March 28
Protecting defined benefit pension schemes

The Government’s long awaited White Paper on protecting defined benefit pension schemes was published last week.  It proposed a much tougher Pensions Regulator, backed by a stronger set of enforcement powers.  These powers included the possibility of fines and criminal sanctions for those whose deliberate actions put pension schemes at risk.

The Pensions Regulator will be working with Government and other interested parties to develop the proposals, which will include a strengthening of the existing notifiable events framework and voluntary clearance regime and an updating of the code of practice on funding defined benefits.  However, crucially from a corporate perspective, Government wants to ensure measures do not have an adverse effect on legitimate business activity and the wider economy - so it will be seeking to strike an appropriate balance.  This is one reason why a mandatory clearance process, which was feared by some, will not be introduced.

One thing that will be a concern is that the Government will consider applying the new punitive fines in respect of acts of omissions prior to enactment and in particular from the date of the White Paper’s publication.  This could be a big concern for corporates looking to get comfortable with ordinary events that could impact the pension scheme.  We would hope that reason will prevail.  However, the risk undoubtedly exists in this interim period.

Given this uncertainty, there are sensible actions a company could look to take.  We’d speculate it would be unreasonable for the regulator to argue that someone was at fault and exposed to a fine if they had followed existing guidance from the regulator.  A lot of guidance exists and is relevant.  For example, funding, covenant and clearance guidance touch on most material actions relevant to a pension scheme.  In reality companies do on the whole seek to comply already but now it may be safer to jot down formally how that has been done in case you need to evidence it later.

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