A company’s defined benefit pension scheme is often the largest creditor in any corporate failure, albeit some companies overlook their obligations in respect of the pension scheme and the pension scheme trustees are often the last party to the table.
To help protect defined benefit pension schemes, the Department for Work and Pensions published in June its consultation document entitled “Protecting defined benefit pension schemes – a stronger Pensions Regulator” with the aim of introducing a new broader range of employer related notifiable events.
It is hoped that by broadening the range of employer related notifiable events that the Pensions Regulator and the Pension trustees will be consulted earlier on in the process and therefore are better placed to be able to mitigate the detrimental impact on the scheme.
The proposals being put forward by the Department for Work and Pensions include making the following notifiable events:
The sale of a material proportion of the business or assets of a scheme employer with funding responsibility of 20% or more of the scheme’s liabilities
Granting security on any debt which gives it priority over the debt to the scheme
Significant restructuring of the employer’s board of directors and certain senior management appointments
The sponsoring employer taking independent pre-appointment insolvency / restructuring advice (such as an independent business review)
Breach of banking covenant to include covenant deferral, amendment or waiver
It is also proposed that the current notifiable event in relation to the wrongful trading of the sponsoring employer is removed, on the basis that if an employer is wrongfully trading they are unlikely to make this public knowledge.
The proposed changes from the Department of Work and Pensions are broadly welcomed and should lead to the trustees of defined benefit pension schemes being brought into the process earlier and therefore having a better chance of being able to understand the situation without being forced into a ‘time-pressured’ corner.
However, the requirement to provide greater transparency for pension schemes and expanding the notifiable events regime needs to be balanced with the additional burden and associated risks this will place on businesses.
Whether the proposed changes of the Department of Work and Pensions will provide defined benefit pensions schemes with greater security is unclear. However one thing is for certain, it is a step in the right direction in the important work of protecting employees’ rights within pension schemes.
Note: the closing date for this consultation process is 21 August 2018. If you would like to contribute, the link to the online survey can be found here.
Written by Ann Probert, Restructuring, Recovery and Insolvency Assistant Manager.
If you would like any more information about how these proposed changes may effect you and your business, get in touch
