Pensions Regulator - Pragmatic and proportionate as new code on 'material detriment' moves forward

Pragmatic and proportionate remain the Pensions Regulator's key principles in its approach to amended anti-avoidance powers - as detailed today in our response to consultation on the draft 'material detriment' test code of practice.

We received 29 formal responses to our eight week consultation. Responses were generally supportive of the new code. Says Pensions Regulator chief executive, Tony Hobman: “In response to feedback, we have made changes to ensure the code is clear and that it interacts well with other rules and regulations. We're not expecting any undue impact upon routine business and we thank respondents for the feedback.”

The new code sets out where the regulator expects to issue contribution notices on the basis of the 'material detriment test' and it is unlikely to affect the majority of sponsoring employers.

The code is one of the safeguards for those acting responsibly towards their pension scheme. The consultation response looks at the wider framework of safeguards that were discussed during the consultation.

The clearance process is unaffected by these changes. So anyone concerned about their exposure to the regulator's anti-avoidance powers because of the effect of a transaction on a pension scheme, can apply for a clearance statement in the usual way. 

Subject to Parliamentary and Assembly approval, the code will commence in summer 2009 and the new material detriment test will also come into effect at the same time.

At that time we also expect to publish further guidance on the legislative framework including some examples. These are expected to include scenarios developed from those suggested during the consultation.

Our response to the consultation has been produced to accompany today's laying of the code in Parliament and the Northern Ireland Assembly.

1. The Pensions Act 2008 and the Pensions (No.2) Act (Northern Ireland) 2008 amended the Pensions Regulator's anti-avoidance powers in order to ensure that they remain fit for purpose.
2. The material detriment test, introduced by the Pensions Act 2008 and the Pensions (No.2) Act (Northern Ireland) 2008, is a new alternative ground for contribution notices, based on whether a sponsor's actions or failures have a materially detrimental effect on the likelihood of members receiving their benefits. The new ground has an associated statutory defence.  Both the ground and the defence are expected to come into force in the Summer. 
3. The Pension Act 2008 requires the DWP Secretary of State to review the material detriment test and the statutory defence within 4 years of their commencement. 
4. Codes of practice are not statements of the law; however, they do have evidential value, meaning they will be taken into account by the Determinations Panel, a court or tribunal where relevant.  The regulator will take the relevant part of the code into account when considering issuing a contribution notice under the material detriment test.
5. The Pensions Regulator is the regulator of work-based pension schemes in the UK, with objectives to protect members' benefits, promote good administration and reduce the risk of calls on the Pension Protection Fund. Our approach is risk-based focusing on education and enablement, with enforcement where appropriate. We have the ability to:
6. • collect information about pension schemes; through scheme returns, under the scheme funding regime and as well as statutory (including whistleblowing) reports;
   • issue notices requiring actions to tackle non-compliance, prohibit trustees who are judged not fit and proper to carry out their duties or appoint independent trustees;
   • direct pension schemes as to how to calculate their liabilities and the contributions required;
   • issue a contribution notice where there is an attempt to avoid pension liabilities, or a financial support direction where the employer is a service company or insufficiently resourced.
     

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