mitigation of a proposed corporate event that scheme trustees should be looking for. The need for regular and early communication between companies and the pension scheme trustees on any funding or recovery plans is emphasised in the guidance.

The final version of the new guidance is to be published in December 2007.