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The Pensions Regulator: Powers to protect pension benefits

Published Tuesday, January 23, 2018

Looks at the Pensions Regulator's powers to protect pension scheme benefits.

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The Pensions Regulator (TPR) has powers to act where it believes an employer is deliberately attempting to avoid their pension obligations, leaving the Pension Protection Fund to pick up their pension liabilities. To protect scheme benefits and reduce the exposure of the PPF to claims for compensation, it can issue any of the following;

  • Contribution notices. These allow TPR to direct that, where there is a deliberate attempt to avoid a statutory debt, those involved must pay an amount up to the full statutory debt either to the scheme or to the board of the Pension Protection Fund.
  • Financial support directions. These require financial support to be put in place for an underfunded scheme where TPR concludes that the sponsoring employer is either a service company or is insufficiently resourced.
  • Restoration orders. If there has been a transaction at an undervalue involving the scheme's assets, these allow TPR to take action to have the assets (or their equivalent value) restored to the scheme.(See - TPR, Our powers: acting against avoidance).

A clearance procedure is available for anyone who wishes to confirm that they will not be subject to either a contribution notice or a financial support direction following a business transaction.

In its December 2016 report on DB schemes, the Work and Pensions Select Committee recommended that TPR should be reformed to a “nimbler, more proactive regulator” able  to intervene sooner when difficulties become apparent. Recommendations included that:

  • […] the Government should consult on new rules for situations where TPR clearance of major corporate transactions is mandatory rather than voluntary, allowing the TPR to decide if a particular proposed corporate change could damage a pension scheme. (Press release, 21 December 2016).

In its February 2017 Green Paper, Security and Sustainability in Defined Benefit Pension Schemes, the Government said that the “overarching view of virtually all stakeholders is that the regulatory regime for DB pensions is satisfactory” but that there might be a case for “limited changes to the regulation of DB provision to help employers and trustees manage liabilities more effectively in some of the circumstances that exist” (para 139-40). It asked for views on reforms that had been suggested, including:

  • Proactive compulsory clearance of certain corporate activities in limited circumstances;
  • Levying substantial fines on companies for corporate transactions which have a detrimental impact on schemes; and
  • Widening the criteria for Regulatory Apportionment Arrangements.

On 11 January 2018, Pensions Minister Guy Opperman said a White Paper would be forthcoming later this Spring. (HC Deb 11 January 2018 c586).

On 21 January 2018, following the collapse of Carillion, the Prime Minister said that the Government would put forward “tough new rules for executives who try to line their own pockets by putting their workers’ pensions at risk.” (The Observer, 21 January 2018).

This note looks at the rationale for the introduction of these ‘anti-avoidance’ powers, how they have been used in practice and whether changes are needed.

This note looks at the rationale for the introduction of these ‘anti-avoidance’ powers, how they have been used in practice and whether changes are needed.


Commons Briefing papers SN04368

Author: Djuna Thurley

Topics: Companies, Competition, Pensions

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