UK - New Pensions Regulator (TPR) powers to protect the benefits of scheme members from some of the new alternatives to pension buyouts will "not have an undue impact on legitimate business activity", the government has claimed.

Rosie Winterton, pensions minister, confirmed the government had tabled amendments to the Pensions Bill that would provide TPR with "proportionate" and "carefully targeted" powers to ensure security for scheme members.

She pointed out "some new alternatives to pension buyouts have emerged which can put members' benefits and the Pension Protection Fund (PPF) at risk", as they can reduce the security provided by the employer responsible for backing the scheme.

The decision to amend TPR's powers - to allow it require employers to make contributions to a pension scheme if their action could "threaten the security of members' benefits" - were outlined in April by former pensions minister Mike O'Brien. (See earlier IPE article: Statutory defence planned against TPR powers)

Following the end of the eight-week consultation period in June, the government tabled initial amendments to the Bill in the House of Lords committee stage, but after further debate it agreed to 'refine' the legislation to address new risks without "disproportionately impacting on business".

Winterton said the Department for Work and Pensions (DWP) had "listened carefully to stakeholders and, following further work with interested parties over the summer, we have framed these new powers so that they do not have an undue impact on legitimate business activity".

In addition, she said the tabled amendments would "provide the certainty and clarity the industry needs", as they include a number of 'safeguards' to restrain TPR's new powers.

Winterton said: "This includes a new requirement on the Regulator to produce a statutory Code of Practice to guide application of the new material detriment test for contribution notices."

This new 'material detriment' test will provide TPR with the power to require employers to make an additional contribution to the pension scheme - through a contribution notice - if the sponsoring employer's actions or failures "have a materially detrimental effect" on the likelihood of members receiving their benefits.

The new amendments, which also include an alternative test for issuing a financial support direction, will be retrospective from 14 April 2008 - once the Pensions Bill receives Royal Assent - except for the new material detriment test as this will only come into effect once TPR's final Code of Practice comes into force.

A draft version of the content of the code has been published by TPR outlining circumstances when it might expect to use the new material detriment test, including:

Transferring a scheme out of the jurisdiction of the UK Transferring a sponsoring employer out of the jurisdiction of the UK if by doing so there is a "material reduction in the level of employer support or legal and regulatory protection for scheme members.   The severing of employer support for the scheme so that employer support is removed, substantially reduced or becomes nominal The transfer of liabilities of the scheme to another scheme or arrangement that does not have sufficient employer support or is not sufficiently well-funded.

Tony Hobman, chief executive of TPR, said: "Responsible employers will not be affected by these amended powers. But it is essential that the regulator is able to keep pace with market developments."

He claimed the changes would only impact "a small number of schemes where pensions liabilities are being actively avoided or put at unacceptable risk. The existing legislation requires us to, and our track record shows that we do, use our powers proportionately and reasonably. We will continue with this approach, implementing the new powers without hampering market activity or innovation."

The decision to introduce new anti-avoidance powers for TPR follows growing concerns over certain business models developed as an alternative to traditional insured buyouts, examples of which include splitting the employer from the pension scheme without appropriate contributions for the pension scheme, and running a scheme for profit without adequate account being taken of member interests. 

At present, the Pensions Bill is at the report stage of the House of Lords, with the next meeting scheduled for 27 October 2008, and once it has completed this part of the process it will proceed to the third reading in the House of Commons, with Royal Assent expected by the end of the year.

Although TPR has published the draft content for the code on the 'material detriment' test, a formal consultation is not expected to take place until later in the year, providing the amendments to the Pensions Bill have been approved.

In addition, Hobman said TPR would "amend guidance materials as necessary following any changes to the powers. In particular we expect to add to our clearance guidance information on using the statutory defence to the new material detriment test".

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