This month we highlight:-

  • changes to the "look-back" period for Financial Support Directions (FSDs);
  • removal of the need for certain key scheme/employer events to be notified to the Regulator under the notifiable events regime; and
  • new ICAS Guidance on evaluating scheme auditors.

Financial Support Directions

As of 6th April this year, new Regulations have come into force altering the Regulator's powers to issue FSDs. By way of reminder, the ability to impose an FSD is one of the two main anti-avoidance powers open to the Regulator and the issuing of an FSD requires the recipient to put in place appropriate financial support for an occupational pension scheme. Prior to 6th April 2009, FSDs could be imposed upon an employer or an associated/connected company where there was a defined benefit scheme in place and the Regulator was of the opinion that at any time during the previous 12 months, the employer was either a service company or was insufficiently resourced. The main principles behind FSDs remain unchanged but the 12 month period known as the "look-back period" is to be extended to a period of 24 months.

The Department of Work and Pensions (DWP) consulted on these changes at the end of last year following practical difficulties experienced by both the Regulator and other parties in operating within the 12 month look-back period. Due to the complexity of the process, there could be difficulty if the Regulator was not immediately informed of the relevant event or circumstances, leaving insufficient time to act. In addition, apparently the 12 month look-back period sometimes had a detrimental impact on the potential recipient of the FSD, who may have needed more time to prepare representations in response to a warning notice from the Regulator. The DWP also suggested that if the Regulator was unable to exercise its powers because of insufficient time, this could put the Pension Protection Fund (PPF) at risk. In the current economic climate in particular, this was clearly not a risk the DWP was prepared to ignore.

The new regulations enacted to increase the look-back period to 24 months take effect from 6th April 2010. Changes have also been introduced for a transitional period of one year leading up to 6th April 2010, during which time there will be a staged increase in the look-back period from 12 to 24 months.

During the consultation, one respondent suggested that moving to a 24 month look-back period would mean a longer period of uncertainty for employers/associated companies and an increase in the need to approach the Regulator for clearance for transactions and re-structuring. The DWP, however, rejected this viewpoint and made it clear that if an employer event is being proposed (such as a corporate restructuring or de-merger), the employer will need to consider the impact this will have on the pension scheme and be sure that sufficient support is in place. The DWP has made it clear, however, that extending the look-back period to 24 months should not actually make any difference to this process. Whilst corporate activity has been hit hard by the credit crunch, restructuring of business models is undoubtedly something that sponsoring employers and associated/connected companies will be considering and it is important for employers and trustees to keep the Regulator's anti-avoidance powers in mind.

Notifiable Events Regime

The same Regulations that brought changes to the FSD look-back period have also introduced changes to the notifiable events regime. This regime comprises statutory requirements imposed upon the trustees and employers of defined benefit pension schemes to notify the Regulator if specific scheme or employer-related events occur. Some events must always be notified whilst others only require to be notified if the scheme in question is also underfunded. The aim of the notifiable events framework is to provide the Regulator with an early warning of potential problems so that steps to remedy the situation may be taken.

The impact of these changes to the notifiable events regime means that the process has been rationalized so that the following events no longer require to be notified to the Regulator:-

  • two or more changes in any key scheme post in the last 12 months;
  • two or more changes in any key employer post in the last 12 months; and
  • any change in the employer's credit rating.

The DWP has indicated that when these Regulations were in draft, some respondents to the consultation indicated that they did not think the DWP had gone far enough and that further reduction of the notifiable events list was desirable. The DWP does not seem prepared to take any further rationalization steps at this time, but has made it clear that it will continue to monitor the situation and does not rule out further changes in the future.

Nevertheless, the changes to the notifiable events regime mean slightly less work for schemes, rather than more, which is certainly a rare but welcome move. This change seems, however, only to be a minor gesture from the Government amidst increasing criticism of over-regulation in recent years. Any suggestion that the DWP is fully embracing de-regulation of pensions legislation seems premature.

ICAS Guidance - "Pension Trustees: Evaluating your Scheme Auditor"

The Institute of Chartered Accountants of Scotland (ICAS) has asked us to make you aware of the new guidance it has published which is designed to assist pension trustees in managing and reviewing the service provided by the scheme auditor and to maximise the benefits from the statutory audit process. This ICAS tool is designed to be of practical help to trustees and to help them to recognise and discharge their responsibilities – it can be found on the ICAS website at:-


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