Notifiable Events – changes to the current regime?

Traditionally, August has been a quieter month for Pension Lawyers – Parliament is in recess, it is peak season for summer holidays, and we could be tempted to head for a sun lounger with some “light” (non-work related) reading. This year, the prospect of downing tools and escaping for a week or two might appeal even more than usual – given the deluge of information, consultations, and draft legislation from the Government last month – the Mansion House Reforms, Finance No.2 Act 2023 and draft legislation to sweep away the Lifetime Allowance spring to mind.

Amongst all of that, it is understandable that mentioning “proposed changes to the Notifiable Events Regime” might induce a blank expression followed by a moment of panic and a scrabble for the comprehensive notes you made several months ago….

Well, that is where we can help – here is our guide to those changes:

Firstly, the current regime:

We know that employers must tell the Pensions Regulator (TPR) about certain employer-related events, in writing and within a maximum of five working days of becoming aware of the event. Trustees have a similar duty and the same timescale to notify TPR about scheme-related events.

Secondly, the changes:

There are looming requirements, in draft regulations, to tell TPR about two additional employer-related events, a requirement to notify TPR earlier about an existing notifiable event (relinquishing control) and onerous requirements to keep TPR informed about notifiable events. Additionally, wrongful trading would stop being a Notifiable Event.

At this point, we thought a diagram would help, so we adapted TPR’s flowchart and created this:

The two new events

Both are employer-related and the trigger point to notify TPR is a decision in principle:

• The intended sale of a material proportion of its business or assets – the threshold being more than 25% of the employer’s annual revenue or gross value of its assets. This can be cumulative over the previous 12 months and covers both planned and completed sales.
• The intended granting or extending of a relevant security over the employer’s assets where the secured creditor would rank higher than the scheme in the order of priority for debt recovery. Relevant security covers fixed and floating charges (including an all-assets floating charge) granted by the employer or its subsidiaries and refers to consolidated revenue. The same threshold (more than 25%) applies.

Currently, it is not clear whether these two new events will apply to all schemes or just the underfunded ones.

Duty to give notices and statements to TPR:

As well as telling TPR about decisions in principle to sell, grant security or relinquish control, the new legislation introduces a requirement to tell TPR about changes to the Notifiable Event, any change in the expected effects of the Notifiable Event and if a Notifiable Event not taking place. The accompanying statement must describe the notifiable event, the negative impact on the scheme, the steps taken to lessen that impact and set out what the trustees of the scheme were told about the event.

This duty falls on “the appropriate person” being the scheme employer, a person connected or associated with the employer and a person of a prescribed (and currently unknown) description.

The timescale will remain as “within five working days” and TPR and the scheme trustees should get contemporaneous copies of the Notice and Statement.

Under the draft regulations, TPR must also be told when the main terms have been proposed (or control relinquished) for any of the three “decision in principle notifiable events”.

Thirdly, the timescale:

We still do not know when the Notifiable Events regime will change.

What this means for Trustees:

Trustees have an ongoing duty to monitor the sponsoring employer’s ability to fund the pension scheme. A decision in principle is a very early trigger point for notifying TPR of employer-related events that could affect the pension scheme. Furthermore, the two new notifiable events each have the potential to seriously affect the strength of the employer covenant, by moving the scheme lower down the priority order which would apply in an insolvency situation.

Ideally, there should be an ongoing dialogue with the sponsoring employer and a commitment from them to keep you informed about their future plans. The prospect of a £1 million fine for non-compliance might well be sufficient incentive for the sponsoring employer to keep you in the loop!

Interplay with director’s duties under Company Law:

Company directors are responsible for ensuring the company meets its statutory obligations. You must act within your powers and perform your duties with reasonable care, skill and diligence. Alongside this, you must use independent judgment, avoid conflicts of interest and promote the success of the company.

Directors of the sponsoring employer could well argue that imposing onerous requirements to notify TPR about transactions at the decision in principle stage is a restriction on legitimate commercial activity and involves some market risk. The scope of the duty to tell TPR about a notifiable event is very wide and it will catch many people who may not have any influence or control over decisions made by company directors.

Might this be one of the reasons for the legislation remaining in draft?

How we can help:

For further information about Irwin Mitchell's Pensions team please visit the dedicated section of our website.