The long-awaited regulations to introduce new notifiable events and require a declaration of intent have not yet emerged. However the Pensions Regulator has issued recent blog posts, especially on M&A activity, setting out its expectations. Some of these expectations go beyond current legal requirements, but corporates should be wary about disregarding TPR’s clear messaging.
No new regulations on notifiable events yet
The pensions industry has been waiting for final regulations on (i) the revised list of events that need to be notified to the Pensions Regulator (TPR); and (ii) “declarations of intent” that set out corporates’ fuller plans for how pension schemes will be treated in relation to corporate activity. Our LawNow in 2021 following the draft regulations highlighted the notifiable events employers and corporate groups should expect to watch for.
The original expectation was that final regulations would take effect in April 2022. This date passed, possibly because the Government was solving a number of technical issues with the way the draft regulations would work in practice. Industry speculation was that we would likely have the regulations in place for 1 October 2022, but that date too has now been and gone and there is still no sign.
No clarity on when the new regulations will appear
There has been no update from the Government on when these final regulations might be ready (the next “usual” date for pensions legislation would be April 2023), so we continue to wait and see. We anticipate that TPR will also need time to consult on revised guidance and a revised direction setting out exclusions from the notifiable events regulations.
The absence of new regulations means that wrongful trading by an employer has not yet been removed from the list of notifiable events, although TPR has said it has never received a notification on that ground anyway.
TPR sets out expectations over early notification of M&A to trustees
On 28 September 2022 however, TPR issued a blog post on its expectations for M&A activity. The key message for trustees and businesses was that when dealing with M&A that affects a pension scheme “Trustees must be robust when defending the interests of scheme members and company boards and bidders must also treat the scheme fairly and equitably.”
This follows TPR’s other recent blog post on businesses refinancing. TPR’s new M&A blog particularly highlights how sponsors should take account of their duty to the pension scheme as a creditor in distressed scenarios.
And whilst we continue to await the new regulations, TPR’s comments are notable for setting out its current expectations of early engagement with Trustees:
“While trustees must engage early, employers should immediately alert trustees about a proposed corporate transaction — they will know about it first. Trustees will be subject to strict confidentiality provisions and so employers should not use market sensitivity and regulatory notification provisions as an excuse to keep trustees in the dark.”
as well as early discussions with buyers:
“Trustees should be provided with direct access to the bidder and their advisers at the earliest opportunity in the transaction process. This allows trustees to set out to bidders the liabilities in the scheme, make clear they will be assessing any potential detriment, and crucially to begin negotiating protections for savers.”
and binding commitments from buyers prior to completion of a transaction:
“We also have clear expectations for those bidding to merge with or acquire a company which sponsors a pension scheme. We want bidders, including private equity firms, to show they have a clear, credible and well thought out business plan which considers the scheme’s long-term funding objective, backed up with robust corporate governance and underpinned by suitable protections for the scheme. Where the transaction or the proposed business plan impact the strength of the employer’s ability to support the scheme, we expect this to be reflected in tangible protections for the scheme.”
Although the intended changes to notifiable events will bring forward the point that corporates must notify TPR about M&A activity (the draft regulations refer to a “decision in principle”), that requirement is to notify TPR alone. A declaration of intent must be sent to both TPR and trustees, but will occur at a later point (once “main terms are proposed”). TPR’s expectations set out in this blog therefore go beyond current legal requirements and arguably beyond what will be in the new legal regime.
However, this is not a licence for sponsors and buyers to ignore TPR’s comments. The blog notes that TPR will intervene if they feel schemes are not being protected, and notes that many scheme engagements are happening even if TPR does not publicise them. The blog will be helpful in understanding the kinds of behaviours that are more likely to attract a formal investigation and some of the factors that might go towards TPR deciding to use its moral hazard powers or even its new civil penalty and criminal powers.
Even if TPR is ultimately satisfied with the arrangements put in place to support a scheme, the management time and cost of dealing with a TPR investigation can be considerable. Corporates will want to be wary of disregarding TPR’s expectations about factoring the pension scheme into the transaction.
More detail on the recent changes to the law can be found in the CMS Guide to the Pension Schemes Act 2021
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