Corporates Take Note! The “notifiable events” regime for defined benefit pension schemes is changing

United Kingdom
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The Pension Regulator’s (“TPR”) notifiable events framework is intended as an early warning system, alerting TPR to activity that could potentially lead to calls on the Pension Protection Fund. As part of the current strengthening of TPR’s powers, more corporate events affecting scheme employers will need to be notified from 6 April 2022, and since 1 October 2021, there are more onerous sanctions for failing to notify, including civil penalties of up to £1 million.

Corporate groups with defined benefit pension schemes should keep note of the types of activity that require notification to TPR.  In particular, they will need to recognise when this duty arises in share sales, asset sales, financing and other transactions.

All notifications must be made “as soon as reasonably practicable” after awareness of the notifiable event.

Here’s a quick reminder of these “employer-related events”, how they are changing and the relevant sanctions, for easy reference. 

Notifiable Events: Corporate Activities affecting the Scheme Employer

(a)

Decision by the employer that will, or is intended to, result in a debt to the scheme not being paid in full.

(b)

Decision by the employer to cease business in the UK (or ceasing business without an advance decision).

(c)

Advice that there is wrongful trading by the employer (or a director knows there is no reasonable prospect of avoiding insolvency).

From 6 April 2022, it is proposed this notification requirement will fall away.

(d)

Breach of a banking covenant by the employer, unless the bank agrees not to enforce the covenant. Notification may not be needed if the scheme is fully funded.

(e)

Decision by a controlling company to relinquish control of an employer (or the relinquishing of control without an advance decision). Notification may not be needed if the scheme is fully funded.

From 6 April 2022, it is proposed this notification will apply at an earlier stage:

- a decision in principle (before negotiation or agreement) to relinquish control of the employer; or

- an offer being received to acquire control of the employer.

An appropriate person (including the employer, or those associated and connected with the employer) must then provide more detail to TPR and the scheme trustees once main terms are proposed.

(f)

Conviction in any jurisdiction of a director or partner of a scheme employer for a criminal offence involving dishonesty

 

Additional activities it is proposed will require notification from 6 April 2022

(g)

Decision in principle (before negotiation or agreement) by the employer to sell a material proportion of its business or assets. A material proportion is, broadly, measured as being 25%+ of annual revenue or the gross value of assets and is assessed in one transaction or cumulatively over 12 months.

An appropriate person (including the employer, or those associated and connected with the employer) must then provide more detail to TPR and the scheme trustees once main terms are proposed.

(h)

Decision in principle (before negotiation or agreement) by the employer to grant or extend a relevant security ranking above the pension scheme. A relevant security is security granted by the employer, or by a subsidiary, comprising 25%+ of the employer’s consolidated revenue or gross assets. It will include a fixed or floating charge over the assets of the employer or of the wider corporate group but not generally the refinancing of an existing debt.

An appropriate person (including the employer, or those associated and connected with the employer) must then provide more detail to TPR and the scheme trustees once main terms are proposed.

In some cases, the circumstances of the scheme may mean no notification is needed, but corporates should consider these at the time that the employer-related event happens.

New Sanctions applying since 1 October 2021

Failing to report notifiable events to TPR will result in penalties of up to £1 million

Providing false or misleading information when reporting notifiable events will result in penalties of up to £1 million or a criminal offence with up to 2 years’ imprisonment or unlimited fines