TPR guidance on employer-related assets could 'jeopardise' member benefits

UK - The UK Pensions Regulator (TPR) has issued guidance on the use of non-cash contributions to pension funds, with critics saying the recommendations could jeopardise benefits and complicate funding negotiations.

According to recent changes, a pension fund may not have more than 5% exposure to parent company assets at any given time, with the regulator now urging a review of any transaction that could end up violating employer-related investment (ERI) rules.

It added that, where trustees did not seek legal advice before such transactions, the transfer should be underpinned by cash payments, should the transfer later be overturned in court.

However, law firm Sackers & Partners warned the guidelines could further complicate the "mammoth" of funding negotiations.

And Ian Banks, a senior consultant at Towers Watson, said the view put forward by the regulator could jeopardise scheme members' benefits.

"If additional requirements deter more companies from exploring these options, then members' benefits may ultimately be less secure," he said.

"The fallback plans the regulator wants companies to commit to may well involve the schemes staying in deficit for longer."

He also criticised the vagueness of the guidance. If TPR is concerned about asset transfer deals, asking for secondary plans to be put in place, it needs to be "more forthcoming" about the aspects of such deals, he said.

Robin Simmons, a partner at Sackers, said the call to underpin any future transaction brought with it more complications.

"Quite how employers and trustees will respond to that call from TPR remains to be seen," he said. "It certainly adds another twist to what are often already mammoth funding negotiations."

Brian Peters, a pension partner at PwC, said he agreed with TPR that any transaction that can involve the transfer of freehold properties, such as the one by supermarket chain Tescos several years ago, should be examined by a lawyer beforehand.

"However," he added, "it is important the regulator's statement not lead to trustees questioning the validity of these arrangements unduly."

Peters added: "There has been a sea change in the acceptance of non-cash funding of pension schemes from just five years ago when such structures were never used."

Feargus Mitchell, a pensions advisory partner at Deloitte, called the proposals pragmatic and a win-win for companies and trustees, adding that they would help achieve the required balance between continued contributions and the investments needed to maintain the business of any sponsoring employer.