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Pensions: what’s new this week - 26 May 2020

Welcome to your weekly update from the Allen & Overy Pensions team, bringing you up to speed on the latest legal and regulatory developments in the world of occupational pensions.

Contact us if you would like to receive our weekly audio update or full briefing by email on Monday mornings.

Covid-19: TPR updates guidance on DC investment 

The Pensions Regulator (TPR) has updated its Covid-19 DC investment guidance to include a new section covering circumstances where self-select funds have been temporarily closed (or ʽgatedʼ) and the trustees are redirecting contributions into alternative funds. The redirection of funds may mean that the alternative fund becomes a default arrangement (which is subject to additional legal and governance requirements). TPR considers that the only circumstances in which a default arrangement would not be created are where:

  • members were made aware before they selected the original fund that contributions could be diverted to another fund in certain situations; or
  • trustees contacted the members before diverting contributions and obtained their consent.

Where trustees have ʽunintentionallyʼ created a default arrangement by diverting funds, TPR expects steps to be taken immediately to ensure the arrangement complies with legal requirements (including in relation to the charge cap and the statement of investment principles).

TPR has said that it will adopt a pragmatic approach to whether it will take action in individual cases, but will continue to impose fines for non-compliance with Chairʼs statement requirements.

Corporate Insolvency and Governance Bill

The Corporate Insolvency and Governance Bill has been introduced to Parliament. The Bill contains a number of measures including:

  • provisions limiting directors’ liability for wrongful trading – these provisions operate to relieve directors of potential liability under the Insolvency Act, to the extent that the companyʼs financial position worsens during the ʽrelevant periodʼ which commenced on 1 March 2020. They do not amend the requirement to notify TPR under the notifiable events regime where the employer has received advice that it is trading wrongfully, or where a director knows that there is no reasonable prospect that the company will avoid going into insolvent liquidation. Where this advice is given or the relevant knowledge has arisen, this would still trigger a requirement for the sponsor to notify TPR; and
  • the introduction of a freestanding moratorium for a company (subject to eligibility criteria), including a payment holiday on certain debts. Contributions to an occupational pension scheme arising under a contract of employment are excluded from the pre-moratorium debts for which a company has a payment holiday during a moratorium. The Explanatory Notes also state that liabilities such as contribution notices and financial support directions are to be considered pre-moratorium debts even if the demand arises after the start of the moratorium.

The Bill also includes easements on company filing and meeting requirements. 

You can read more about the Bill in this briefing from our Restructuring team.

TPR: blog post supporting DB funding reform

TPR has published a blog post in support of its proposals for DB funding reform (namely, its consultation on the proposed new DB funding framework – to read more, see our briefing ʽDB funding framework: all change?ʼ). TPR considers that the issues covered in the consultation are even more important and relevant in the light of Covid-19, and that the principles in the consultation still stand. However, when TPR issues its subsequent consultation on Fast Track guidelines, it will have regard to prevailing market conditions and scheme circumstances; it will also review its suggested parameters for the long-term objective in light of the change in market conditions. 

The consultation closes on 2 September 2020.

Other Covid-19 updates

In other Covid-19 updates:

  • the government has indicated that it does not intend to intervene, at this time, where the value of investments (including pension savings) have fallen; and
  • TPR has been questioned by the Work and Pensions Committee on its response to the crisis.