March 29
What kind of regulator will emerge?

According to the White Paper on protecting defined benefit pension schemes that was published last week, the Pensions Regulator looks set to gain more influence over the funding of schemes and will have its armoury significantly enhanced to better equip it for tackling behaviours which could results in poor outcomes for schemes.

Those undertaking transactions or involved in other corporate activity that could have an impact on the covenant afforded to a defined benefit scheme will need to get up to speed with the requirements of the new regime.  Getting the right specialist advice will be more important than ever in this time of transition.

However, we don’t think the prospect of having a more engaged and pro-active Pensions Regulator will necessarily be unwelcome, particularly if the Pensions Regulator is responsive, productive and directional in its dealings with employers and trustees.

We suspect that the Pensions Regulator would welcome any new powers that come its way and to use them should situations arise that warrant its intervention.  In limited, although headline cases, this need is clear. We also believe that the Pensions Regulator would like to engage with more schemes and employers and to do so much sooner (i.e. before significant problems arise) than has been the case historically.  However, in order to achieve that, the Pensions Regulator will need far greater resource and the more of the relevant skills in some areas than it has at its disposal at present.  We are sure the Pensions Regulator would desire that as well.

Along with that it would be helpful if it were to opine as to what might be acceptable in cases where it considers a proposal that has been put to it to be unacceptable. Ideally this would be face to face during any material corporate transaction to allow parties to respond – in some cases in the past we have known what the Pensions Regulator does not like but have had to slowly tease out what would work.  We acknowledge that this has been a result of the framework the Pensions Regulator has to work with.  We know that the Pensions Regulator was already looking to progress in terms of “setting clear expectations” – this was listed as one of “five opportunities for change” in its report entitled “Protecting workplace pensions: TPR Future – a review of the way we work” published last July. One of the stated ways of doing this was to “publicise the actions we have taken”.  It would certainly be helpful if in due course there were an increased body of reference materials, perhaps succinct briefing notes (accepting limitations here due to confidentiality) of cleared corporate events. These could supplement section 89 reports but be more frequent and timely.

Once the new rules come into play, it is likely that the Pensions Regulator will see an uptick in clearance applications as the parties to transactions and other corporate events seek reassurance that they are operating within the new rules and aren’t at risk of the punitive fines that the Pensions Regulator is expected to have at its disposal for failure to comply.  Once the new rules have had time to bed down and there is some confidence in the industry about how they operate in practice, it may be that the number of clearance applications start to fall again,  Much the same thing happened when the clearance process was first introduced in 2005, as can be seen from the graph below, which was published by the Work and Pensions Committee.  However the ideal would be that Clearance is a formality (by the time the application is submitted) as early on the Pensions Regulator has sat down with parties, given clear views and opinions, and productively worked with parties to find a solution that balances the interests of all.

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