- Consultation follows changes under the Pension Schemes Act 2021
The Pensions Regulator (TPR) is consulting on changes to its Code of Practice 12 following the introduction, by the Pension Schemes Act 2021, of new tests in relation to its Contribution Notice (CN) power.
The legislation, passed earlier this year, amends TPR’s CN power (under section 38 of the Pensions Act 2004). It introduces two new ways in which TPR can assess the impact of an act - the employer insolvency test, and the employer resources test. The new tests are in addition to the existing main purpose and material detriment tests.
As a result of the introduction of these new tests, TPR is updating its Code of Practice to explain the circumstances in which it will consider issuing a CN on the basis of the new tests.
David Fairs, Executive Director for Regulatory Policy at TPR, said: “We know from our casework that there are certain acts that affect an employer’s ability to deliver the retirement outcomes savers expect. The existing tests for the use of our Contribution Notice power do not focus solely on the effect of a specific act on the employer.
“The new employer insolvency and employer resources tests build on the current legislation to capture situations in which an act affects an employer covenant in a sufficiently material way. They look at the impact of the act on the employer at the time the act takes place, like a snapshot.
“While we don’t expect the new tests to significantly shift our current approach for assessing potential Contribution Notice cases, it’s important that we consult with the industry and give some examples of the circumstances in which the new tests could apply.
“A CN will not be automatically issued if one of these tests is met. The legislation sets out a number of tests which must be met, including that it is reasonable to issue a CN”.
TPR’s new powers are expected to take effect from this autumn and, as already confirmed by the Government, will not be applicable to acts taking place before then.
The six-week consultation closes on Wednesday, 7 July 2021.
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Notes for Editors
- The Pensions Act 2004, as amended by the Pension Schemes Act 2021, sets out a legal requirement for TPR to publish a code setting out the circumstances in which it expects to issue a CN if it is of the opinion that either of the two new ‘act’ tests added to section 38 of the Pensions Act 2004 have been met. This is an addition to the previously existing requirement to produce a code on the circumstances in which it expects to issue a CN if it is of the opinion that the material detriment test is met.
- The two new act tests measure the impact that an act, or failure to act, has had on the employer relative to the scheme on a snapshot basis, comparing the situation with and without the act. The employer insolvency test considers the impact of the act on the hypothetical insolvency outcome for the scheme, and the employer resources test considers the impact of the act on the value of the employer’s resources, relative to the scheme’s deficit.
- Both the employer insolvency test and the employer resources test are set out in the Pensions Act 2004, as inserted by the Pension Schemes Act 2021. The definition of ‘employer resources’ and how they will be determined will be set out in new regulations, a draft of which has been subject to a consultation by the Department for Work and Pensions.
- TPR is the regulator of work-based pension schemes in the UK. Our statutory objectives are: to protect members’ benefits; to reduce the risk of calls on the Pension Protection Fund (PPF); to promote, and to improve understanding of, the good administration of work-based pension schemes; to maximise employer compliance with automatic enrolment duties; and to minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of the regulator’s functions under Part 3 of the Pensions Act 2004 only).
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