On 11 February 2021 the Pension Schemes Bill received Royal Assent, becoming the Pension Schemes Act 2021. The Act covers a range of pensions-related matters, but what does it mean for businesses?
The previous approach to defined benefit pension regulation has widely been criticised following the high-profile collapses of organisations such as BHS and Carillion. Both companies had been allowed to leave their schemes with large unfunded deficits. The Pension Schemes Bill was introduced to try prevent this situation occurring again.
The Act is comprised of five parts, but it is the third part of the Act, which focuses on strengthening the powers of the Pensions Regulator, which may concern business owners the most. It includes the introduction of new criminal offences and higher financial penalties as well as affording the Pensions Regulator greater power in its oversight of corporate transactions involving defined benefit pension plans.
Under the new Act, there may be criminal consequences for corporate activities which could impact on the business responsible for a defined benefit pension scheme. As such, business decisions that are seemingly unrelated to pensions such as M&A, restructuring and refinancing, will need to be closely examined to see if they are impacted by the Act.
Now more than ever, pensions should be considered at an early stage of any transaction – and particularly in acquisitions – and thorough due diligence carried out to assess the pensions risks involved and consideration given to if and when the Pensions Regulator needs to be notified.
Organisations may need to involve the regulator, and even apply for formal clearance, where previously they might have reached a deal directly with pension trustees.
In particular, during M&A and other corporate actions a “declaration of intent” will need to be made to the regulator and pension trustees at an early stage setting out how a pension scheme may be affected by a deal.
While the Act has received Royal Assent, the regulations required to actually bring the Act into force have still to be published and much of the detail concerning the new Act will be in underlying regulations and guidance. The Pensions Regulator has pledged to work closely with the industry and other stakeholders to produce the necessary codes and guidance to ensure the measures are introduced in an effective way.