It was great to attend “in person” the Association of Pension Lawyers annual conference in Brighton last week.
A speaker suggested it would be helpful if the Pensions Regulator were to provide clearer guidance on when it might use its new enforcement powers, in particular by giving more specific examples and thresholds.
I can see why this is an appealing idea and could give corporates and trustees greater comfort but I also understand why the Regulator hasn’t gone down the route of trying to be formulaic about the situations which will require mitigation and those that won’t.
While there are some case studies in the guidance – see the criminal policy in particular – what isn’t there is if you have a covenant of X and the detriment is Y then you’ll need to provide mitigation that looks like Z.
For a start this could be very difficult: every case is fact-specific, no two will be the same. Then you’ve got to think about what the Regulator is trying to achieve here – the Regulator wants to be a referee not a player.
The Regulator wants corporates getting into the habit of active consideration and earlier engagement with trustees, serious consideration of mitigation, resulting in schemes being treated fairly compared with other stakeholders.
Having worked at the Regulator in 2005 and 2021 on these issues, I can see why the Regulator might not want to set out too clearly what is the minimum that needs to be done for schemes if this is likely to result in less mitigation being provided to schemes.
A well advised scheme should be able to get comfortable within this scheme-specific framework. The tests of materiality and reasonableness should be looked at in light of the circumstances of each case.
Advisers can help navigate through this and help with the necessary audit trail to evidence the thought process should the Regulator come knocking subsequently. Ultimately, if parties want to reduce the regulatory risks, clearance is available.
