The Pensions Regulator (tPR) announced on 9 June 2011 that it has settled its dispute with Michel Van De Wiele NV (VDW) regarding the Bonas Pension Scheme. TPR will now issue a Contribution Notice for £60,000 instead of the £5 million it had originally awarded.

VDW is the Belgium based parent company of Bonas UK. Bonas UK had a defined benefit pension scheme called Bonas Group Pension Scheme which had a deficit. TPR became involved in 2006 when Bonas UK was put into a “pre pack” administration in what seemed to be a way of avoiding the increasing pensions deficit. The business and certain assets of Bonas UK were then brought by a subsidiary of VDW leaving the pension liability behind. TPR issued it’s first ever Contribution Notice on 29 June 2010 for £5 million to VDW on the basis that VDW’s actions came about in order to prevent further liability to the Bonas UK Pension Scheme and also to avoid Section 75 of the Pensions Act 2004, in which tPR can order a company to repay monies to the Scheme.

VDW appealed to the Upper Tribunal (Tax and Chancery) Chamber asking for the Contribution Notice to be struck out. Although this was refused, Warren J’s opinion proved to be helpful in highlighting that the amount that could be sought by tPR by way of a Contribution Notice had to be reasonable given the amount available to the employer after the act or failure to act had taken place. Whilst the Scheme can be compensated for the detriment a Contribution Notice amount cannot go further as to impose a penalty on the VDW for its behaviour. Recovery of further amounts is the domain of a Financial Support Direction (FSD) and the present application did not concern a FSD. However a full hearing did not take place to fully explore Warren J’s opinion as tPR chose to settle.

A Contribution Notice can be issued under section 38 of the Pensions Act 2004 by tPR. It is a demand on either a company or an individual to pay a sum of money into a pension scheme. TPR’s decision to settle has been seen by many to be some what disappointing. TPR was acting under it’s powers granted under Section 38 of PA 2004 as originally enacted. However in 2008 section 38 was amended to include a “material detriment test” (as set out in Section 38A). If tPR believes an act or a failure to act “has detrimentally affected in a material way the likelihood of accrued scheme benefit’s being received”, then the test has been satisfied. In reaching this decision tPR must take into account various factors such as the value of the assets, effect of the act/failure on those assets and so on. This extra limb provided under section 38 provides tPR with further grounds to issue a Contribution Notice to the party in question. Had this test been applicable when tPR issued it’s first Contribution Notice it is questionable whether the same outcome would have been reached. However whether tPR will take advantage of the revised section 38 remains to be seen.