09 May 2019 | 03:10 pm | 1 min. read
International law firm Pinsent Masons has found that proposed new rules, requiring employers with Defined Benefit (DB) pension schemes to send a Declaration of Intent (DOI) in advance of a wide range of corporate activities, could result in crippling fines for basic activities, such as a discussion over coffee between contracting parties.
The firm has produced a short report analysing this reform and bringing together views from those who would be affected, including employers' representatives and trade unions and the pensions industry.
Under new proposals from the UK government, aimed at strengthening the Pensions Regulator’s powers, all employers with DB schemes will be required to send a DOI to the scheme trustees and the Regulator in advance of a wide range of corporate activities. The DOI will need to set out the impact of the transaction on the DB scheme and how any risks will be mitigated. Failure to comply leaves employers with DB schemes open to fines of up to £1 million.
An existing framework requires certain events to be reported to the Regulator. However, this will be expanded to include the transactions that trigger a DOI, including 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 scheme debt.
Isabel Nurse-Marsh, Head of Pensions Litigation at Pinsent Masons said, "With announcements of a potential seven year jail sentence for recklessly endangering a pension scheme gripping everyone's attention, the possible impact of the new DOI measure seems to have fallen under the radar.
"However, with over 5,000 DB schemes in the UK, the potential impact on business deals is considerable. The requirement for a DOI could lead to delays in transactions, affect the sustainability of employers supporting DB schemes and expose employers 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 a balance between protecting schemes when a significant transaction is on the horizon, and not stifling business activity. We hope that TPR is able to create a framework that helps to negate some of the potential pitfalls."
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