Government amendments to the "moral hazard" provisions

United Kingdom

On Friday, the Government proposed amendments to the "moral hazard" provisions of the Pensions Bill. These changes are a result of the fierce lobbying which took place during the summer.

The changes are important for everyone dealing with pension schemes and the following provides brief highlights of the amendments.

The amendments will:

  • exclude insolvency practitioners from contribution notices. There will also be power to exempt other groups, though there is no indication whether or for whose benefit this will be used
  • add another factor (the purpose of the action challenged) for the Regulator to consider when assessing whether it is reasonable to issue a contribution notice. This will allow, for example, the Regulator to take into account whether one of the purposes of the action was to protect employment.
  • allow those involved in business transactions, corporate restructuring or investments to seek confirmation in advance that the Regulator will not impose a contribution notice or a financial support direction on them. The Regulator will not be bound by its decision if the information in the clearance application is materially different to the actual circumstances.
  • restrict the range of individuals caught by financial support directions to situations where the employer is an individual. Accordingly it will still be possible to issue financial support directions to partnerships, limited liability partnerships and sole traders. To achieve this the definitions for "associated" and "connected with" have been modified and there will be power to implement regulations to amend these definitions further for the purposes of the moral hazard provisions.
  • allow the Regulator to consider any benefit the person has previously received from the employer (e.g. profits, assets or a tax advantage) before making a decision regarding a financial support direction.
  • give the Regulator discretion to issue financial support directions for part of the pension liabilities (not just the whole as was previously the case).
  • require the Regulator, as with contribution notices, to be satisfied that it is reasonable to issue a financial support direction.