UK - Feedback on a draft code of practice concerning the "material detriment" test has resulted in The Pensions Regulator (TPR) restructuring the code to make it clearer and more "accurately reflect the policy intent".

In its summary of the responses to an eight-week consultation, TPR revealed the feedback was "generally supportive" of the test, which details the alternative grounds for issuing contribution notices as part of amended anti-avoidance powers.

However, the 29 written responses and 10 face-to-face meetings with stakeholders highlighted some concerns "about the clarity and breadth of the definitions of the circumstances and their potential to capture routine business transactions", alongside uncertainty regarding how the code operates with existing legislation.

In particular, some of the respondents felt "the circumstances were unclear, open to interpretation and that there was a risk that ordinary corporate transactions may be caught by the code".

Tony Hobman, chief executive of TPR, said: "In response to feedback, we have made changes to ensure the code is clear and that it interacts well with other rules and regulations. We're not expecting any undue impact upon routine business and we thank respondents for the feedback."

TPR stated it intends to remain "pragmatic and proportionate" in the use of its amended anti-avoidance powers, and in addition to the restructuring and simplifying of the code, including explanations of referred to legislation and clarification of defined terms, it also intends to publish further guidance and illustrative examples for employers.

The regulator stressed the new code "is unlikely to affect the majority of sponsoring employers, and confirmed the clearance process is unaffected by these changes so those concerned about the impact of a transaction on a pension scheme can apply for clearance in the usual way.

Legislation detailing the code of practice has been laid before Parliament ready for approval, however TPR noted the Pension Act 2008 requires the secretary of state for work and pensions to review the material detriment test and the statutory defence within four years of their commencement.

The code is expected to come into force in summer 2009, along with the material detriment test and the statutory defence, and TPR revealed it is aiming to update current guidance, and "produce a high-level overview for employers as well as illustrative examples" to coincide with parliamentary approval. 

Some of the examples currently under development to show how the code and material detriment test will work in practice include the payment of dividends to a parent company; buy-outs and annuities; investment strategy and the granting of security.

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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