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Clearance confuses employer debt rules

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  • Clearance confuses employer debt rules

UK - Updated clearance guidance issued by The Pensions Regulator (TPR) has "muddied the waters" around the issue of the debt on the employer when it withdraws from a multi-employer scheme, Hamish Wilson & Co has claimed.

The actuarial and pensions consultancy claims revised regulations on employer debt, published by the Department for Work & Pensions (DWP), appeared to simplify certain withdrawal arrangements by exempting them from the requirement for TPR approval when employers exit a multi-employer scheme. (See earlier IPE story: Employer debt changes 'increase regulatory burden)

But Gary Tansley, from Hamish Wilson, claimed: "The Regulator's new guidance suggests that either a new-style (exempt) 'withdrawal arrangement' or an 'approved withdrawal arrangement' could give rise to a 'Type A event' that may require clearance from the Regulator."

As a result, Tansley said the clearance guidance issued by TPR suggests even if the new 'Debt on Employer' regulations have been complied with, "in certain circumstances" TPR could still decide to issue a 'contribution notice' or a 'financial support direction' unless clearance has been obtained. (See earlier IPE story: TPR refocuses clearance guidance at advisers)

When an employer exits a multi-employer scheme under current rules, the default position is the firm has to pay into the scheme a proportionate share of the scheme's buyout deficit. 

However, Tansley claims the new-style withdrawal arrangement, outlined in the revised regulations, will allow the exiting employer to pay only its share of the scheme's deficit on a scheme-specific funding basis, without involving TPR, provided:

A guarantor, agreed by the trustees, is put in place to pay the difference between the amount paid and the exiting employer's share of the buyout deficit, and
Trustees are satisfied the remaining employers are able to fund the scheme sufficiently.

But he warned: "The new clearance guidance muddies the waters. It suggests clearance may be required if the guarantee under the 'withdrawal arrangement' does not provide sufficient mitigation for the employer's exit from the scheme."

For example, if the exiting employer was financially stronger than the other employers, there could be a reduction in the overall employer covenant once that employer has exited the scheme. 

He added: "According to the new guidance, this is a situation where it may be appropriate to apply for clearance to confirm that the Regulator will not use his anti-avoidance powers. So, we are back to having to involve the Regulator to achieve certainty."

However, a spokesman for TPR said: "Our clearance guidance makes it clear that while certain arrangements will not need regulator approval for a withdrawal, this is not the same as the clearance process.

"In certain circumstances, parties may need to consider whether there is a Type A event, for which seeking a voluntary clearance statement may be appropriate," he added.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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