Welcome clarity on how the Pensions Regulator will approach protecting pension schemes in the context of M&A activity

While we wait for the final new notifiable events regime to emerge from the bottom of an ever-growing pile of pensions policies and initiatives, a speech given by Nausicaa Delfas, Chief Executive at the Pensions Regulator ("TPR") in December has provided some welcome clarification for schemes and their sponsors on TPR's expectations of them when it comes to corporate activity.

Addressing an audience at the UK Finance Corporate Finance Committee dinner, Ms Delfas was clear that TPR does not aim to frustrate corporate activity; its role is to ensure that savers interests are protected, by ensuring both scheme sponsors and trustees comply with their duties. She highlighted that use of TPR's anti-avoidance powers (imposing Financial Support Directions and Contribution Notices) is a last resort and that the goal is always to try to reach a constructive solution - but warned that this engagement can and will be escalated to enforcement where agreement can't be reached.

Top takeaways

There were some useful takeaways for trustees and sponsors alike in the form of some top tips for keeping on the right side TPR when it comes to corporate M&A activity.  These include:

• Engage early - Under the draft Notifiable Events (Amendments) Regulations 2021 (consulted on back in 2021), employers will be under a new duty to notify TPR (and trustees) about potential M&A activity. Pending the final version of those regulations being laid and the new duty coming into force, TPR has confirmed that it expects corporates to engage early with both trustees and TPR itself. It also expects trustees to “reach out” to TPR when they are notified about M&A activity; 
• Be open - Corporates should provide trustees with direct access to the bidder at the earliest opportunity – this allows trustees to give clarity on the scheme's liabilities and begin the negotiating process for the protection of savers.  Market sensitivity should not be viewed as a barrier to engaging as both trustees and TPR are subject to strict confidentiality provisions;
• Consider the position of the scheme - Corporates should ensure that any M&A activity is backed by a well-thought-out business plan which considers the scheme’s long-term funding objectives and how they will ensure the scheme stays protected;
• Treat the scheme fairly - The scheme should always be treated fairly with other creditors.  In addition, where the transaction will result in material detriment to the scheme, corporates must ensure that appropriate mitigation is put in place;
• Engage on an ongoing basis - Linking back to the principle of early engagement, Ms Delfas highlights that corporates should not be presenting TPR with a “done deal” but rather keeping TPR updated on an ongoing basis as a transaction progresses;
• Keep promises - Corporates must be “true to their word” - any post transaction failure to follow through on a deal agreed with trustees is likely to attract TPR's attention, and could lead to further action being taken.

What next?

The Pension Schemes Act 2021 included enabling provisions for changes to be made to the notifiable events regime (these are not yet in force).  Alongside this came a consultation on draft notifiable events regulations, which proposed a significant expansion to the circumstances in which corporates are required to notify TPR (to include a decision in principle to relinquish control of an employer or to sell a material proportion of the business, or an offer being received to acquire control of an employer).

Since then its all gone very quiet, and we're still waiting the consultation response and final regulations .  Against this background, this speech is very welcome, both in bringing renewed focus to pensions in the context of corporate activity, and in providing clarity as to TPR's expectations of scheme sponsors, and trustees, pending the new regime being finalised and coming into force.

If you would like any further information on this topic or any support as a pension scheme or scheme employer in navigating the pensions regulatory aspects of any corporate activity please contact me or your usual Burges Salmon pensions team contact.

This article was written with assistance from Becca Lim and Henry Dalton

"As a regulator when it comes to M&A activity, we are not here to prevent transactions – we are here to make sure savers’ interests are protected. For example, ensuring that the pension scheme is treated equitably alongside other creditors." Nausicaa Delfas, Chief Executive, The Pensions Regulator

https://www.thepensionsregulator.gov.uk/en/media-hub/speeches-and-speakers/protection-of-pension-schemes-during-merger-and-acquisition-transactions