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Declarations of intent: a case of regulatory grip tightening

With all the recent high profile cases in the press - Arcadia, BHS and Carillion being the most obvious – it’s no surprise the government wants to force employers to think more about their pension scheme responsibilities. Cue the declaration of intent.

Employers with defined benefit (DB) pension schemes will need to take additional steps if they are going to avoid falling foul of the Pensions Regulator. One measure anticipated to feature in the next Pensions Bill (expected in the Autumn, but who knows in reality!) relates to corporate transactions, such as the sale of a controlling interest in a sponsoring employer. Employers may need to send a declaration of intent in advance of a transaction to the pension scheme trustees to deal with the mitigation of any risks.

48 hours? In pensions?

Trustees will need considerably more support from the Pensions Regulator (tPR) and changes to service level agreements (SLA) with pension scheme advisers may be needed to meet tight timescales and fulfil the requirements within the new declaration of intent. We may only have 48 hours. I don’t remember the last time I saw an SLA that referred to hours.

Government is also working with the Regulator to review the existing code of practice relating to notifiable events. Changes to moral hazard will give tPR enhanced powers to issue contribution notices (CNs) or financial support directions (FSDs) against entities connected or associated with a DB pension scheme, where it considers it reasonable to do so.

When the going gets tough

The effect would be to strengthen protection of defined benefit pension schemes. Failure to comply could result in fines up to £1m and failure may come easy (see Pinsent Mason’s £1 million coffee meeting). Any wilful or reckless behaviour related to pension schemes could result in imprisonment up to seven years. This all follows the government’s announcement in February of an extensive package of measures to strengthen the powers of the Pensions Regulator to concentrate the minds of businesses with DB schemes who are involved in corporate activity.

Pension trustees would be empowered to potentially block a deal that isn’t in the members’ interests. Some scheme rules have poison pill clauses to help trustees in transaction situations – I’ve been involved in cases where I could demand full buy out funding, but often the rules are not so specific.

I would prefer to see such full protection for scheme members in all cases - no-one wants reckless executives saddling pension funds with debt by giving little or no consideration to their due responsibilities. More clarity is needed for terms of reference so everyone is clear on what acceptable levels of technical provision funding actually are.



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