Key Pensions Issues for Corporate Lawyers – Part 3

27 May 2021 | Gary Cullen

Welcome to the third part of our series looking at the key pension issues corporate lawyers need to be aware of when advising clients.  In the previous issues we addressed the main points of concern when dealing with underfunded final salary / defined benefits pension schemes (“DB Schemes”) in a corporate transaction (see Issue 1) and when refinancing or reorganising company assets (see Issue 2).  In this issue we further expand on these considerations.

Issue 3 – Events Notifiable to the Pensions Regulator

In any corporate transaction, whether representing the purchaser or seller, it is crucial to look out for events deemed to be notifiable to the Pensions Regulator in relation to a sponsoring employer of a DB Scheme.

Why are Events Notifiable?

By giving the Pensions Regulator early warning of a possible risk of a call on the Pensions Protection Fund (PPF) notification of relevant events reduce the risk of compensation being payable from the PPF and protects the pension’s scheme members’ benefits. (The PPF is a compensation scheme to reimburse beneficiaries of a DB Scheme where the employer becomes insolvent and the DB Scheme is underfunded.  The Pensions Regulator is the “guardian” of the PPF).

What are the Consequences of Failure to Notify?

Sponsoring Employers need to be mindful of notifiable events before deciding on certain courses of action, failing to do so could have major financial consequences for the company and could result in civil penalties.  For example, a financial support direction/contribution notice (see Issue 2) can be issued by the Pensions Regulator requiring the company to make good the deficit in the DB Scheme on the annuity buy out basis which is the most expensive method of calculating the debt.

Events Notifiable by the Company Events Notifiable by the Trustee
Any decision by the employer to take action which will result in a pensions scheme debt not being paid in full Any decisions by the trustees or managers to take action which will result in a pensions scheme debt not being paid in full*
Where the employer is a company, a decision by a controlling company to relinquish control of the employer company* A decision by the trustees or managers of the scheme to make a transfer payment to, or accept a transfer payment from, another scheme the value of which is more than the lower of: (i) 5% of the value of the scheme assets of the Relevant Scheme; and (ii) £1,500,000*
The conviction of any individual for an offence involving dishonestly, if the offence was committed while the individual was a director or partner of the employer
Breach of covenant by the employer in an agreement between the employer and a bank or other institution providing banking services, other than where the bank or other institution agrees with the employer not to enforce the covenant* A decision by the trustees or managers to grant benefits, or a right to benefits, to a member the cost of which is more than the lower of: (i) 5% of the scheme assets; and (ii) £1,500,000*
Receipt by the employer of advice that it is trading wrongfully within the meaning of s.214 of the Insolvency Act 1986
Circumstances being reached in which a director or former director of the company knows that there is no reasonable prospect that the company will avoid going into insolvent liquidation within the meaning of s.214, and for this purpose s.214(4) applies A decision by the trustees or managers to grant benefits, or a right to benefits, on more favourable terms than those provided for by the scheme rules, without either seeking advice from the actuary or securing additional funding where such funding was advised by the actuary
Termination of business in the United Kingdom

*Exclusions: No need to notify in circumstances where the scheme is funded at PPF level and payments have been made under the Schedule of Contribution

How Can We Help?

Whether you are acting for a company, bank or trustees there are many ways that we can help navigate this complex area.  For example:

  • Determining whether an event is a notifiable event and advising on the approaches your client may take
  • Making the necessary notification to the Pensions Regulator
  • Assessing and advising on mitigation of risk should the Pensions Regulator take action in respect of a notifiable event

Helping You Help Your Clients

Abbiss Cadres has a unique service model incorporating all the expertise needed to help you manage the complexities of your clients’ pensions, employment and people issues.  As well as pensions expertise our team includes employment, immigration, tax, compensation and benefits and global mobility specialists.  We have extensive experience of working alongside a variety of corporate law teams, including some of the world’s largest law firms to deliver an integrated service to their clients.

For more information on how we help professional services firms help their clients, view our brochure.

If you would like advice on how we can help you with this or another employment related issue get in touch with us on 0203 051 5711 or send us an enquiry.

In the next part of our series we will look at how to reduce pension liability in a corporate transaction.


Content is for general information purposes only. The information provided is not intended to be comprehensive and it does not constitute or contain legal or other advice. If you require assistance in relation to any issue please seek specific advice relevant to your particular circumstances. In particular, no responsibility shall be accepted by the authors or by Abbiss Cadres LLP for any losses occasioned by reliance on any content appearing on or accessible from this article. For further legal information click here.

Circular 230 disclosure

To ensure compliance with requirements imposed by the IRS and other taxing authorities, we inform you that any tax advice contained in this article (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

The Pension Schemes Act 2021 which received Royal Assent in February 2021 introduces some further notifiable events which are due to come into force later on in 2021. New notifiable events will be (1) the sale of the material part of the business or assets of a defined benefit pension scheme sponsoring employer, and (2) the granting of security on a debt which has priority over the pension scheme. The sponsoring employer will need to make a declaration of intent addressed to the scheme trustee and shared with the Pensions Regulator in relation to proposed corporate activity including the existing notifiable event of selling a company. Failure to comply risks a new fine up to £1 million or even imprisonment where information provided is false or misleading. In addition to the notifying the event, an accompanying statement will need to be provided to the Pensions Regulator setting out details of the transaction, any adverse impact on the defined benefit scheme, mitigation proposed and correspondence with the trustees about the transaction.

The author

Gary Cullen
Pensions Law
D: +44 (0) 207 036 8398
T: +44 (0) 203 051 5711
F: +44 (0) 203 051 5712

Also by the author

28 May 2021
Key Pension Issues for Corporate Lawyers – Part 4
26 May 2021
Key Pensions Issues for Corporate Lawyers – Part 2
11 May 2021
Key Pensions Issues for Corporate Lawyers – Part 1
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