|
What are contributions notices?
Under the Pensions Act 2004 the Pensions Regulator has power to impose a contributions notice on an employer or any persons connected with or associated with it, i.e. directors, shadow directors and their associates and group companies, companies under common control or the control of associate companies. A contribution notice can be imposed if the employer (or person connected or associated with it) was a party to an act or a deliberate failure to act whose purpose was (a) to prevent recovery of all or part of a debt owed by the employer to a pension scheme; or (b) otherwise than in good faith (i) prevents a debt becoming due from the employer to the pension scheme; (ii) compromises or settles a such a debt; or (iii) reduces the amount of such a debt. Under these provisions the Pensions Regulator can only impose a contributions notice if there is behaviour which is intended to prevent the recovery of the debt or an act to prevent it becoming due.
The proposed changes
The Pensions Act 2004 is to be amended with effect from 14 April 2008 so that the Pensions Regulator can impose a contributions notice where he is satisfied that an act is materially detrimental to a pension scheme's ability to pay members' current and future benefits. It will no longer be necessary for the Pensions Regulator to prove intent to avoid or reduce a section 75 debt. It will be sufficient to show that the transaction was materially detrimental to the ability of the pension scheme to pay current and future benefits.
These changes will have major implications for corporate restructurings and for business models that take over pension scheme liabilities with a view to a profit but that could be detrimental to the members. Corporate restructurings that result in a disposal of assets or in other acts that would seriously undermine the employer's liability to meet its pension obligations will, in future, place the employer and its directors (and other connected or associated parties) within the scope of the new contributions notice provisions. Some transactions that would now be treated as "Type A transactions" for clearance by the Pensions Regulator and that should be the basis for seeking clearance from the Pensions Regulator will in future be a basis for a contributions notice and may not be suitable for the clearance process. In future, transactions involving the transfer of pensions obligations to a third party may be a basis for contributions notices if it is considered that the party receiving the transfer is in a weaker financial position than the transferring employer. This is likely to affect aspects of the rapidly developing pensions buy-out industry.
Two further announced changes are by way of clarification of the policy behind contribution notices and financial support directions and will be backdated to 27 April 2004. They are:
- a contribution notice can be triggered by a series of acts as well as a single act avoiding a debt owed to the pension scheme;
- in judging whether a financial support direction can be imposed the resources of a whole group of companies may be considered rather than identifying one single employer who is sufficiently resourced to enable a direction to be made.
The Government will shortly be issuing draft amending legislation for consultation on this issue.
|