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.