A new Pensions Bill (the Bill) is threatening more challenges for companies with defined benefit pension schemes (or buyers looking to invest in them).
The pensions industry was initially promised a new Bill in 2018. A white paper was published by DWP in March 2018 as part of this process. Following that, a consultation was issued and the DWP published a response in February 2019.
Last month, the day after the Queen’s speech, the Bill was published. Although the Bill is now being delayed by the general election, the expectation is that a new Government, regardless of which party or parties form it, will put the Bill through in the New Year. The Bill covers issues supported across the political spectrum.
Amongst the Bill’s provisions are:
- The Pensions Regulator will be able to use its power to issue a contribution notice (requiring financial support for/payments into a pension scheme) against group companies and directors. This will be in relation to liabilities under a defined benefit pension scheme in much wider circumstances than before.
- Many normal activities which would previously have triggered a contribution notice will become criminal offences as well. The penalty for non-compliance will be up to 7 years in prison. There is a defence of “reasonable excuse” but this may feel very weak in the circumstances.
- The Regulator may issue fines of up to £1 million for certain breaches of its rules. In general, the Regulator fines have been limited to £50,000 to date.
- The Regulator will require notification in advance of any significant corporate transaction including:
- any sale of material proportion;
- any sale of a controlling interest in an employer; or
- the granting any security.
The notification, which also needs to be sent to the trustees, needs to explain the transaction, any negative effects on the scheme, plans for mitigation of those effects and evidence of consultation with the trustees.
These changes will mean that those connected to defined benefit schemes directly, or though other group companies, will need to be vigilant. It also means these same connected individuals and entities will need to consider the Regulator very early in the process of any corporate transaction.