Corporates that are employers in defined benefit (DB) pension schemes – and anyone associated or connected with them – should take note of the notifiable events framework, or risk a fine of up to £1 million.
By way of recap, the notifiable events framework was first introduced in 2005 to impose obligations on corporates to notify the Pensions Regulator (TPR) of certain events. As part of a suite of new powers for TPR contained in the Pension Schemes Act 2021, the existing notifiable events framework is being significantly updated. The new framework is designed to allow TPR to be better sighted and, if necessary, get involved ahead of time before changes are made which could impact a DB employer’s ability to support its pension scheme.
Draft regulations which set out the details of the new framework have recently been consulted upon by the Government. It remains to be seen what changes the Government will make to the regulations ahead of them being finalised. This article reflects the draft regulations as they currently stand.
So what’s new? The draft regulations introduce two new notifiable events. Firstly, the grant or extension by a DB employer – or a subsidiary of that employer comprising more
than 25 per cent of the employers’ consolidated revenue or gross assets – of a relevant security which would rank ahead of the pension scheme. Secondly, a disposal by a DB employer of a business or assets which broadly represent
more than 25 per cent of its annual revenue or gross assets.
Not only are these new events introduced, they are also required to be notified at a much earlier stage – when a “decision in principle” is taken – than events under the current regime, and for more detailed information to be provided once the “main terms” are proposed and again if those main terms change.
The existing notifiable event of relinquishing control of a DB employer has also been made subject to these new, more onerous, requirements of needing to be notified when a decision in principle has been taken and again once the main terms are known or changed.
Consideration will need to be given to the framework – and appropriate compliance with it – in the context of M&A transactions, which may involve the relinquishing of control of a DB employer or a material disposal of the assets or business of a DB employer, and any grant or extension of a relevant security by a DB employer or its subsidiaries. This will lead to additional complexity for transactions and is likely to have timing and confidentiality implications. Compliance with the notifiable events framework should be added to the very beginning of any transaction plan and reviewed regularly.
The obligation to notify main terms and changes to them applies not just to the DB employer but also to anyone who is connected or associated with it. Parent companies beware, particularly in the context of a sale of a DB employer, where the parent may be closer to the sale negotiations than the DB employer.
The consequences of non-compliance are severe. Since 1 October 2021, failure to comply with the existing or new notifiable events framework – without a reasonable excuse – is punishable by a fine of up to £1million, up from £5,000 for individuals and £50,000 for corporates previously. This substantial increase in penalty is designed to make those subject to the notifiable event regime sit up and take note. It is difficult to imagine a scenario in which TPR would agree that ignorance of the requirements is a reasonable excuse for failure to comply.
Non-compliance could also have other ramifications as it may be taken into account by TPR when it is considering other powers available to it. For example, whether to issue a contribution notice or whether a criminal offence has been committed. Contributions notices and criminal offences are beyond the scope of this article but, suffice it to say, they are not something that a corporate or its directors would welcome.
The new framework is expected to come into effect in April 2022. DB employers and anyone associated or connected with them would be well advised to keep up to date with developments on the draft Regulations, make sure that they fully understand what is coming down the track and that they have processes in place to ensure compliance with the new regime. The consequences of not doing so could prove costly.
