The Pensions Regulator

Pension Regulator issues updated clearance figures

Ref: PN06-01
19 January 2006

The Pensions Regulator has now received more than 200 clearance applications from organisations seeking assurance that they will not fall foul of anti-avoidance legislation.

Under the optional clearance process, which came into effect in April 2005, companies considering corporate transactions where there is an underfunded defined benefit pension scheme can apply to the regulator for a clearance statement.

This gives assurance that the transaction does not contravene anti-avoidance legislation and that the regulator will not use its anti-avoidance powers in relation to the transaction once it is completed.

Also after 2 September 2005, employers who withdraw from underfunded multi-employer schemes must seek approval from the Pensions Regulator if the full debt is not to be paid. These may arise as part of a clearance application or stand alone.

In the nine months from April to December 2005, approximately 230 clearance applications were made including applications that require approval by the Pensions Regulator of the withdrawal arrangement. Just two applications have so far been refused.

Louise Inward, head of Corporate Risk Management at the regulator, said: "This clearance process was requested by industry and it is clear that it is being used. Companies are taking into account their pensions deficits, and deals are still going ahead."

Contrary to some reports in the press, the regulator cannot block transactions. Transactions that have been refused clearance may still take place. However, those involved in the transaction run the risk that the regulator might consider the act one to avoid pension liabilities and may seek a contribution to the scheme in the future.

Organisations that want clearance by the end of this financial year (end of March) should submit an application to the regulator as soon as possible, and no later than the second week of February. An application form is available on the Pensions Regulator website. For any queries or informal advice on the clearance process and applications please contact the regulator by emailing clearance@thepensionsregulator.gov.uk or by calling 0870 606 3636.

Editor's notes

1. Guidance on clearance statements aimed at those involved in corporate transactions, employers, trustees and professional advisers, and an application form, is available on the regulator's website: www.thepensionsregulator.gov.uk
   /pdf/clearanceGuidance.pdf.
2. 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.
3. 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 liabilities 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.
4. For further information about multi-employer schemes withdrawals visit http://www.thepensionsregulator.gov.uk
   /employers/multiEmployer/index.aspx.
5. The Pensions Regulator has been established as the new regulator of work-based pensions in the UK, with wider and more flexible powers under the Pensions Act 2004. It has replaced Opra which no longer exists.
6. The new powers of the Pensions Regulator include the ability to:
   • collect more detailed scheme information;
   • 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;
   • prohibit trustees who are judged not fit and proper to carry out their duties; and
   • the Pensions Act 2004 also imposes a statutory obligation on 'whistleblowers' to report suspected breaches of the legislation to the regulator.