Pensions Regulator publishes statement on Financial Support Directions and Insolvency
In our Stop Press of October 2011, we reported on the case of Bloom and Others v The Pensions Regulator and Others  in which the Court of Appeal had upheld a High Court decision that, where a Financial Support Direction (FSD) is issued after a company goes into liquidation, the debt is an expense payable by the administrators or the liquidators. This means that such an expense is paid before the unsecured creditors, giving the FSD “super-priority” status. Permission to appeal to the Supreme Court has been granted but it is unlikely this decision will be available before the end of 2012.
The Court of Appeal decision was clearly disappointing for the companies and their administrators, as the position of pension fund trustees was strengthened in restructurings by the “super-priority” status of the obligation imposed by an FSD and, if the FSD is not complied with, the liability created by a CN. However, the result was unsurprising. When the High Court judgment was handed down in December 2010, the judge stated that a legislative change would be required before a different decision could be reached, and the Court of Appeal upheld that view.
On 26 July 2012, the Pensions Regulator (TPR) published a statement on “Financial Support Directions and Insolvency” which sets out how TPR’s intended approach in relation to FSDs in insolvency situations and its obligation to ensure that its regulatory powers are used reasonably in the interests of both schemes and the Pension Protection Fund (PPF).
The key points made in the statement are:
- TPR is aware of the importance of an effective restructuring and corporate rescue culture and does not intend to frustrate its proper working. It recognises that obstructing administrators would not be constructive for any creditors, including pension schemes and the PPF.
- TPR recognises that issuing an FSD can be a lengthy process and has no intention of deliberately delaying such issue until after an insolvency event in order for the FSD to be treated as an expense of the administration, so that it takes advantage of the post insolvency priority ranking.
- Where an FSD is issued after an insolvency event but arises from circumstances which occurred before insolvency, a relevant factor in assessing the financial support will normally be the position under insolvency law had the FSD been issued before the insolvency event. A key consideration will be the amount the scheme would receive under an FSD if the trustees of the scheme were an unsecured creditor, as they would be had the FSD been issued before the insolvency event.
- In assessing whether the issue of an FSD is reasonable, TPR will have regard to the creditors’ claims, including the return that unsecured creditors would receive had the FSD been issued prior to the insolvency event. TPR expects this to achieve broad equity between the trustees of the scheme and unsecured creditors of the FSD recipient.
- The current legal position is that FSD liabilities rank as an expense of the administration, and TPR cannot change the order of priority ranking. However, TPR states that, in most circumstances, it would not object to a subordination of the FSD liabilities behind the administrator’s reasonable remuneration where a court application is made to vary the priority order of administration expenses to further the purpose of the administration.
Comment: this statement may offer some comfort in relation to TPR’s approach in the period before any decision is reached in the Supreme Court. However, the statement also highlights that it does not override legislation or provide a definitive interpretation of the current position. TPR emphasises that the use of its powers will depend on the facts of each case and that the statement should not be construed as limiting its powers or its discretion to take appropriate action.
View the Statement. (pdf 61.09kb)
PPF publishes levy guidance
The PPF has updated its online invoice-related pages prior to sending out invoices for the 2012/13 Pension Protection Levy in early September 2012.
The online guidance provides information on who has to pay the levy, how it is calculated, how schemes can reduce their levy, and the invoicing process.
The PPF's new levy framework comes into effect in from 2012/13. In a significant break from the past, when the PPF changed the way the levy was calculated every year, these new rules are intended to be fixed for three years. This means that levy bills will be more predictable than before and schemes can expect that if their risk falls over the three years, then so will their levy. The rules are also designed to make the levy more stable.
The PPF has produced a booklet, “Introduction to the New Pension Protection Levy for 2012/13”, which it hopes will help levy payers prepare for the changes. The booklet is available online and in hard copy from the PPF. Also available is a webcast in which PPF Chief Policy Advisor, Chris Collins, explains the new framework.
View the updated guidance. (pdf 227.77kb)
View the web cast.
HMRC updates its online guidance on pension drawdown
In our update for July 2012, we noted that HM Treasury had finalised its proposals for implementing the decision in the Test-Achats case, in which the European Court of Justice held in March 2011 that insurance premiums and benefits should be gender-neutral.
HMRC has now updated its guidance on pension drawdown. For calculations of maximum drawdown pensions from 21 December 2012, annuity providers will have to use the same rates from the Government Actuary Department’s tables for men and women. For individuals who have opted for drawdown pensions, this change will affect the maximum drawdown pension they are entitled to take each year. The impact of this change on annuity pricing is uncertain.
The guidance states that, until annuity providers establish how to apply the judgment in practice, the maximum drawdown pension for both men and women aged 23 and over should be calculated using the higher male rates in Table 1 from 21 December 2012.
View the guidance. (pdf 23.34kb)
NAPF publishes final auto-enrolment guidance leaflets for employers
In our update for July 2012, we noted that the National Association of Pension Funds (NAPF) had published two further leaflets in its series aiming to give employers straightforward information on the implementation of auto-enrolment. The final two leaflets in the series have now been published and are available on the NAPF website.
View “What do I need to tell my employees?” which advises employers on planning their publicity campaigns and details the information which will be available in the national press and on Government websites.
View “Things to look out for” which includes advice on dealing with pensions as part of the contract of employment, tips on using salary sacrifice, combining auto-enrolment with flexible benefits and enhanced/fixed protection issues.