Notes that shed light on the implications of impending, April changes.
The company pension scheme is sometimes seen as a purely financial and HR issue, and matters relating to the scheme are often handled by these two functions. Such a view may have been perfectly realistic, until regulations came into force on 6 April 2005.
The directive obliges the employer to notify the Regulator of the occurrence of (employer-related) events.
(Similarly, trustees are under an analogous duty to notify the Regulator if a “trustee-related” event occurs).
Although HR practitioners may be aware of the general need to provide notification, they may not be aware of all such employer-related events as they arise. On the other hand, the Directors and the Company Secretary are likely to be aware of all such events as they arise, but not aware of the requirement to notify.
To avoid breaching the regulations, (which do not apply to money purchase schemes) employers may find it most simple administratively to manage the duty to notify by imposing the duty on the individual most likely to be aware of relevant employer-related events – either a specific Director, or the Company Secretary.
What are these ‘employer –related’ events?
It used to be the case that only events relating directly to the pension scheme needed to be notified to OPRA (which has now been succeeded by the Pensions Regulator). The regulations now mean that certain employer-related events groups must be notified, even if they have no direct relationship with the pension scheme. These events include:
- any decision by the employer to take action which will, or is intended to, result in a debt to the scheme not being paid in full;
- a decision by the employer to cease business in the UK;
- the employer being advised that it is trading wrongfully;
- a director or former director of the employer being aware that there is no reasonable prospect that the employer will avoid insolvency;
- any breach by the employer of a covenant in an agreement between the employer and a bank, unless the bank agrees not to enforce the covenant;
- any change in the employer’s credit rating;
- a decision by a controlling company to relinquish control of the employer;
- more than one change in the holder of any key employer post (defined as the Chief Executive and any director or partner responsible (in whole or in part) for the financial affairs of the employer) within the previous 12 months; and
- a current director (or partner) of the employer being convicted of an offence involving dishonesty (anywhere in the world).
What about the obligations on the Trustees?
The notification requirements affecting trustees are perhaps less likely to affect HR practitioners (since ‘trustee-related’ events are scheme-specific in nature); nevertheless, HR practitioners should be aware of the nature of trustee-related events, which may be described as follows:
- any decision by the pension scheme’s trustees or managers to take action which will, or is intended to, result in a debt to the scheme not being paid in full;
- two or more changes in the holder of any key scheme post (defined as the scheme’s auditor and actuary) within the previous 12 months;
- a decision by the trustees or managers to make a transfer payment (or accept a transfer payment from another scheme) of a value which is greater than the lower of 5% of the value of the scheme’s assets and £1,500,000;
- a decision by the trustees or managers to grant rights to benefits which are more generous than the scheme’s rules provide (or for which the scheme’s rules do not provide at all) without actuarial advice or without securing additional funding where this has been recommended by the scheme’s actuary; and
- a decision by trustees or managers to grant rights to benefits to a member, the cost of which is greater than the lower of 5% of the value of the scheme’s assets and £1,500,000.
Duty to notify promptly
The Regulator has stated that he expects to be notified “as soon as reasonably practicable”, which to the Regulator implies urgency. The Regulator has stated (by way of example) that where a person on whom to notify falls “is made aware of a notifiable event on a Sunday, the Regulator should be notified on Monday.”
The Pensions Regulator may impose fines of up to £50,000 on employers and £5,000 in the case of individuals for failures to notify without reasonable excuse. Notification is made by the submission of a completed form; copies of the form may be downloaded from the Pensions Regulator’s website.
Article contributed by Wyn Derbyshire and James McLeod, Pensions Unit, SJ Berwin LLP
Further articles by Wyn Derbyshire:
