The Pensions Regulator – what’s new?

Andrew Cork

I thought the end of the summer holiday period was a good chance to round-up some of the things we’ve heard from the Pensions Regulator over the past couple of months.  In particular, I’ve been looking at the statements on funding (and the Regulator’s involvement in the valuation process), incentive exercises and the use of financial support directions.

There may not have been any huge developments in these areas but there have certainly been some changes that are worth noting, whatever role you have in pensions. 

Funding and valuations: Following April’s statement on funding, there hasn’t been any subsequent change to the Regulator’s formal guidance on its involvement in the valuation process.  But a Regulator webinar in June noted an important change in practice that we are certainly seeing borne out in practice.  The final two accompanying slides are the most interesting.  The Regulator notes that they will undertake “proactive engagement in some cases whilst valuations are in progress” (broadly being cases where there are existing or specific ongoing concerns, or in respect of very large schemes of over £500m) and that “we will look at all schemes post-submission…but expect a smaller number of more assertive interventions”.  In our recent experience, this has signalled a significant change in how the Regulator has got involved in ongoing valuations.

Incentive exercises: Following the new industry Code of Practice on member incentive exercises, the Regulator has published its own statement in support.  The principles themselves are kept very general and will be familiar messages (be transparent, not misleading, engage trustees, manage conflicts etc) although there are still some fairly clear messages in the preliminary statements: “Members may be disadvantaged by [incentive exercises].  Poor choices can have an adverse effect on the member’s pension” and “An [incentive exercise] is often set at below ‘cost-neutral’ terms in order to reduce an employer’s pension liabilities, and in this situation there is a heightened risk that members will be worse off”.

FSD statement to insolvency sector: The Court of Appeal’s decision to rank financial support direction liabilities as an expense of administration has continued to concern insolvency practitioners, banks and corporates alike.  The Regulator has responded by saying that it is “acutely aware of the importance of an effective restructuring and rescue culture and [the Regulator] does not intend to frustrate its proper workings“.  The outcome is a statement designed to clarify (how the amount of financial support will normally be assessed); calm (the Regulator will generally not object to a subordination of the FSD liabilities behind the administrators’ fees); and reassure (unsecured creditors will be considered in assessing the financial support available). 

Andrew Cork is a senior associate at Allen & Overy LLP

Comments published on Pensions Talk do not necessarily reflect the views of Allen & Overy or its clients.

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