In a new report (8-page / 1.6MB PDF) Pinsent Masons, the law firm behind Out-Law.com, has warned of the "considerable" potential impact on corporate deals of the proposals, which would require sponsoring employers of DB schemes to send a declaration of intent (DOI) to trustees and the regulator, setting out the impact of their planned transaction on the scheme. Employers failing to comply would risk fines of up to one million pounds.
"With over 5,000 DB schemes in the UK, the potential impact on business deals is considerable," said pensions litigation expert Isabel Nurse-Marsh of Pinsent Masons. "The requirement for a DOI could lead to delays in transactions, affect the sustainability of employers supporting DB schemes and leave directors exposed to hefty fines."
"With the full details of this regime not yet finalised it is difficult to predict exactly what the impact will be. The final design will be crucial in ensuring that some of the dangers are avoided and we hope that TPR is able to create a framework that helps to negate some of the potential pitfalls," she said.
Nurse-Marsh said that the possible impact of the proposals "seems to have fallen under the radar", as it was announced as part of a package of measures aimed at strengthening TPR's powers. The UK government confirmed in February its intention to introduce new criminal offences of "wilful or reckless behaviour" in relation to pensions and failing to comply with a contribution notice, backed by potential prison sentences of up to seven years or unlimited fines.
The government said at the time that it would implement the changes through new legislation "as parliamentary time allows". However, the BBC has reported that Theresa May does not intend to preside over another 'Queen's speech', during which new legislation is traditionally announced, due to uncertainty over the UK's departure from the European Union and her own political future as prime minister. It is therefore difficult to predict the introduction of the required legislation.
Employers which sponsor DB pension schemes are already required to inform the scheme trustees and TPR about certain 'notifiable events'. The government has proposed expanding this framework to cover a wider range of transactions such as the sale of a controlling interest in the sponsoring employer; the sale of the employer's business or assets; and the granting of security in priority to pension scheme debt.
Scheme employers would be required to send a DOI to TPR and to the trustees in advance of any of the corporate activities covered by the new rules, setting out the impact of the transaction on the scheme and how the employer intends to mitigate any risks to the scheme.
It is not yet clear at which point TPR will consider that the "intention" triggering the requirement to send the DOI exists. TPR is expected to update its guidance on the notifiable events framework and consult on a revised code of practice in this area ahead of the introduction of any new rules.