Friday December 17, 2021

David Jones and Gemma Jones from FRP's Pensions Advisory team discuss what the changes to the Pensions Regulator’s (tPR’s) code of practice mean for the future

The latest update to the Pension Regulator’s code of practice equips it with greater ability to take to task those whose actions, or failure to act, adversely impact a defined benefit pension scheme. Trustees and employers should remain vigilant in monitoring the impact of transactions on schemes, alongside obtaining advice where concerns are identified, to mitigate the risk of investigation and enforcement by the regulator.

This update follows the introduction of the Pension Schemes Act 2021 which came into force in October, and changes the Pensions Regulator’s (tPR’s) code of practice 12 to reflect the additional powers it now holds. The new code took effect from 25 November 2021.

As a reminder, tPR can issue a contribution notice where an act or omission is determined to have had an adverse impact on a scheme – and a contribution notice requires the responsible party/parties to make a payment to the scheme to rectify the impact of their act. The changes to the code are focussed on two new tests which include the employer resources and employer insolvency tests, alongside modifications to the existing material detriment test. Only one of the three tests needs to be met to trigger the potential for a contribution notice.

The two new tests give tPR increased powers because the assessment of the impact on the scheme is made at the point in time the act occurs, as opposed to making an assessment of the future impact which can be more challenging to assess.

The specific circumstances listed which are expected to trigger a contribution notice are:

• the removal or substantial reduction of the employer covenant
• weakening of the schemes creditor position
• payments to shareholders
• early repayment of creditors

Evaluating the impact of an act, such as a dividend or corporate transaction on a scheme can be complex, and if misjudged this can potentially have adverse consequences for many stakeholders. Obtaining specialist guidance can mitigate these risks.