In this week’s digest we provide details of the DWP consultation on the draft regulations which set out relevant detail of the changes being made to the notifiable events regime, a progress report on the employer resources regulations and the Public Service Pensions and Judicial Offices Bill.

We also provide an update on the Pensions Dashboards Programme and report on the signatory list to the new UK Stewardship Code and the decision to exclude earnings from the 2022/23 state pension increase disapplying the Government’s ‘triple lock’ policy commitment.

1. DWP consultation on draft notifiable events regulations

Section 69 of the Pensions Act 2004 (2004 Act) requires trustees and employers of defined benefit occupational pension schemes to notify the Pensions Regulator of certain scheme-related or employer-related events. 

Following the DWP's 2018 White Paper: Protecting defined benefit pension schemes, the Government indicated that it would expand the existing notifiable events regime to improve the Regulator's oversight of corporate transactions by adding two new employer-related events and removing an existing one. 

The Government also signalled that it would require advance notification or a 'declaration of intent' to be submitted to the Regulator in respect of certain events. This change has been legislated for under the new Section 69A of the 2004 Act (as introduced by the Pension Schemes Act 2021). Section 69A requires advance notification and an accompanying statement in respect of certain events to be prescribed by regulations. 

Detail of the draft regulations

On 8 September 2021, the DWP published its consultation on draft regulations, The Pensions Regulator (Notifiable Events) (Amendment) Regulations 2021 which provide the necessary detail of these changes.
 

Two proposed new events

The draft regulations add two new employer-related proposed events to the list of events that scheme employers must notify to the Pensions Regulator, that is a 'decision in principle':

  • to sell a material proportion of the business or assets of the employer; and 
  • to grant or extend security that ranks ahead of the pension scheme.

Decision in principle is defined as "a decision prior to any negotiations or agreements being entered into with another party".

Material proportion of:

  • the business is defined as a proportion accounting for more than 25% of the employer's annual revenue; and 
  • assets means more than 25% of the gross value of the employer's assets

in both cases either on its own or cumulatively with any other business or asset sales decided upon or completed within the preceding 12 months. 

Relevant security is that granted or extended by the employer or subsidiary at more than 25% of either the employer's consolidated revenues or gross assets. It includes a fixed or floating charge over the employer's assets or wider group, and an all-assets floating charge giving the charge-holder the right to appoint an administrator.

Notice and accompanying statement

The draft regulations confirm that the new Section 69A duty to issue a notice and statement will apply to the two new notifiable events, and the existing employer-related notifiable event of a controlling company deciding to relinquish control of the employer company or where control is relinquished with no decision having been taken. The existing employer-related event is also amended to clarify that notification of this event should occur when a decision in principle has been made.

Timing: The notice and statement may need to be made at a later stage than the notifiable event notification when more will be known about the transaction and its impact on the scheme. The notice and statement should be provided when "the main terms of the relevant event have been proposed" and should be given as soon as reasonably practicable.

Contents: The statement must detail the event, its main terms, any adverse effect on the scheme and/or the employer's ability to support the scheme, what steps are being taken to mitigate any detrimental impact and any communication with the trustees.

It should be noted that the obligation to submit a declaration of intent will apply to both the employer and connected or associated parties. This is particularly important for large organisations such as multinational companies, where decisions could be made at group level which affect the entity that is the scheme employer.

Copy to trustees: The notice and statement must be copied to the trustees.

Requirement to notify in respect of 'material change'

The draft regulations specify what a 'material change' comprises: 

  • notification of a material change will apply in respect of the three events detailed above; and 
  • must be made where there has been a change in the proposed main terms or a change in the steps taken to mitigate any adverse effects of the event.

Remove existing 'wrongful trading' notifiable event

The final change made by the draft regulations is to remove the existing employer-related notifiable event of 'wrongful trading' – such a requirement has proved to be ineffective, perhaps because, as the DWP explains, a director is not likely to admit wrongful trading, as this would form the basis of a claim against the director under the Insolvency Act 1986.

Penalties:

The penalty for non-compliance with the new notification requirements will be a fine of up to £1m and, potential criminal liability if misleading or false information is knowingly or recklessly provided.

Effective date:

the consultation period closes on 27 October 2021. The HTML version of the draft regulations state that they will come into force on 6 April 2022.

Comment:

It is hoped that the new requirements will encourage early consideration of the potential effect on the pension scheme and engagement with the trustees which will also help prevent exposure to the Regulator’s new moral hazard powers. However, some uncertainties remain including the timing of notification, who would qualify as a decision-maker in respect of a decision in principle having been made and the specific circumstances in which a requirement to notify a 'material change' would be triggered. 

2. PSA 2021: draft Pensions Regulator (Employer Resources Test) Regulations considered by House of Lords

On 6 September 2021, the House of Lords considered the draft Pensions Regulator (Employer Resources Test) Regulations 2021 in Grand Committee. These regulations set out details of the employer resources test, one of the two new contribution notice grounds introduced by the Pension Schemes Act 2021. They were considered by the House of Commons on 21 July 2021. 

The regulations have now been approved by both Houses of Parliament and are due to come into force on 1 October 2021.

Our 16 July 2021 Insight discusses the Government's response to the consultation on these regulations.
 

3. Public Service Pensions and Judicial Offices Bill – progress through Parliament

The Public Service Pensions and Judicial Offices Bill received its second reading in the House of Lords on 7 September 2021. The next stage is the Committee Stage when the Bill will be considered in detail. It is intended that the Bill will receive Royal Assent in 'early 2022'.

The Bill introduces provisions to remedy the age discrimination identified in the McCloud case (The Lord Chancellor and Secretary of State and another v McCloud and Mostyn and others and Sargeant v London Fire and Emergency Planning Authority and others [2018]) by allowing members a 'deferred choice underpin' of taking benefits in either the legacy or reformed schemes when their benefits become payable. The Bill also reforms the pension arrangements and increases the mandatory retirement age of judicial office holders to 75 from 70.

4. Pensions Dashboards Programme: supplier appointed to deliver central digital architecture

The Pensions Dashboards Programme (the PDP) has appointed the supplier, Capgemini, to deliver its central digital architecture. This follows a five-month procurement process. Together with Origo, the delivery focus will be on key features of the pensions dashboards ecosystem including the pensions finder, consent and authorisation services, and the governance register. 

The appointment completes the first phase of the PDP and the programme will now progress to the 'develop and test' phase, during which the software elements will be built and the ecosystem will be tested with the volunteer providers (see our Insight Update).

5. FRC publishes list of successful signatories to the new UK Stewardship Code

On 6 September 2021, the Financial Reporting Council published a list of successful signatories to the UK Stewardship Code 2020. The Code sets out good stewardship practice for asset managers, asset owners and service providers with stewardship standards set on an 'apply and explain' basis.

Two-thirds (125) of all applicants were successful, representing £20 trillion of assets under management. 

6.    State pension increases & Social Security (Up-rating of Benefits) Bill 

On 8 September 2021, the Social Security (Up-rating of Benefits) Bill was introduced into Parliament. This disapplies the 'triple lock' Government policy commitment to increase the state pension annually by the greater of the increase in CPI, wage increases or 2.5% for 2022/23. 

The Bill follows the 7 September 2021 ministerial statement made by Dr Thérèse Coffey MP, the Secretary of State for Work and Pensions, that the earnings part of the triple lock will be set aside due to the 'irregular statistical spike in earnings' during the review period caused by the pandemic and the lifting of restrictions. 

This will avoid the Government having to apply a possible 8%+ rise to state pensions given that the Office for National Statistics figures for May to July 2021 to be published next month are anticipated to reveal a growth in average weekly earnings of 8% or more.
 

Expert pensions advice

For more information regarding the latest developments in pensions law contact an expert below or visit our pensions regulatory support page.