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Pensions Insights September 2021

29 September 2021

In this special edition of our monthly e-alert, Pensions Insights, we focus on the changes to be introduced by the Pension Schemes Act 2021 with effect from 1 October 2021 and in future.


Defined Benefit Pension Schemes - Widening the net?

Government consultation to force companies to notify the Pensions Regulator of any proposal to undertake a specified corporate activity.

The Government is consulting on draft regulations which propose to:

  • significantly widen the types of corporate activity that must be notified to the Pensions Regulator (tPR); and
  • bring forward the timing of the notification to when a decision in principle to pursue a course of action is made rather than, as is currently the case, its completion).

Under the proposals, the new requirements would come into force in April 2022. They apply to defined benefit pension schemes only.

The Detail

Two new notifiable events are proposed:

  • a decision in principle by a scheme employer to sell a "material proportion" (broadly 25%) of its business or assets; and
  • a decision in principle by a scheme employer to grant or extend a "relevant security" (broadly security comprising more than 25% of either the employer's consolidated revenues or gross assets) if the security would have priority over the pension scheme. This is on a cumulative basis and could impact on a series of re-financings. 

These new events would be in addition to the existing requirement for a controlling company to notify any decision to relinquish control of an employer (i.e. selling the shares in company participating in a defined benefit scheme). The accelerated notification requirements would apply to all three events.

The proposals state that tPR and the trustees must be provided with the following information in an "accompanying statement":

  • the main terms proposed;
  • potential adverse effects of the transaction on the scheme, and any steps to mitigate the adverse effects; and
  • any communication with the trustees.

Subsequent material changes will also need to be notified to tPR and the trustees.

Penalties for non-compliance

Changes already in force under the Pension Schemes Act 2021 will increase the maximum financial penalty for non-compliance with the notifiable events requirements to £1 million.  This is part of the wider expansion of tPR's powers effective from 01 October which you can read about here. This applies to the existing notifiable events regime from 1 October even though the changes to the new regime will not come into force until next year.

DWF Insight

The industry's view is that it is likely that the proposals will become law and that any changes as a result of the consultation process will be minimal.

This will mean that there will be a significant increase in the number of notifications that entities sponsoring defined benefit schemes will need to make in relation to M&A activity and re-financings.

DWF has experience in advising corporate groups with defined benefit schemes on putting in place suitable procedures to ensure that notifications are made when required in order to avoid financial penalties and negative publicity. We can also assist in providing insight in relation to the likely response of trustees and tPR and the optimum approach to engaging with both parties. 

Defined Benefit Pension Schemes – The Pensions Regulator gets more teeth

From 1 October 2021, the powers of the Pensions Regulator (tPR) will be significantly increased. This will have an impact on corporate activity involving defined benefit (DB) pension schemes. 

Right side of the line?

The new powers make it easier for tPR to take action against entities or people involved in activity which has a material impact on a DB scheme (a recent example being tPR's intervention resulting from the BHS administration). tPR can now bring criminal prosecutions carrying up to 7 years in prison and/or an unlimited fine. It can also impose civil penalties of up to £1m. 

These powers will impact on ALL corporates and individuals (including advisors) involved in transactions with a DB scheme in their orbit. It will now be necessary to follow a process to conclusively show that you fall on the right side of line.

The current powers

tPR has existing powers to issue contribution notices (CNs) and financial support directions (FSDs) both of which are subject to a “reasonableness” requirement.

CNs (for a set amount) can be issued against an employer participating in a DB scheme, a person connected or associated with that employer (including a director) if there is an act or failure to act that:

  • detrimentally affects the likelihood of scheme benefits being paid in full; or
  • prevents the recovery of a statutory debt payable to the scheme.

FSDs (support in the form of cash and/or security) can be issued to connected or associated entities where a sponsoring employer of a DB scheme is either insufficiently resourced or a service company.

New ground for contribution notices

There will be two new grounds on which tPR can issue CNs in relation to an act or failure to act based on:

  • an employer insolvency test: this assesses whether the amount of any statutory "section 75" debt that a scheme would have been able to recover on a hypothetical insolvency would be materially reduced;  and 
  • an employer resources test: this assesses whether the value of employer resources has been reduced to a material extent relative to the scheme's estimated section 75 debt.  

There is a statutory defence available where a person can show they considered the potential detriment of their actions on the DB scheme and took all reasonable steps to offset or mitigate the detriment.

New criminal offences

Three new criminal offences are introduced which apply to any person who, broadly takes action or engages in a course of conduct that has a materially detrimental effect on a DB pension scheme provided the person knew or ought to have known that the act would have such an effect and has no reasonable excuse for any of the following: 

  • conduct risking accrued scheme benefits, with actual or implied knowledge of the negative impact on members' benefits;
  • avoidance of employer debt as result of an act/omission or course of conduct, with avoidance as its intention and without a reasonable excuse; or
  • failure to comply with a CN.

New civil penalties

Fines of up to £1m can be issued where any person:

  • is a party to an act or failure to act  which is materially detrimental to a DB scheme where it was not reasonable for the person to act or fail to act in the way they did;  or
  • knowingly or recklessly provides tPR or the DB scheme trustees with false or misleading information.

New information gathering powers

The new powers include:

  • new requirements to notify tPR of certain corporate transactions due to come into force in 2022 – read more here);
  • summons for interview; and
  • enhanced powers in relation to inspection of premises (e.g. "dawn raids" to gather information for the purposes of a CN/FSD investigation).

There are also new penalties associated with the information gathering powers. These include new fixed and escalating penalty powers (up to a daily rate of £10,000) in the event of failure to comply with a notice requiring the provision of information. 

Civil penalties of up to £1m or imprisonment for up to two years can be imposed for knowingly or recklessly providing tPR or trustees with false or misleading information.


Transactions can be “cleared” by tPR such that it will not be able to use its powers in relation to a specific set of circumstances. There is generally considered to be a “cost” in that a higher level of mitigation may have to be provided.   

DWF Insight

With the raft of new powers of tPR coming into force with effect from 1 October 2021, employers involved in DB schemes will need to ensure that any action (or inaction) and decisions which may impact the pension scheme can stand up to scrutiny.

Further Reading