The Pensions Regulator

Clearance

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Scheme-related type A events

Assessing a scheme-related event

63. Although a scheme-related event may have a direct impact on the employer’s legal obligations to a scheme, the detriment resulting from a scheme-related event cannot usually be assessed solely by reference to the employer covenant. The method for assessing whether a scheme-related event is a type A event will vary, depending on the specific event. In addition, some scheme-related events will be directly detrimental to members’ benefits rather than to the ability of the scheme to meet its pension liabilities, and these may also be type A events, depending on the particular circumstances.
64. Employers and trustees should always consider an event both in terms of its immediate impact on the scheme and members’ benefits and in terms of the event’s possible impact into the future.  Assessing the impact of a scheme-related event can be very complex and independent professional advice will often be appropriate. 
65. Examples of scheme-related events that could be type A events include:
    
    • compromise agreements – an agreement entered into by the trustees to compromise the employer’s s75 debt and reduce the amount that will be paid to the scheme;
    • apportionment of a scheme’s deficit – the rules of some multi-employer schemes, and any scheme apportionment arrangement, may determine how the total scheme’s deficit will be apportioned between employers, for example when an employer exits the scheme or when the scheme winds up. The effect of the apportionment is to modify the amount of the employer’s s75 debt that would otherwise become due.  A regulated apportionment arrangement may also be a type A event;
    • non-payment of all or any part of a s75 debt for an unreasonable period (for example, more than 12 months); or
    • an arrangement that has the result of preventing a s75 debt from triggering.
66. These are only examples, and this is not a complete list of scheme-related events that could be type A events.
    
    

    Compromises

67. There are some limited circumstances in which trustees may agree to the compromise of a s75 debt due to the scheme. Any such attempt to compromise will always be a type A event, irrespective of the level of the scheme’s deficit before or after the compromise.  The regulator will wish to understand the reasons for and effect of the compromise. 
68. Schemes for which a compromise agreement has been reached may be ineligible for entry to the PPF. For more information on eligibility, see the PPF website (www.pensionprotectionfund.gov.uk).
69. Trustees and employers should note that any decision to compromise the s75 debt is also a notifiable event.
    
    

    Apportionment of a scheme’s deficit

70. The use, amendment or insertion of an apportionment rule or the use or agreement of a scheme apportionment arrangement is a type A event, except where:
    • it increases the s75 debt that is immediately payable by an employer, who can afford the increased s75 debt; or
    • it is a practical option because the cost and complexity of the other alternatives (including calculation of the unmodified s75 debt or an approved withdrawal arrangement or a withdrawal arrangement) are far greater or disproportionate, the apportionment results in a s75 debt that is the scheme actuary’s best estimate of the unmodified s75 debt and it is immediately payable by the departing employer; or
    • the s75 debt arises in circumstances in which there is no net reduction of employer covenant – for example on the consolidation of several employers within the employer group in certain circumstances, provided that all employer assets and their pension liabilities transfer. 
71. Apportionment that does not have any of the above features is a type A event, irrespective of the level of the scheme’s deficit before or after the apportionment. Such an apportionment will also be a type A event irrespective of whether the power to apportion under the scheme’s rules is only exercisable at a party’s discretion or is automatic.
72. Trustees and employers should note that any retrospective apportionment (taking place after the event which has triggered the s75 debt) is similar to compromise and is always a type A event.  This is regardless of whether or not the apportionment is under a scheme apportionment arrangement.  The decision to enter into a scheme apportionment arrangement retrospectively is also a notifiable event. Unless the apportionment is a scheme apportionment arrangement or a regulated apportionment arrangement the trustees should consider any impact on eligibility for entry to the PPF.
73. When considering any apportionment, trustees should seek to understand the purpose of the apportionment and all of the circumstances, including any related disposals of employers, substitution of employers, or changes to the wider employer group.  Trustees should be cautious about agreeing to the use, amendment, insertion or agreement of any apportionment rule or scheme apportionment agreement and should consider their fiduciary duties and the likely impact on scheme members in addition to the statutory tests that determine whether a scheme apportionment arrangement is possible.
74. When considering any apportionment proposals, trustees should also consider the alternative of a withdrawal arrangement or an approved withdrawal arrangement, which would result in a guarantee to the scheme of the remainder of the full amount of the departing employer’s s75 debt. The regulator has produced separate material on withdrawal arrangements.
75. Employers and trustees should also consider whether there is any employer-related event linked with any apportionment, or the prospect of such an event in the near future. If there is a linked employer-related event, employers and trustees should consider what is appropriate mitigation for any apportionment and employer-related event taken together.
    
    

    Regulated apportionment arrangements

76. A regulated apportionment arrangement may be a type A event.  If an application is made the regulator will consider it together with the applications for a regulated apportionment arrangement. 
    
    

    Withdrawal arrangements and approved withdrawal arrangements

77. An approved withdrawal arrangement may have a related type A event, particularly where the guarantee under the approved withdrawal arrangement does not provide sufficient mitigation for the event in the circumstances. For example, if a departing employer is financially strong but employed a small proportion of members of the scheme and the debt (Amount B) to be guaranteed under the arrangement is relatively small then the guarantee will not sufficiently mitigate the reduction in the strength of overall employer covenant.  A withdrawal arrangement can equally relate to a type A event.
78. Approved withdrawal arrangements are required under legislation to be approved by the regulator. Other withdrawal arrangements do not require the regulator’s approval, and we would not expect all withdrawal arrangements to come to the regulator for a clearance statement. However, there are some circumstances in which a withdrawal arrangement could itself be detrimental to the ability of a scheme to meet its pension liabilities, particularly if the guarantee does not sufficiently mitigate the fact that the s75 debt is not being paid in full. This may for a number of reasons, for example the choice of guarantor, the agreed payment events for the guaranteed debt (Amount B), or because the agreement does not comply with statutory requirements and the non-compliance results in material detriment to the scheme.
    
    

    Any other scheme-related event

79. Any other scheme-related event which prevents the recovery of the whole or any part of the employer’s s75 debt, prevents the s75 debt becoming due, compromises or settles the s75 debt, or reduces the amount of the s75 debt which would otherwise become due, may be a type A event, irrespective of the level of the scheme’s deficit before or after the event.
    

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