04 May 2007

Pensions Regulator

http://www.thepensionsregulator.gov.uk

Regulator Issues Reminder on Clearing Mergers and Acquisitions

Regulator issues reminder on clearance guidance

The Pensions Regulator has issued a reminder to parties considering corporate transactions - the underlying principle for considering clearance is whether the event is financially detrimental to the ability of the pension scheme to meet its pension liabilities. The reminder comes ahead of a planned update to clearance guidance during the summer.

Published on the regulator's website the reminder states that:

* Where there is a significant weakening of employer covenant as a result of a corporate transaction, for example where a highly leveraged transaction occurs and / or the assets for which the scheme currently has recourse are being removed from the employer group, then clearance is an appropriate consideration irrespective of the funding position of the scheme involved.

* In addition trustees in these sorts of circumstances should consider whether to seek a materially enhanced level of mitigation in excess of FRS17/IAS19.

This is also true of transactions which may result in scheme abandonment. The regulator also published its final guidance on scheme abandonment following the consultation earlier this year. The guidance reinforces its message that, in cases where there is an employer of substance, abandonment is unlikely to be in the members' best interests.

- ENDS -

Notes for editors:

1. The regulator provides guidance, available on its website, on situations where clearance from the regulator should be considered. Obtaining clearance is an appropriate consideration for events which are financially detrimental to the ability of a defined benefit scheme to meet its pension liabilities, and the regulator has classified such events as type A events. In addition, the current guidance adds that for type A events to be financially detrimental there must be a deficit. The relevant basis to determine the deficit for clearance purposes is FRS17/IAS19 unless:

* the trustees have fixed a higher funding level in which case that applies;

* there is no relevant FRS17/IAS19 valuation in which case the full section 75 (buy-out) deficit must be used ; or

* there is a question over the continuation of the employer as a going concern in which case again the full section 75 (buy-out) deficit must be used.

2. The issue of a clearance statement gives assurance to those involved in corporate transactions that their proposals will not prompt use of the regulator's anti-avoidance powers in relation to the pension scheme after a transaction has taken place. The refusal of a clearance statement does not prevent the transaction - but there will be no assurance that the regulator's powers will not later be used. Clearance is a voluntary process that was requested by industry during consultation.

3. The Pensions Regulator is the regulator of work-based pensions in the UK, with wide-ranging and flexible powers under the Pensions Act 2004. The Pensions Regulator's powers include the ability to:

* collect detailed scheme information;

* issue improvement notices and third party notices, enabling the regulator to ensure problems are put right;

* freeze a scheme that is at risk while the regulator investigates;

* disqualify trustees who are judged not fit and proper to carry out their duties; and

* issue a contribution notice or financial support direction

The Pensions Act 2004 also imposes a statutory obligation on 'whistleblowers' to report suspected breaches of the legislation to the regulator.

* http://www.thepensionsregulator.gov.uk

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