The UK Pensions Regulator's "Moral Hazard" Provisions: Revised Legislation and Clearance Guidance
April 21, 2008
The Pensions Act 2004 (PA 2004) created two new bodies, the Pension Protection Fund (PPF), which provides a compensatory underpin of benefits to members of underfunded pension schemes, and the Pensions Regulator (TPR), which is the regulatory body for employer-sponsored pension schemes in the United Kingdom. Under the PA 2004, TPR has been set a number of specific statutory objectives, which include protecting the benefits of members of employer-sponsored pension schemes and reducing the risk of situations arising which may lead to compensation being payable from the PPF. It also has a number of powers to assist it in achieving these objectives, including the so called "moral hazard" powers under which it can issue contribution notices and financial support directions in certain circumstances. New legislation has been announced in a ministerial statement which increases these moral hazard powers. To bring certainty to persons who could be affected by the moral hazard provisions, TPR introduced a clearance procedure in April 2005. Those who are entering into a corporate transaction or restructuring may apply to TPR for assurance that it will not use its moral hazard powers in relation to the specified event. TPR’s guidance on the clearance process has been substantially amended and supplemented. This article examines the new legislation and revised clearance guidance.
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