The Pension Scheme Act 2021 (PSA21) has increased the powers of The Pension Regulator (TPR) in relation to defined benefit schemes (DB Schemes). And with two new criminal offences introduced, funders are understandably asking more questions when lending to a Group involved with a DB Scheme.
Organise to avoid obstacles
Borrowers should be prepared for additional discussions with their funders. In the context of a refinancing, this is true whether or not the refinancing is with new or existing funders, particularly where the facility is secured.
If you have a DB Scheme, you'll need to build extra time and steps into your funding timetable. Take advice on the information to be presented to funders and how best to present it to address concerns and minimise delay.
TPR - "Moral Hazard Powers"
TPR protects the benefit of members under occupational schemes. As such it has broad powers (commonly referred to as "moral hazard powers") designed to protect pension scheme members. In addition to enhancing TPR's information gathering and financial contribution powers, PSA21 introduced two new criminal offences. Prison sentences and unlimited fines may result.
In considering financing, or re-financing terms, funders will wish to discuss DB Scheme liabilities in detail and consider appropriate terms in context. Expect documentation to include obligations relating to compliance with PSA21 and provision of pensions related information. Funders are also likely to require additional protections in the event of a breach or resultant exercise of TPR's powers in order to mitigate risk.
A new "notifiable events" framework is also on the horizon. Once in place, a Group with a DB Scheme will be required to notify TPR of intention to grant security ranking ahead of liabilities to a DB Scheme at a certain stage of discussion with funders. Failure to do so can result in significant financial penalties.
Working with your advisers if you have a DB Scheme will ensure you are able to assess your compliance requirements under pensions legislation and provide timely information to your funders, keeping your transaction on track. Engaging early on with funders will ensure that all information required can be gathered and discussed and any terms to be included in funding documents agreed without haste.