Several high profile company collapses in recent years have left pension schemes in deficit and policyholders with a fraction of the benefits they expected.
However the Pensions Act 2004 introduces stricter laws which are designed to ensure that group companies and other associated parties - including major shareholders and company directors - may be held responsible for pension liabilities of another company within the group.
The provisions, which come into force from 6 April 2005, aim to prevent employers from using company structures and business transactions to circumvent their pension scheme liabilities.
The new Pensions Regulator may, issue a “contribution notice” to an employer or a connected party (e.g. group companies, company directors) if it believes that an employer or a connected party has acted in such a way as to avoid or reduce the employer’s pensions obligations. The recipient of the contribution notice is liable to pay a specified sum to the pension scheme.
The Pensions Regulator may also, issue “financial support directions” to an associated or connected party (e.g. group companies), requiring them to provide financial support to the employer. The recipient must ensure that ‘financial support’ arrangements are put in place. Failure to comply with financial support directions can lead to a contribution notice being issued.
The provisions have caused concern among corporates and the private equity community. In order to allay some of these fears a clearance procedure has been introduced. Under the clearance procedure, companies will be able to obtain advance clearance from the Pensions Regulator that entering into a particular transaction will not result in a contribution notice being issued. The clearance procedure will remove some of the uncertainty for companies before they enter into particular transactions. However, the efficiency and speed of the clearance procedure in practical terms remains to be seen and so in such circumstances it will be appropriate to seek specialist advice.
When buying or restructuring a company in the future it will be very important to make enquiries into the liabilities of the company’s pension scheme. Buying or restructuring a company with a pension scheme deficit could well mean that other group companies will become responsible for this liability.
For more information or advice please contact Mark Hovell on 0161 234 8810 or email markhovell@georgedavies.co.uk |
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