Government re-think of pensions "moral hazard" provisions 1

During the House of Lords debate yesterday on the controversial "contribution notice" provisions in the Pensions Bill, Baroness Hollis on behalf of the Government said that "discussions will be ongoing over the summer with … organisations … . … I am open to be persuaded that we may need to make adjustments."

The provisions concern amendments to the Pensions Bill to target companies and those connected or associated with them where actions are taken that have as one of their main purpose trying to reduce or avoid a pension debt that might otherwise fall on a company.

Other, potentially more significant changes, seek to widen corporate responsibility for pension liabilities. In certain circumstances, parent companies and other group companies will be required to provide "financial support", effectively guarantee pension liabilities for other companies within their group. These are still to be debated and at this stage it is unclear whether these proposals are also part of the Government's re-think.

Whilst those involved with corporate merger and acquisition activity will be pleased to see that the Government is reconsidering some of these issues, it seems to us unlikely that this really is a "suspension" of the provisions as reported in the press today, but rather the overall policy intention will remain but with some changes made to the drafting. These are likely to clarify that the provisions do not apply to insolvency practitioners and may address some of the concerns raised on the potential impact on corporate activity.

Numerous changes have been tabled in the House of Lords to the draft provisions including one to limit the time that the Regulator can look back at activities to five years. Baroness Hollis said that she was "genuinely open-minded as to whether this is the right way forward" and requested the amendment to be withdrawn pending further consideration.

There was also discussion on a clearance system being introduced to provide greater certainty when corporate activity is being contemplated and Baroness Hollis stated that "there is no doubt that there will be a clearance procedure; how it will operate will be published in guidance by the Regulator". This would indicate that the clearance procedure is unlikely to be up and running until April 2005 when the new Regulator begins to act.

For further advice concerning these provisions and their implications please speak to your usual contact or contact Simon Pilcher at [email protected] or +44 (0)20 7367 2593.