The government has published a consultation on revisions to the “early warning” notifiable events regime. Under this regime, introduced in 2005, certain parties — broadly, the trustees and sponsor(s) of U.K. defined benefit (DB) pension plans — are required to notify the U.K. Pensions Regulator (TPR) of prescribed events that could affect the plan’s ongoing viability. Among other things, the Pension Schemes Act 2021 (PSA) extends the scope of those parties to include, where appropriate, decision makers in the wider group of companies associated with the sponsor (e.g., a parent company).
In addition to far-reaching new powers under the PSA, effective October 1, 2021, which allow TPR to gather information and, where “mischief” is identified, take punitive action, the government is proposing two new notifiable events as set out in the consultation document:
“Material” is defined as concerning 25% or more of the gross assets or annual revenue stream in the employer’s latest annual accounts. Events in the preceding 12 months must be considered, to prevent the materiality test being manipulated through a series of smaller transactions. “Relevant security” is defined relative to the same 25% threshold and excludes the refinancing of existing debt.
The timing of the reporting (and copying to trustees) for these two new events and the existing change in control event would be tied to when there is a “decision in principle,” defined as “prior to any negotiations or agreements being entered into with another party.” This may be significantly earlier than the triggers for events under the existing regime. Once terms are known (and prior to being agreed upon) another notice and “accompanying statement” must be provided to both TPR and the trustees. This statement must describe the event, any adverse effects on the plan or sponsor support, steps to mitigate those effects and any communications the decision makers have had with the trustees. Existing legislation places the notifiable event duty for employer notifiable events solely on the sponsor of the plan. The proposed legislation would extend the duty to notify to those connected or associated with the sponsor.
For further details., please see our article: Proposed new notifiable events for UK defined benefit plans.
Companies with a U.K. DB plan should discuss the new notifiable events requirements with their advisors (including legal advisors) and consider putting in place suitable processes for identifying such events and subsequently communicating with U.K. stakeholders, including TPR, with clear lines of communication and robust governance frameworks, proper documentation processes, and potentially also reviewing current non-disclosure agreements. Coupled with powers for TPR to impose significant financial penalties for failing to comply (or deliberately providing false or misleading information), it is important that decision makers (both inside and outside the U.K.) take these new duties seriously.