Draft guidance from The Pensions Regulator will lead to a “worrying” drop in the number of firms applying for clearance, Wedlake Bell warns.

The commercial law firm said the number of firms applying to the regulator for clearance to proceed with mergers and acquisitions had fallen by 23pc in the last year alone. But it warned draft clearance guidance issued by the regulator last month could exacerbate the problem.

Wedlake Bell head of pensions Clive Weber said: “This huge drop in the number of companies applying to the regulator for formal clearance for proposed activities which could affect the strength of their covenant, during a period when corporate activity has continued unabated, is a very worrying trend.

“As the new draft guidance will make the circumstances in which clearance should be sought less, rather than more, clearly defined, we could well see even fewer employers bother to apply to the regulator in future.

Weber also warned the new draft clearance guidance would make life more difficult for trustees.

He added: “Not only does the lack of clarity make it more difficult to identify whether a corporate event needs trustees’ particular attention, the guidance also fails to address the practical difficulties they face when a materially detrimental event does occur.”

A spokeswoman for the regulator said: “While the overall number of clearance applications received has fallen compared to the previous year, the complexity of both enquiries and applications has actually increased.

“In addition, we believe that as the industry as gained experience of the process and when clearance is appropriate there have been less unnecessary applications.

“It is important to note that the clearance process is voluntary.

Comments on the draft guidance will be accepted up to November 2.