UK - The Pensions Regulator has published updated guidance on the clearance process, which is more focused towards advisers than trustees.
The revised guidance, which is an update "rather than a change of direction", follows the end of a consultation process, which resulted in some "sharp comments" about a lack of certainty over adopting principles-based rules, and too much focus on a "holistic" approach.
June Mulroy, executive director at TPR, revealed nothing has "fundamentally changed", although after feedback the guidance has been "focused at the expense of some clarification for trustees", because it is more geared towards advisers.
She added some things have been dropped form the original guidance, such as the inclusion of Type B and C events which in practice "were rarely used", and TPR had "taken to heart" comments suggesting the draft guidance was too detailed, so it has "stripped out an awful lot" of information relating to what trustees need to do, as this is already covered in other TPR guidance.
The consultation report, published alongside the new guidance, revealed, for example, TPR has "removed the detailed content on monitoring the employer covenant as this is a general governance issue rather than specific to clearance".
However, TPR pointed out it intends to release separate guidance on the employer covenant later in the year and, over the next few weeks, it will also look at providing specific information for trustees on the clearance process.
Mulroy said: "I'm not convinced we need to go through this type of guidance for trustees. It is more about the way trustees conduct themselves, and we've already covered that. Trustees need to be involved, but it is probably more suitable to provide a type of map, as clearance is only one event for trustees in a long-term process."
In addition to adopting a principles-based approach, which encourages parties to "focus on the real impact of the event on the scheme", the guidance also includes:
The division of Type A events into those which are employer-related and those that are scheme-related, including examples such as a change of ownership, or events such as leveraged finance deals, where the scheme's position as a creditor suddenly shifts. TPR also revealed one of the reasons why it has switched to a principles-based approach is there has been a shift in the clearance process over the last three years from "quantity to complexity".
It said the clearance enquiry process, which helps to guide people through the procedure, had received between 700-800 enquiries last year - ranging from a short telephone call to lengthy emails - and which resulted in around 250 actual applications.
However, it pointed out the most complex cases can take between 9-12 months to complete the process, with more of the clearance team's time spent on the complexities of the process, such as the shape of the scheme, any jurisdictional issues if the transaction is global and also any regulatory crossover.
Despite the stance from TPR, Hewitt Associates has claimed the revised guidance "lacks clarity and increases complexity during corporate transactions", as it encourages trustees to negotiate with employers where a particular event could have a detrimental impact on the pension scheme, even when the employer does not intend to seek clearance.
Chris Smith, part of the UK mergers, acquisitions and divestitures team at Hewitt, said: "The new guidance replaces the previous system where corporate sponsors were subject to clear and very specific guidelines. This is likely to cause problems for trustees and sponsors alike as they struggle to understand how best to cope with the increased demands of this guidance."
"It is also likely to make corporate activity more time-consuming and potentially more costly. It is worth noting that while clearance is termed ‘voluntary', TPR has essentially imposed this system via the back door by placing the onus on trustees to initiate negotiations, regardless of whether a formal clearance application has been made."
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