REGULATOR News Release (Ref: PN/07/07) issued by The Government News
Network on 3 May 2007
Regulator today (Thursday) issued a reminder to parties
considering corporate transactions - the underlying principle for
considering clearance is whether the event is financially
detrimental to the ability of the pension scheme to meet its
pension liabilities. The reminder comes ahead of a planned update
to clearance guidance during the summer.
Published on the regulator's website the reminder states that:
* Where there is a significant weakening of employer covenant as
a result of a corporate transaction, for example where a highly
leveraged transaction occurs and / or the assets for which the
scheme currently has recourse are being removed from the employer
group, then clearance is an appropriate consideration irrespective
of the funding position of the scheme involved.
* In addition trustees in these sorts of circumstances should
consider whether to seek a materially enhanced level of mitigation
in excess of FRS17/IAS19.
This is also true of transactions which may result in scheme
abandonment. The regulator also published its final guidance on
scheme abandonment following the consultation earlier this year.
The guidance reinforces its message that, in cases where there is
an employer of substance, abandonment is unlikely to be in the
members' best interests.
- ENDS -
Notes for editors:
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. In
addition, the current guidance adds that for type A events to be
financially detrimental there must be a deficit. The relevant
basis to determine the deficit for clearance purposes is
* the trustees have fixed a higher funding level in which case
* there is no relevant FRS17/IAS19 valuation in which case the
full section 75 (buy-out) deficit must be used ; or
* there is a question over the continuation of the employer as a
going concern in which case again the full section 75 (buy-out)
deficit must be used.
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
The Pensions Act 2004 also imposes a statutory obligation on
'whistleblowers' to report suspected breaches of the
legislation to the regulator.
Non-press enquiries: 0870 6063636