UK - The Pensions Regulator (TPR) has added a new module to its ‘Trustee Toolkit' providing guidance on buy-ins and partial buyouts, to coincide with the publication of a code of practice relating to the ‘material detriment test'.

TPR admitted in May that it had simplified the code of practice concerning the circumstances around the use of the ‘material detriment' test, which details the alternative grounds for issuing contribution notice as part of extended anti-avoidance powers. (See earlier IPE article: TPR simplifies 'material detriment' code)

TPR confirmed the code - ‘Circumstances in relation to the material detriment test' - is effective from today for trustees, advisers and sponsors of pension schemes and is designed to "sustain effective long-term protection of members' benefits and the Pension Protection Fund (PPF), including to enable the regulator to act to prevent transfers to inappropriate vehicles".

The "high level guidance" promised in May has also been issued, along with illustrative examples for employers and updated clearance and abandonment guidance, while TPR has unveiled further help in the form of the latest module of the Trustee Toolkit.  

Bill Galvin, executive director for strategic development at TPR, added: "At all times, where the risk is transferred to another entity, trustees must be certain that there is no reduction in member security. Where the risk is transferred to the individual member, trustees must take all reasonable steps to ensure members understand the risk they are being asked to take on and the value of the benefit they are foregoing."

The module, entitled Buy-ins and partial buyouts, is designed to help trustees when considering transferring some or all of the pension risk to insurers by providing guidance on:

 what is meant by buy-in and partial buy-out the differing roles of the employer and the trustee the options and schemes' objectives data management and administration the process of bulk annuity purchase

Tony Hobman, chief executive of TPR, said: "I hope the new code, guidance and addition to our toolkit will be helpful. By working in close consultation with the UK pensions industry, we can ensure the right balance between innovation and protection in the UK as the defined benefit landscape changes. This must include a fair and level playing field for all, matched by effective enforcement where necessary."

However he claimed employers should not be "unduly concerned", but warned they should undertake "appropriate due diligence when considering transactions that affect the pension scheme. Employers must also remember that they can come to the regulator for clearance if they seek certainty".

Brendan Barber, general secretary of the Trade Union Congress (TUC), highlighted the need for scheme members to know their pensions are safe if the employer passes the responsibility of paying them elsewhere, and the importance of properly regulating pension buyouts.

He therefore welcomed the new guidance and code of practice as it "does protect members without putting needless obstacles in the way of providing what can be a sensible long term option when the employer covenant is weak".

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

 

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