2019 will see a number of proposals on new rules for defined benefit (DB) pension schemes, many of which will impact corporate activity (sales, refinancing and restructuring), such as:
1. A new funding code is expected to set a minimum approach – potentially both funding targets and cash payment periods.
2. Employers will need to notify The Pensions Regulator (TPR) of a material business sale or granting security on a debt. For these new and certain existing notifiable events, a statement (Declaration of Intent) must be provided to help trustees understand the impact on the scheme.
3. Individuals will face new civil penalties and criminal sanctions for wilful or reckless behaviour.
Civil penalties could cost offenders up to £1m
Criminal sanctions could result in unlimited fines and/or up to 7 years’ imprisonment.
4. Early assessment of pensions in corporate activity which will help activity proceed if all parties (company, investors and lenders) work together on mitigation options.
It may be a few years before the expected proposals in 2019 become law, but it is likely that trustees will already be reflecting these in their behaviour. Three key steps can help a scheme develop a clear approach in terms of corporate activity:
• Set a strategy with a long-term objective for the pension scheme reflecting the impact of corporate activity.
• Plan how to get there – what combination of cash, investment return and member options is needed?
• Consider contingent support as backing to the approach taken.
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