The Pensions Regulator (TPR) has published a revised version of its code of practice on contribution notices. TPR has updated the code to cover the two new grounds for issuing a contribution notice – the employer insolvency and employer resources tests. The updated code came into force on 25 November.
What is a contribution notice?
A contribution notice requires the recipient to pay a contribution to a DB pension scheme. Legislation allows TPR to order a contribution of any amount up to the scheme’s deficit on the statutory employer debt basis. However, a 2011 Upper Tribunal decision appeared to limit the contribution that can be ordered to the amount of the statutory employer debt avoided by the act or failure to act which resulted in TPR issuing the contribution notice. TPR can issue a contribution notice to a DB scheme employer, another company in the same corporate group, and/or various other parties who are connected or associated with the employer.
When can TPR issue a contribution notice?
TPR can issue a contribution notice if the recipient is a party to an act or a deliberate failure to act and one of the following grounds applies:
- One of the main purposes of the act or failure to act was to:
- Prevent the recovery of a statutory employer debt.
- Prevent such a debt becoming due.
- Compromise or otherwise settle such a debt.
- Reduce the amount of such a debt.
- The act or failure to act has detrimentally affected in a material way the likelihood of accrued scheme benefits being received (the material detriment test).
- The act or failure to act has materially reduced the amount of the statutory employer debt that the scheme could have recovered if that debt had been triggered immediately after the act or failure to act (the employer insolvency test).
- The act or failure to act has reduced the value of the employer’s resources and this reduction is material relative to the scheme’s estimated statutory employer debt (the employer resources test).
TPR must also believe that it is reasonable to issue the contribution notice.
The Pension Schemes Act 2021 introduced the employer insolvency and employer resources test with effect from 1 October 2021.
What does the code of practice say and what has changed?
The code originally set out the circumstances in which TPR expected to issue a contribution notice under the material detriment test. TPR has updated the code to include:
- An explanation of the employer insolvency and employer resources tests.
- An updated set of circumstances in which TPR would expect to issue a contribution notice due to one or more of the material detriment, employer insolvency and/or employer resources tests being met.
Guidance accompanies the code that sets out illustrative examples of where the circumstances in the code might and might not apply. TPR has also updated this guidance to reflect the changes to the code.
The code is admissible as evidence in legal proceedings and must be taken into account by a court or tribunal where it is relevant to any question arising in those proceedings.
What does this mean for me?
It is possible that some corporate reorganisations, re-financings and sales and purchases which were not previously caught by the contribution notice regime could now fall within its remit. Whether or not TPR can issue a contribution notice is very fact-specific. For further information, please speak to your usual Mayer Brown contact who will be happy to advise.