Our pensions team examined the key aspects of the new laws with a particular focus on how corporates with defined benefit schemes can manage their pension risk:

  • The Pensions Regulator's new regulatory regime
  • What this means for corporates, including both business as usual and corporate transactions
  • The new scheme funding approach for employers
  • How best to adapt to the new changes, taking into account your approach to corporate governance and ongoing trustee engagement

Paul Carberry and Liz Wood will provide you with an insight into the new changes and how they may affect you.


Paul Carberry: Good morning everybody, I hope you are all well. Thank you for making the time to join our session today and welcome to my spare bedroom! I am Paul Carberry, I am a Partner in the Pensions Team at Gowling and am joined today by my colleague, Liz Wood, a Principle Associate in the team.

Liz Wood: Hi everybody.

Paul: Together Liz and I will take you through the elements of the pension scheme that are most relevant to employers. As set out on the slide, it would not be an overstatement to say that the Pensions Scheme Act has created a new regulatory landscape for UK pensions, so plenty of food for thought for employers.

But before we dive in, just a few housekeeping points if I could please. We will be talking today for around 30 minutes, leaving 10-15 minutes for questions, so could I please encourage you to use the Q&A function at the bottom of the screens. Now the kids are back at school we are not anticipating any Zoom bombing but if anything unfortunate does happen please bear with us. And then finally and there will be another reminder at the end a feedback form will be coming around after the session and we really welcome your comments. That is probably enough padding from me, so let us make a start. Let us move onto the agenda.

Liz: Sorry, there might be a slight delay on the slides today so just bear with us for a second. I am not quite sure what is happening but bear with me. There we go.

Paul: There we go. Thanks Liz.

So, we will kick off with a brief overview of the Pensions Scheme Act.  It covers an awful lot of ground and we will give you the headlines on each. We will then touch on the strengthening of the Pensions Regulator sanctions regime. I am sure that you have heard a lot about that, it is about criminal sanctions and civil sanctions. We will then look at the increased powers around corporate transaction oversight for the Regulator and additional information gathering powers - there was some new information released on that last week which we can update you on.

There will be updates on the contribution notice regime and again there is some more information, draft regulations made available last week. We will touch on the new scheme funding regime and finally to wrap it all up, just a couple of practical steps that you can start to take now. I will just hand over to Liz for the overview.

Liz: Thanks Paul. As I say, we might just have a bit of a delay here with the slides, but let us get going. Okay, well, this is the most significant pensions legislation we have seen since the Pensions Act 2004 introduced the Pensions Regulator in 2006 and we have since then had the moral hazard framework which is the Regulator's existing powers to impose amongst other things, contribution notices and financial support directions in relation to defined benefit pension schemes.

And from a pensions' lawyer perspective the Pension Schemes Act 2021 is a pretty seminal piece of law, it covers a wide variety of areas and which will have the potential to really change the UK pensions landscape as Paul has alluded to, albeit this will change over time. In a number of areas the Act really depends on the regulations and further consultation in order to really put the flesh on the bones of what the law is trying to do here.

Now we are going to focus today on the aspects shown in light blue on the right of the slide the new Criminal and Civil Offences introduced by the Act alongside the Regulator's other new powers.

Okay. So let us take a step back for a moment if we can get my slide on the right place. There we go.

So I think it is really helpful to just take a step back and think about why we have got to where we are in terms of the new regulatory powers. A lot of this has come from the high profile corporate failures that we saw back in 2016 onwards, so BHS, British Steel, Carillion and those kinds of corporate failures and the impact for the pensions members in the DB schemes associated with those employers.

Now those failures were subject to intense media scrutiny as well as Government consideration including Select Committee investigation. The Government has following various reviews, ultimately concluded that the Regulator had insufficient powers within its existing armoury leading to a commitment to bolster TPR's powers in light of these types of corporate failures. The reason why I mention these is not only to set the scene, but also because I think these examples are really helpful to bear in mind in terms of how the Regulator is going to look to prosecute in the future, which we will come on to later.

Now the policy intensity behind this is broadly what the pensions industry has expected in policy terms following the Government's stated intention here and the proposed changes are focused on strengthening the role and functions of the Regulator making it more pro-active, more responsive, more effective as a Regulator. So fitting in to that Regulator drive to be clearer, quicker, tougher and we are absolutely seeing that in practice already regardless of whether the Act has come into force or not, we have seen in the last eighteen months to two years the Regulator absolutely stepping up and being much more interventionist. We have seen that within the Gowling's pension team, we have also seen that within the pensions industry. That might be anything from TPR communications we have seen with trustees and sponsors of DB schemes setting out its expectations, asking questions, but also in the fact that the Regulator more regularly expects a seat at the table. So it wants to know what is going on, and sometimes it wants to be absolutely directly involved in those conversations and sometimes you will see the Regulator asking for information about what has happened in the past in order to understand what has happened in relation, for example, to corporate transactions, why trustees and sponsors have made the decisions that they have.

So, who will this Act affect? Well in terms of the regulatory changes we are looking at it is a very wide range of stakeholders. Obviously sponsors of occupational DB pension schemes, trustees of occupational DB pension schemes, we also think it will involve those involved in corporate transactions where a DB scheme is involved, but also interested parties more widely and Paul will come onto that in terms of how the Act is drafted, it has a very wide remit there.

But I am now going to hand over to Paul who is just going to start talking about what these new criminal and civil offences are.

Paul: Okay. Thanks Liz. The strengthening of the sanctions regime for the Regulator, just move on to the next slide if you will please Liz. Okay. So what have we got by way of overview? Well clearly the extension of these sanctions it is intended to support TPR's enforcement role, so tougher regulator. Key within the new regime, the strengthening of the new criminal and civil sanctions and as I read it all to you I am sure you have all heard about that. That was the big headline grabber throughout the Pension Scheme Act's development. Within the headlines, seven year prison sentence, a million pound fine, so potentially quite alarming. Let us be clear, the new sanctions are intended to be directed at unscrupulous directors of companies, that is the primary focus as Liz set out in the policy intent. Although there are some concerns that some of the changes might impact more widely on day-to-day corporate activity, so that is a concern and throughout the presentation we will suggest how much of a concern that should be for the majority of employers.

We will just now move on to the detail, so the criminal sanctions first.

Liz: Whoops, sorry Paul.

Paul: Keeping me guessing! Thanks Liz. There are two new key criminal sanctions. The first offence avoidance of an employer debt. So that is quite broadly drafted and who is potentially subject to that sanction? Well any person, so that could be any of you, it could be Liz, even worse it could be me! But this is all starting to feel a little bit uncomfortable, so let us have a look at the potential punishments. An unlimited fine or a seven year prison sentence. That is not making me feel any better and I think we are all beginning to fidget in our seats a little. But before we panic, let us look at the acts that are intending to be caught by this sanction.

An act or course of conduct that prevents the recovery of an employer debt. The person who undertook that act, intended their act to have that effect and the person who undertook that act did not have a reasonable excuse.

So you think, day-to-day that is going to capture quite a narrow range of activity, so maybe this is not quite as alarming as it first sounds.

So that is the first criminal sanction, so Liz could you move on to the second one please. Thank you.

So the second offence, this is conduct risking accrued scheme benefits. Well if anything, that is even more broadly drafted than the first offence. Again it is targeted at any person potentially and the punishments are pretty onerous. But what do you have to do to be captured by this sanction? It is an act or a course of conduct or a failure to act that detrimentally affects in a material way the likelihood of accrued scheme benefits being received. Again, the person undertaking that act must have known or ought to have known to act would have that consequence and the person did not have a reasonable excuse for undertaking that act.

So you can look for circumstances at the extremes that might be captured by that condition, or those conditions, but the majority of day-to-day situations are not going to be caught by that, so hopefully that is a little reassuring.

Can you just move on to the financial penalties please Liz? So the financial penalties, they sit alongside the criminal sanctions. A million pound fine, so again a big headline grabber and potentially concerning, but let us look at the type of activity that might result in a million pound fine. A person has knowingly or recklessly provided false and misleading information to the Regulator or the trustees, or they have failed to comply with a contribution notice, with the notifiable event rules or with the new duty to notify the Regulator about certain events. So I have to say, from my point of view, they are the type of breaches that I would expect there to be a sanction for. It does not feel, again, the day-to-day typical activity from a corporate is going to be too heavily impacted.

That said, for balance, there clearly are some concerns around the new requirements. The new criminal offences I just said do apply to any person or to any act or failure to act. There is no getting away from the fact that they are extremely broadly drafted and that was clearly the intention, the Government did not want any loopholes. There is a worry that some routine and legitimate business activity might be caught by that, but I have to say I think that is going to be relatively infrequent.

There is also a concern about the reasonable excuse, or what is that? What is reasonable? How do you know that your behaviour is appropriate and not going to be subject to sanction? Under the Act itself, what a reasonable excuse was was not clear, but we now have a little more information on that and Liz will come on to that in a moment.

I think there was an overriding sentiment that the new requirements would be an impediment to business activity, to transactions, possibly in extreme circumstances but I have to say I do not see it being a material concern for the majority of employers.

Could you just move on to the next slide please Liz? So the Government was aware of all these criticisms throughout the Act's development, so how did it respond? I think this is a really helpful statement in terms of policy intent.

"The new criminal sanctions will be limited for the vast majority of responsible employers. The greatest impact will be on the small number of employers evading their responsibilities, the TPR will be able to hold them to account more effectively."

So a really helpful and clear statement about what the policy intent is, but as of last week we had the draft Regulator guidance about how they intend to react to that statement and to that policy and let us see if the two dovetail, so over to Liz.

Liz: Thanks Paul. Yes, so we helpfully have just had in the past couple of weeks, very helpful for today's webinar, a draft policy outlining its proposed approach to the investigation and prosecution of these new criminal offences. I think this sheds invaluable light on some of the concerns that have been raised by the pensions industry in relation to the Act and how these offences may be dealt with by the Regulator in practice. This is part of a six week ongoing consultation about how TPR expects to use its new regulatory powers.

What I think is absolutely key in terms of what the Regulator's focus is, in this draft policy, is the Government's policy intention sitting behind these new powers. You address serious, intentional or reckless conduct. It comes back to that background rationale I was talking about at the start of the webinar and, as such, the Regulator has confirmed that its approach will be absolutely guided by that policy intention. It does not expect to change the kind of behaviour it investigates, but it is going to draw on the fundamental change to its powers available through the new Act.

But really the Regulator is looking to use these powers where the behaviour is sufficiently serious to warrant such intervention. To echo Paul's comments, a very small minority of employers who are reckless in relation to their DB pension schemes.

But let us run down in a few more details what this new draft policy says. Well there is quite a bit of useful content in there, it is only twelve pages long, but it includes areas of comparison and difference between the existing contribution notice regime and the new offences. We have got working examples of how the Regulator might approach an investigation and conclusion and also a helpful confirmation that the Regulator will consider material detriment in the same way that it would do for material detriment contribution notices. So we have guidance there around how the Regulator would approach that second new criminal offence limb that Paul was talking about earlier.

What I think is particularly helpful is what the Regulator has to say about reasonable excuse. So this is the point that Paul was mentioning, that this is in the Act but we just did not have a context when the Act was passed into law in February about what exactly reasonable excuse would be for these two new criminal offences. The Regulator has confirmed that its focus when looking to prosecute either of these offences is whether the accused had a reasonable excuse.

In terms of key considerations, the Regulator says well starting point all relevant factors will be taken into account in terms of establishing whether that reasonable excuse is met. But the Regulator helpfully calls out three factors in particular as being significant in determining whether there has been a reasonable excuse for the act, the omission or the cause of conduct.

Firstly this incidental or fundamental test on the right of the slide. So this is about looking at whether the detrimental impact on the scheme or the likelihood of scheme benefits being received was an incidental consequence of the act, or the omission or the series of acts. Or was it an absolutely fundamental, necessary step to achieve the goal for the party in question? The Regulator says the more incidental the more tangential it is, the more likely it is that the person is going to be able to show that reasonable excuse up against the offence. So an example that the Regulator calls out would be, for example, an employer's business is harmed because ordinary business activity conducted on arms-length basis changes radically. So for example, if a supplier or customer terminates a really large contract with that employer's business, then that has an impact on the DB pension scheme. So that would be an example of an incidental impact on the scheme where reasonable excuse is likely to be shown.

The second thing that the Regulator says would be a key consideration from its perspective is the adequacy of any mitigation provided and I think this is very consistent with what we see already around how the Regulator would view things that impact negatively on a DB pension scheme. So what is the mitigation that has been put in place in relation to the scheme as a result of what has been done? Again examples that we have in the policy would include an employer granting security for the benefit of entities outside the direct employer covenant but the security provided is subordinated to all present and future liabilities of the scheme. Another example is where an employer is supported by a group covenant but that entity is then sold to a buyer ending that wider support from the group and that therefore has a negative impact on the scheme because it does not have that wider support any more. But in this case, for example, a combination of part of the sale proceeds is put towards the scheme so that forms part of the mitigation and possibly there is the provision of a guarantee from the buyer's group. Here, again, the Regulator says well there the mitigation might be considered adequate and therefore the reasonable excuse and statutory defence might be shown.

The last point the Regulator calls out is what happens if there was inadequate or no mitigation? So was there a viable alternative? So this is essentially looking at what is actually happening on the ground. An example here is well if you might have an employer in distress, raising debt would prior rank in security to that of the scheme, but where that new debt is absolutely critical for the survival of the business, the Regulator might take the view that actually there was not a viable alternative available. Again, reasonable excuse might be showing here because this was a life-saving situation for the employer in order to avoid its insolvency and that ultimately would be a better outcome for the scheme.

Other considerations that the Regulator would take into account would also be things like were there any statutory requirements notified, the Regulator have taken place? Any engagement with the trustees, what those conversations have been like and whether the Regulator has been engaged with more generally.  I think some really helpful guidance there that we have seen in that draft policy.

But practically, what does that mean now? How to protect your position? Well the reason you are probably on this webinar is to be aware of these new powers and let that inform your thinking and also your corporate governance going forward. Keep an eye out for the final form Regulatory Policy here and also of course what the Regulator does in practice. We do expect that there might be more management time and costs in considering these issues and engaging with the trustees and the Regulator, but I do not think we are too really more, we expect those conversations to be taking place in any event.

But I think what is really different here is the importance of documenting decision-making. In this new draft policy the Regulator says that those being investigated with a view to prosecuting these new offences need to be able to explain their actions. Put forward cogent rationale for their reasonable excuse. The Regulator says this should be clear from contemporaneous records such as minutes of meetings, correspondence and written advice. So even if you are already having that ongoing engagement with trustees of DB pension schemes, be sure that any decisions and any advice received are absolutely documented so that you can evidence your thought process in the event of the Regulator starting to ask questions.

Okay, I am now going to hand over to Paul who is going to consider the new requirements to notify the Regulator in relation to certain corporate transactions.

Paul: Thanks Liz. There are two elements to this section – corporate transactional oversights and the additional information gathering powers that the Regulator will have.

So dealing with the corporate transactional oversight first, what do we have here? A new requirement for employers to notify the Regulator about certain events and a requirement to submit a statement to the Regulator and trustees of how certain events might affect the defined benefit pension scheme. So certain corporate activities.

The statement that is to be issued to the Regulator and to the trustees would need to be issued in advance of these events taking place. In the statement the employer will have to set out that they have given consideration to the effect that these transactions will have on the pension scheme and set out what steps they will take to mitigate those adverse effects. It is worth bearing in mind that these additional provisions will sit alongside the existing notifiable events regime, so additional powers for the Regulator and this all goes to the Regulator being quicker, it is able to get more information more quickly and then more readily intervene if it is necessary to do so.

So what do we think of these new requirements? Well to my mind the first two are essentially procedural. They are notifications about certain activities a corporate is likely to undertake. So generally they will not be too onerous. I would say that the third requirement they need to demonstrate in the statement what the issues are for the pension scheme and how you are going to mitigate those issues. I would say again, that is what the vast majority of responsible employers are doing anyway in relation to material corporate activity.

Which events do need to be notified? It is not entirely clear yet, we are waiting for the supporting regulations to come through, but we do have a good idea from the consultation and discussions as the Act was being developed and I will come on to that now.

Looking at things like the sale of a controlling interest in a scheme employer, sale of a material proportion of the business or assets of the scheme employer, or the granting of security on a debit which gives it priority over the scheme's debt. So again, not day-to-day activity. The Regulator is not trying to get involved in every nuance of the corporate's business. But these are big ticket corporate actions that could have a material impact both on the employer and on the pension scheme, so you can understand why the Regulator and the trustees want early sight of events like this so that they can plan around them and engage sensibly with the employer. Thanks Liz.

So how can you protect your position here? I think it might be better to think about how can you react to the situation? There is not an awful lot you can do at the moment to protect your positon as an employer, as we have got to wait for the details to see in the secondary legislation and TPR guidance. That said, there are things you can do and I think the key amongst this is to continue to engage constructively with your pension scheme trustees in relation to any corporate activity you are undertaking. That said, you do need to start planning for potentially more engagement with the Regulator in respect of certain material transactions and bear in mind there might be an even increased timelines to transactions as you provide notifications and have exchanges with the trustees and Regulator. So these are certain steps that you should be aware of and start planning that into your timelines for future corporate activity. Thanks Liz.

So we move on now to the additional information gathering powers and again these supplement the powers that the Regulator already has rather than remove them and replaces them. You may be aware that the consultation around the information gathering powers was issued last week, consultation runs until the end of April and we also now have the draft regulations, which is really helpful for the direction of travel is much clearer.

So what does it mean, what will the Regulator now be able to do? Well there will be additional powers to require people to attend interview. There will be additional powers to inspect premises and there will be the ability to enter a wider range of premises. To give all this teeth, the Regulator will now have the ability to impose fixed and escalating fines for those individuals who do not respond to information requests. So a material uptake in the powers being granted to the Regulator but what will it mean practically? Well I do not think we will all be worrying about having to go to Brighton on a regular basis for lots and lots of interviews. I do not think the Regulator will be turning up at our offices/houses at the moment to inspect our premises or check advice or paper trails, but these powers will be used sparingly in important situations. But it is consistent with a much tougher regulator and I think the headline here is responsible employers who engage constructively with trustees on an ongoing basis and the Regulator when required will not have too much to worry about. Thanks Liz.

Just moving on to the change of contribution notice regime. Next slide please Liz. Thank you. You will be aware that there is already an existing regime for contribution notices, but by way of summary, the Regulator has the power to impose a contribution notice requiring a particular target to pay an amount of cash to a pension scheme or to the pension protection fund and this is used in very limited circumstances. But what are the changes? What are the new elements of the contribution notice regime? Well I say, to repeat, the Regulator has very rarely imposed contribution notices to date and I do not think anyone expects that to change. But there is a recognition that the Regulator faces hurdles and imposes contribution notices in certain circumstances based on the existing legal tests. That is because these tests are primarily focused on the impact an action has on a pension scheme rather than an employer, and evidentially that can be quite difficult for the Regulator to demonstrate the test has been met. So to broaden the range of circumstances where the Regulator can, when it is reasonable, impose a contribution notice there are two more tests being introduced and these very much focus on scenarios which result in the weakening of the sponsoring employer. I will come on to those two events now. Thank you.

The first of the two new tests is the employer insolvency test. So the Regulator can issue a contribution notice if, in its opinion, immediately after an act or failure to act, the scheme has less assets than liabilities, so the scheme is underfunded. And, if the section 75 employer debt had fallen due, that act or failure to act would have materially reduced the amount that would have become recoverable. So essentially here the Regulator needs an ability to intervene where it is reasonable to do so where assets are being put outside the reach of the scheme. Thanks Liz.

The second of the two tests, the employer resources test. So when can the Regulator act here? Where there has been an act or failure to act which reduced the value of the resources to the employer and the reduction in those resources was material relative to the amount of the estimated employer debt. So again, a weakening of the employer covenant. The big question here is how they measure employer resources. Well we have had some recent help on that with information, draft regulation and consultation around this was issued only last week. Whilst it is not clear it will be accepted yet, the proposal is a normalised annual profit before tax basis will be implemented. So you look at that both before and immediately after an act or failure to act and then the Regulator can determine whether it is appropriate to intervene. Thanks Liz.

So what is the likely impact of all this? Well in theory it will be easier in certain circumstances for the Regulator to issue contribution notices. But what would that mean for directors and corporates? Well, I think day-to-day again not a huge amount of change, but clearly they will need to be aware of these new tests and take them into account when making financial decisions that impact on their business and then have an impact on their pension scheme. But fundamentally if employers are able to demonstrate that they have given due consideration to their actions and recognised the impact that their actions will have on their pension scheme, taken all reasonable steps to mitigate that, most employers are in a pretty good position to demonstrate it would not be reasonable for a contribution notice to be issued.

There has been a suggestion that with the new contribution notice test being implemented there would be increased uncertainty for employers, there would be a lot more applications for clearance. People would be nervous about what they can and cannot do. To my mind I think that is possible in the short term. Even then I cannot see a torrent of clearance applications being made. Certainly medium to longer term, things, when the rules of the game are clearer, the Regulator has set out quite clearly what to expect in relation to these tests and employers and their advisors will be more comfortable with the landscape and the number of clearance applications will be pretty consistent with what we have now. I'll just hand over to Liz for the scheme funding.

Liz: I just wanted to also flag the new requirement in the Act for defined benefit scheme trustees to put in place a long-term scheme specific funding and investment strategy. Now this is something that the Regulator has been talking about for a number of years, particularly in relation to its annual funding statements. That expectation that trustees look at what the long-term aim for the scheme is and make sure that that takes into account integrated risk management approach, so taking into account the covenants of the employer, investment funding, using that joined up approach and setting the scheme's technical provisions in the triannual valuation accordingly.

So although we have had that as an aspirational or good practice goal that the Regulator has talked about, is now introduced as part of the statutory obligation. So all trustees of DB pension schemes must approach scheme funding in this way. What is particularly new here is that trustees to DB schemes will be required to report on this strategy to The Pensions Regulator in a new statement of strategy, so a chaired statement. Ultimately if the Regulator does not like the approach being adopted by the trustees it can direct the trustees to amend it. So this where we expect the heavy lifting of these new funding requirements to be found. That obligation on the trustees to both consider and put in place the strategy, consult with the sponsoring employer when preparing the statement, but also to regularly review it. Failure to prepare the strategy and statement will result in a fine of up to £50,000.

As we have seen with a number of areas of the Act, the detail sitting behind this long-term planning requirement, so specifics as to timings and content is to follow. We currently expect this long-term funding target will be required for all scheme valuations from around March 2022 but that is yet to be confirmed and could possibly be pushed back. We have got a consultation expected on this scheme funding requirement later this year and it sits alongside the new planned code of practice on DB scheme funding which the Regulator is also expected to launch this year. So these new scheme funding rules are unlikely to come into force before the first quarter of 2022. That said, whilst it is not yet a statutory obligation, we do think that sponsors can and should be proactively engaging with defined benefit scheme trustees and confirm the current approach to integrated risk management and how that long-term funding target is set. That can also act as a springboard for those conversations about well what is the long-term goal of this scheme in particular? It might shape the discussion on long-term funding and investment strategy and also could be an opportunity to engage with trustees on, for example, risk transfer options such as buy-in, buy-out and other options.

So Paul is going to finish now by just covering the next step and the practical steps that you can take now.

Paul: Thanks Liz.

You've probably gathered during the course of the presentation today that while the Pension Scheme Act is put in place the framework of the changes a lot is expected, where there is lots of draft guidance, consultations, draft regulations and there will be more to come. They are just three elements to really lay better corporates are aware of it in terms of their planning for the future. As Liz has alluded to part 2 of the TPR's consultation on the new defined benefit funding code that is expected the second half of this year, a really important document in terms of how your funding obligations are going to change over the coming years.

We spent a lot of time talking about the new regulator powers. This is the information gathering that the sanctions, the corporate transaction oversight, while we have a lot of the detail now it works we expect these powers to take effect from autumn 2021 and then in terms of funding obligations, its valuation is from 2022 where these changes are really going to bite. Thanks Liz.

Just a final slide on practical steps you can take now. You have probably gathered that there is lots to consider here, an awful lot in the Act. I do think generally through responsible employers day-to-day there will not be too much impact on your corporate activity.

That said we do think there will be an increase folks on corporate governance and how boards and directors manage their pension risk. So what can you do to address that? We will just put three points here: clearly start to maintain your paper trail for decision-making, think now that TPR has got increased information gathering powers and certain information may have access to that information.

To the extent that you are not doing so already and I imagine the vast majority of employers are, please include the five benefit pension scheme within your corporate governance considerations. Think about the corporate oversight requirements, think about the new notification requirements that need to be met.

Then finally and really importantly, continue to engage sensibly, constructively with your pension scheme trustees, document decisions and document any advice. I think it is going to be really important in terms of course of conduct requirements around criminal sanctions. You can have one act in isolation that might not have a particularly big impact on your pension scheme. But if it is part of a sequence of acts it can  and might have a big impact and you need to be thinking about not just the act itself but that series of acts so build that into your engagement of the trustees and your paper trail.

So what does all this mean, I think the headline for us if you are looking at the Pension Scheme Act requirements in totality, it is going to be really important to demonstrate as a corporate the implications of your actions and the impact they have on your pension scheme have been identified. Have been carefully considered and where possible they have been mitigated. I think if you take those steps not only can you get on with your business day-to-day, you will not have to pay any material fines and you probably will not go to jail.

So I hope that has been a useful introduction to the Pension Schemes Act and we have got a few minutes now for questions, so let us have a quick look at that.

So we have got a few questions coming in here, I think Liz the first couple might be for you if that is okay.

There is a bit of concern the dividends might be caught by the new powers – does that seem likely?

Liz: Dividends. Yes I think this absolutely goes to some of the points that we have been talking about Paul around what is the extreme nature of the actions happening here. So, and I think certainly in the case for example BHS there were concerns in the media around large scale dividend payments that had been made at relevant points before the Scheme was particularly exposed. I think it is clear that as a result of the way that these criminal sanctions have been drafted, that kind of behaviour might be subject to Regulator scrutiny, but I think on balance everything that we see now coming from the Regulator is around this being action taken by the Regulator in extreme situations so I do not think broadly dividends are going to be a problem per se although nonetheless it is clear that they are on the Regulator's radar, it is not just in these criminal sanctions but also what we have seen from the Regulator more generally talking about the bumper dividends. They are something that corporate needs to be mindful of in terms of what the impact on the DB Scheme might be. So they are not a no no but they are just something that again to that point around let us think about what the impact is and think about whether they are appropriate, it should not stop that day-to-day business activity but just be careful is probably the answer.

Paul: I think I might pick next.

For consultation with the scheme sponsor in respect of funding what evidence should the sponsor and the trustee keep of that consultation?

I think if there are some basic building blocks in there any minuted trustee meetings, any exchanges should ideally be through correspondence rather than verbal, any advice that has been taken by the respective parties, if you keep all of that together that should build quite a robust paper trail. Clearly everything will be determined by the circumstances. How difficult is the financial position of the sponsor, how underfunded is the scheme, how difficult have the negotiations been between trustee and sponsor, that will all affect the level of detail that is required but I think those items are indicated if you have that in place that gives you a good starting point.

Another question, maybe for you Liz.

Do you think the Regulator will try and prosecute the new offences and impose contribution notice at the same time?

Liz: Well I think it is possible but I think it also will depend on the circumstances. So there might be situations in which a Regulator is unlikely to impose a contribution notice. For example, if the targets resources just mean there is going to be inadequate money coming from the sponsor because of its financial situation. It could be the case that the Regulator nonetheless looks at prosecuting as a deterrent factor so essentially to showcase the fact that that employer got it wrong and that might be in the public interest. There is no doubt in terms of what the Regulator is saying in the draft policy, there is that very strong deterrent element in these new criminal and civil sanctions. So equally the Regulator might choose to prosecute, sorry not prosecute, but impose a contribution notice, I think it just depends on circumstances.

Paul: Okay, let us find another one.

What about trustee responsibilities,and I will pick this one up Liz, what about trustee responsibilities in a corporate reorganisation that does not directly affect its sponsor, e.g. the sale of an ultimate parent that has not got any legal obligation to the scheme?

That is a difficult position potentially for trustees. I think all they can do as part of their information sharing protocol with their sponsor is ask for information about the wider group and how any reorganisation in the wider group affects the sponsor and its ability to meet its obligations to the scheme. If you have not got a direct right of access to the other group companies that can be awkward. If you are genuinely concerned I suggest all you can do is engage with the employer, engage with your advisers to the extent that you are still concerned. Maybe seek some support from the Regulator but it is difficult unless you have got a direct right of access in the case of a particular organisation you are then reliant on support from external parties.

That is it, there is another one.

We are a major charity and part of the LTPS over which we have little influence, my bigger concern is our trading arm collapses during Covid-19 and that results in insolvency. Does our inability to continue to contribute to the pension deficit cessation liability meet the criteria TPR considers as negligent?

We will have to look at the specifics in more detail but there I would have thought no. If you are doing all you can to support your scheme and events are outside your control, the impact of Covid for example, not difficult trading conditions put you in a very difficult financial situation, there is a limit to what you can do. I think all I would say there is just actively engage with the administering authority of the LTPS fund and we are aware of them being supportive of certain not for profits and charitable organisations where possible, giving them breathing space possibly through reduced contributions or through deferral of deficit reduction contributions. So there are mechanisms in place that will give you the breathing space potentially to steady the ship. I appreciate that is a difficult conversation to be having and this is a very difficult question to have to deal and I will be happy to pick it up with you offline but I think that is all we can say on the call for now.

I think there is just one more question.

Can you foresee a difference in the potential impact that the provisions in distressed destruction transactions based on transactions higher up the covenant demised curve?

I think so, I think the requirements are there and they are to be applied differently in different circumstances. Fundamentally trustees and Regulator and the majority of employers want the best outcome for their pension scheme if they are able to deliver in a particular set and circumstances so if there is a very financially robust sponsor the rules of the game are different for them. If you have got a strength sponsor in very serious financial distress then clearly that they can be expected to deliver to their pension scheme does change so I think it just turns on the circumstances but yes I think the requirements will be applied differently.

Liz: Yes and I think that goes to what was being said by the Regulator in his policy around the incidental fundamental points test. So actually if there are situations in which mitigation just cannot be offered and what was put in place was the only possible outcome for that employer in distress, the employer, sorry the Regulator will take that into account.

Paul: Thanks Liz. It is nearly coming up to quarter to so as if by magic we have nearly completed the session on time. Can I just thank you all again very much for making the time to attend today and I thank you for being engaged and asking the questions that you did. I really hope the session has been of use and if you have any further questions after the session has closed please contact me or Liz. Just thank you again and before I get told off by our business development team, a final plug for the feedback form that will be coming around very shortly after the session. We really welcome your comments, it will shape our future events. So thank you again, enjoy the rest of your day.

Liz: Thanks everybody.

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