TPR's Guidance for Consolidators Is Just the Beginning
Although consolidators already exist, with transactions waiting in the wings, publication of TPR's guidance sets making use of for consolidator transfers. TPR's new guidance outlines the basis on which schemes can transfer to some consolidator, pending specific consolidator legislation.
It had been anticipated that the Pensions Scheme Bill, that is currently working its way with the House of Lords, would introduce specific legislation for consolidators. However their omission from the Bill made it hard for employers to transfer their DB scheme to a consolidator, as employers had little reassurance that the transfer would not result in TPR exercising its moral hazard powers.
In its current form, pensions legislation doesn't prohibit gets in a consolidator. But to facilitate the process, the interim regime provides an approved route for employers to transfer their DB scheme to some consolidator, namely via a successful clearance application.
The interim regime put down in TPR's guidance is simply the beginning of a specific consolidator regime. Trustees and employers must be aware that this area is expected to become subject to further change and clarification.
So do you know the tips in TPR's guidance? TPR doesn't consider it appropriate to pay off a transaction involving a consolidator unless it has assessed the consolidator against the criteria put down in its guidance. Consequently, the guidance concentrates on the requirements that a consolidator must meet. These include specific requirements such as the minimum technical provisions set by TPR, triggers to be included in a consolidator's legal arrangements and a prohibition on value extraction unless scheme benefits are bought out in full by having an insurer.
From an employer's perspective, TPR is clear that it expects an employer to apply for clearance before transferring its DB scheme to a consolidator . Clearance is not a common process for many DB schemes, with the quantity of clearance applications having dropped significantly since the process was first introduced. However, as TPR indicated that it promises to update its clearance guidance, it may be this process will end up streamlined and predictable.
Clearance from TPR doesn't amount to approval. Instead, it is a legally binding assurance that, provided certain conditions are met, TPR will not use its anti-avoidance powers in relation to the transaction against the parties who apply for clearance. Although clearance isn't obligatory, employers that not seek clearance risk TPR exercising its moral hazard powers.
TPR's guidance doesn't focus on a trustee's role in a consolidator transfer. Although TPR will expect to see a transferring scheme trustee's due diligence as part of a clearance application, clearance doesn't provide trustees with much comfort. Regardless of whether clearance is obtained, trustees will have to consider whether the transfer is in their members' interests and in accordance using their duties, with clearance not acting as a barrier to the later member challenge. Since TPR's guidance is focused on the assessment and regulation of consolidators, there is currently no additional guidance for trustees in deciding whether to accept a transfer.
No fixed timetable are available for the next steps in consolidator regulation. Although TPR's guidance took immediate effect, further TPR guidance is imminent, particularly in respect of monitoring and reporting and also the protections required of consolidators' legal arrangements. Other changes to TPR's guidance may be made as it flexes its expectations and guidance to address new entrants joining the marketplace.
In the absence of specific legislation, the present interim guidance is way in the final position. It's very unlikely that specific consolidator legislation will be introduced until next year, at the very earliest, given the current constraints on parliamentary time. In the interim, schemes, consolidators as well as their advisers will need to adjust to changing assistance with consolidator transfers for a while to come.
