TPR uses anti-avoidance powers to protect scheme members – a sign of things to come?
Published on 31st Oct 2016
The Pensions Regulator (TPR) has recently set out how its involvement led to a defined benefit (DB) scheme’s member benefits being protected following the sale of the sponsoring employer (see here).
The Database Group Limited (TDG) was the sole sponsor of the Database Group Ltd Retirement Benefit Scheme (‘the Scheme’). The buy-out
deficit in the Scheme was £7.7m. TDG was part of the wider Database Group (‘the Group’), a well-established provider of data management services.
TDG’s income had been declining because of, among other things, the transfer of client contracts to its parent company.
In 2015, Merkle Inc made an offer to purchase the shares in the Group. The offer was made on the condition that no entity within the
Group had liability to the Scheme at the point of purchase. This would have resulted in the Scheme having no further trading covenant to support it. A clearance application was submitted to TPR.
As part of the clearance discussions, TPR became concerned about the transfer of trade away from TDG. TPR therefore opened an avoidance
investigation as it considered that there was a potential case for using its moral hazard powers. TPR concluded that the only sum that would
adequately mitigate the transfer of trade from TDG and the risks arising from the transaction with Merkle would be an amount to secure members’ benefits in full. Following a period of negotiation, it was eventually agreed that sufficient funding would be provided to allow the Scheme trustees to buy-out
members’ benefits in full with an insurance company. TPR granted clearance on this basis.
A sign of things to come?
TPR’s intervention in this matter comes shortly after it submitted its written response to the Work and Pensions Committee’s inquiry into DB schemes. This inquiry was set up following the collapse of BHS, in which the adequacy of TPR’s existing powers have been called into question.
In its response to the inquiry (here), TPR suggests that its powers could be improved by:
- Providing it with more flexible information-gathering powers and an enhanced duty on parties to provide TPR with information and co-operate with TPR.
- Enhanced investigatory powers – such as compelling parties to submit to interview, civil penalties for refusing to divulge information and the ability to ‘seize and sift’ documents as appropriate.
- Making it mandatory for employers to approach TPR for clearance in certain situations, and for TPR approval to be required before an action can go ahead.
Given TPR’s stance in the Database matter and its suggestions to the inquiry, the ‘mood music’ may indicate a more interventionist TPR in the future, with TPR given greater powers by the government to intervene where DB members’ benefits may be at risk. With the deadline for written submissions to the inquiry having expired on 23 September 2016, we await the committee’s conclusions with interest.