The Pensions Regulator

The Pensions Regulator publishes guidance on clearance statements

Ref: PN05-06
1 April 2005

The Pensions Regulator today published guidance on clearance statements, aimed at those involved in corporate transactions, employers, trustees and professional advisers.

When the Pensions Regulator opens for business on 6 April 2005, it will have new powers under the Pensions Act 2004 to prevent employers avoiding their pension liabilities.

In order to protect the benefits of members of work-based pension schemes, and to reduce the risk of schemes needing to be admitted to the Pension Protection Fund, the regulator will have the power to issue:

• contribution notices, where there has been an act (or failure to act) in order to avoid pension liabilities; and
• financial support directions, when the employer linked to the scheme is a service company or insufficiently resourced.

Those who are considering corporate transactions which involve companies with defined- benefit schemes can apply to the Pensions Regulator for a clearance statement. This will provide companies with assurance that their transaction does not contravene the anti-avoidance legislation.

David Norgrove, chair of the Pensions Regulator said:

"The best protection for scheme members is a well funded pension scheme with a solvent employer. Pensions are a form of deferred pay, and therefore pension deficits are an unsecured loan by scheme members to the company. Pension schemes in deficit should be treated in the same way as any other material unsecured creditor.

The new Act empowers the regulator to ensure that schemes are treated as the powerful creditors that they are, and that directors give them the same consideration as other creditors of that scale. However, the regulator will not interfere with normal business activity that has no significant impact on pension schemes. The new guidance on clearance procedures explains the circumstances when they can apply to the regulator for clearance."

Clearance statements: guidance from the Pensions Regulator is published on the Pensions Regulators website: www.thepensionsregulator.gov.uk.

Editor's notes

1. The guidance is aimed at those involved in corporate transactions, employers, trustees and professional advisers.
2. The guidance clarifies the type of event which can have a detrimental impact on the ability of a defined-benefit scheme to meet its pension schemes and for which it may be appropriate to seek clearance. These are known as 'specified events' and include:
   • a change in the level of security given to creditors, with the consequence that the pension creditor might receive a reduced dividend in the event of insolvency;
   • a reduction in the overall assets of the company which could be used to fund a pension deficit; and
   • a change or partial change in the group structure of an employer which could affect the ability of the employer to meet any potential scheme debt, and lead to the regulator imposing a financial support direction.
3. On 6 April 2005, the Pensions Regulator will be established as the new regulator of work-based pensions in the UK, with wider and more flexible powers under the Pensions Act 2004. It replaces Opra which will cease to exist.
4. The new powers of the Pensions Regulator will include the ability to:
   • collect more detailed scheme information;
   • impose a statutory obligation on 'whistleblowers' to report suspected breaches of the legislation to the regulator;
   • issue improvement notices and third party notices, enabling the regulator to ensure problems are put right;
   • freeze a scheme that is at risk, while the regulator investigates; and
   • prohibit trustees who are judged not fit and proper to carry out their duties.