The Pensions Regulator

Pensions Regulator publishes revised clearance guidance

Ref: PN07-13
10 September 2007

The Pensions Regulator today provided further clarification of how it will use its powers with respect to corporate events, such as mergers and acquisitions, in draft guidance published for consultation today.

The draft clearance guidance from the regulator updates existing guidance published in April 2005 and reflects changes seen in the market place since that time. The revised guidance sets out the regulator's expectations of how professional advisers will work with trustees and employers in considering corporate events that may have a detrimental effect upon a pension scheme.

The main changes contained in the draft guidance are:

• to encourage a move away from a reliance on prescriptive tests in deciding which events should be considered for clearance, to a more principles-based approach;
• greater clarity in respect to the level of mitigation that trustees should be looking for;
• simplification of the classification of corporate events, with removal of “type B” and “type C” events;
• a fuller description of scheme-related events (such as compromises and apportionment) that could be “type A” events;
• extension of the list of employer-related events which could be “type A” events;
• further guidance on assessing the materiality of corporate events;
• updating of the basis for assessing the relevant deficit to include section 179 and explicit reference to technical provisions.

Commenting on the draft guidance Tony Hobman, chief executive of the Pensions Regulator said: “We first published guidance on the clearance process in April 2005. That guidance gave the industry and wider market clarity on how we would approach the clearance process. The world has moved on since then – although the concerns voiced at the time on the potentially negative impact on corporate activity have not materialised.

“Our revised guidance, on which we are seeking comments, reinforces the need for mitigation to the pension scheme where there is detriment as a result of a “type A” corporate event.  It sets out the principles that we expect all trustees, employers and advisers involved in corporate transactions to follow.”

The draft guidance can be found in the consultation section on the Pensions Regulator's website. The deadline for comment is 2 November 2007.

Editor's notes

1. The regulator provides guidance, available on its website, on situations where clearance from the regulator should be considered. Obtaining clearance is an appropriate consideration for events which are financially detrimental to the ability of a defined benefit scheme to meet its pension liabilities, and the regulator has classified such events as type 'A' events.
2. The issue of a clearance statement gives assurance to those involved in corporate transactions that their proposals will not prompt use of the regulator's anti-avoidance powers in relation to the pension scheme after a transaction has taken place. The refusal of a clearance statement does not prevent the transaction – but there will be no assurance that the regulator's powers will not later be used. Clearance is a voluntary process that was requested by industry during consultation.
3. The Pensions Regulator is the regulator of work-based pensions in the UK, with wide-ranging and flexible powers under the Pensions Act 2004. The Pensions Regulator's powers include the ability to:

• collect 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;
• disqualify trustees who are judged not fit and proper to carry out their duties; and
• issue a contribution notice or financial support direction.