New law: Directors and others face new prohibitions to stop them doing anything ‘detrimental’ to defined benefit pension schemes

The new rules prohibit them from behaving in a way which they know, or should have known, would detrimentally affect benefits under a defined benefit pension scheme in a material way, unless they have a reasonable excuse for doing so.

This could create a problem in transactions like company acquisitions, mergers, re-organisations, re-structuring of companies (or groups of companies) - particularly, where a company with financial problems is looking for fresh investment or considering additional borrowing or other debt - and payment of dividends where a company is in financial difficulty.

Penalties include a civil penalty of up to £1m, and criminal penalties of up to seven years in prison.

The new law is to be introduced after mid-2021 – the date is not yet fixed, as the Pensions Regulator needs to consult first. It will not apply retrospectively, but it would be prudent for directors and others to start considering now whether and which of their current projects or future plans and proposals could affect a defined benefit scheme.

Operative date

• Mid-2021

Recommendation

• Directors, pension trustees, lenders and finance-providers, investor, buyers and sellers of company shares, and professional advisers should consider whether they could be affected by important new pension laws affecting defined benefit pension schemes due later in 2021.