The tough economic climate, and new legislation, both recent and forthcoming, mean that employers and pension scheme trustees need to be more prepared than ever to react swiftly and appropriately to change and requests for change. This article gives details of changes ahead in the UK.
Pension Schemes Bill
The Pensions Regulator's (TPR) increasing supervision and enforcement powers are set to grow further. The new provisions in the Pension Schemes Bill (which is set to come into force early 2021) will reinforce TPR's ability to be ‘clearer, quicker and tougher', with a raft of extended and new powers, including in relation to interview and inspection. Greater transparency of corporate events will be enforced against a backdrop of potentially onerous penalties and criminal offences.
On 5 November 2020, the Bill completed Committee Stage. During this process, various Lords and Opposition amendments were rejected. In particular, proposed changes aimed at limiting TPR's increased powers were not taken forwards, meaning that some concerns still remain in relation to the potential scope of the criminal penalties under the Bill.
Corporate Insolvency and Governance Act 2020
Expedited as a result of COVID-19, the Corporate Insolvency and Governance Act 2020 received Royal Assent in June. The Act is intended to provide businesses in financial difficulties with the flexibility and breathing space needed to explore their options, allowing a free-standing moratorium (similar to the one afforded to employers in administration) and restructuring plans. There are potential implications in terms of contributions, enforcement of contingent assets, and engagement with regulatory bodies. Defined Benefit (DB) trustees must ensure they understand the potential ramifications of these changes for their schemes. Given the current climate, we may expect to see employers using the flexibilities the Act gives to make further requests of schemes.
Although TPR has confirmed that the number of requests to reduce contributions aimed at repairing a DB scheme's deficit is lower than at first predicted, with the impact of COVID-19 on the economy likely to continue to be felt into 2021, there may be further turbulent times ahead for many scheme employers. Trustees should keep themselves primed for all eventualities. TPR has written to trustees of DB schemes to reiterate warnings that they should be alert for signs of employer distress (such as profit warnings, credit downgrades or debt refinancing), to ensure that they are prepared in their thinking and that scheme members are treated equitably in all proceedings.
This messaging was reinforced with new guidance from TPR in November, with TPR setting out its expectations of, and practical recommendations for, trustees facing such scenarios.
Trustees should ensure that they understand their rights and obligations, that they engage with employers as early as possible, and that they access the information and the advice they need. Amongst other things, getting the right advice, managing conflicts and considering privilege will all be vital.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.