The new Pension Schemes Act 2021 will be implemented by regulation that is likely to come into force over the next year. The Pension Schemes Act significantly extends the powers of the Pension Regulator and introduces a strengthened regulatory regime that includes new civil and criminal offences; penalties of up to £1 million; changes to defined benefit scheme funding; climate change governance and reporting and collective money purchase schemes. The changes also aim to increase public awareness of how pension schemes invest.

Businesses must be aware of the changes and understand the scope of the regulator's strengthened powers to ensure they know what sanctions they may be at risk of or new duties they may have to comply with. For example, many corporate restructurings/re-financings can adversely impact a defined benefit pension scheme and therefore those involved in such transactions will need to consider whether their acts risk exposing them to prosecution. 

The Pensions Regulator's new criminal sanction and extended moral hazard powers are in force. The extension to the moral hazard powers allows the Pensions Regulator (TPR) to require additional pension scheme funding from employers and their group in a wider range of circumstances, including corporate activity that results in a material reduction to an employer's resources. The changes have also lowered the threshold for TPR to issue a contribution notice which, in addition to the notifiable events regime) will mean more transactions will come to the attention of the TPR and scheme trustees.

Businesses should be aware of how the TPRs extended powers and the impact this may have on scheme management. For most businesses it is likely the hazard power changes to be a bigger issue than the criminal sanctions (which TPR intends to use in only the most serious cases). For example, businesses often provide mitigation through negotiations (e.g. additional contributions and/or security) in relation to corporate activity that may adversely impact the scheme. It is possible that trustees will agree to any proposed mitigation only to find the TPR inform them they should be asking for more. It is therefore vital that any agreement on mitigation is carefully documented taking these factors into account.

The government intends to make major changes to the "notifiable events" regime which requires certain corporate activity to be notified to TPR. The new notifiable events include: 

• A decision in principle by the employer to sell a 'material proportion" (broadly 25%) of its business or asset 
• A decision by the employer or its subsidiaries to grant or extend a "relevant security" where the security will rank ahead of the pension scheme (subject to a limited exemption for refinancings).
• A decision to sell a sponsoring employer will have to be notified at an earlier point in time at the "decision in principle" stage. More information will also have to be provided to TPR as the transaction progresses.

Businesses should ensure they implement information sharing protocols with their scheme trustees and make sure they understand which events need to be notified to TPR when, and what follow up information needs to be provided.