Welcome to your weekly update from the Allen & Overy Pensions team, covering all the latest legal and regulatory developments in the world of occupational pension.
This week we are covering topics such as: the latest regulatory intervention report from the pension regulator; and a government challenge to institutional investors on investing in long-term UK assets.
- Latest TPR Regulatory Response Report: FSD Warning Notice to Foreign Parent
- The government’s ‘challenge’ to institutional investors on investing in long-term UK assets
Latest TPR Regulatory Response Report: FSD Warning Notice to Foreign Parent
The pension regulator (TPR) has published a regulatory intervention report on its involvement with Keytec (GB) Ltd, the statutory employer of a small hybrid scheme, and its German parent company, Turbon AG. This occurred under circumstances where the employer’s commitment had been eroded and, although TPR acknowledged that the parent company had made legitimate business decisions regarding Keytec’s activities, it felt that the financing needs of the regime had not been given priority.
Following the actuarial valuation of the plan in 2016, TPR feared that the plan would be treated unfairly to Keytec shareholders. The trustee and the employer had agreed to a two-year contribution holiday after the 2013 assessment (with £ 30,000 paid in the year ending April 5, 2016). A new contribution holiday was agreed in the 2016 appraisal. The employer paid a dividend of £ 876,000 in 2015 (after the parent company decided to wind up Keytec’s manufacturing business), with nothing more for the diet. TPR was concerned that: Keytec (now a service company) would not be able to support the program without the help of Turbon, who preferred to prioritize the company’s general cash flow needs. Two existing guarantees from the parent company offered insufficient financial support as they were of limited value and one was time-limited. The trustee had attempted to improve collateral security but Turbon did not commit and as a result TPR issued a warning notice in March 2020 to Turbon and its majority shareholder, HBT Holdings.
Following the publication of the warning notice, the targets and plan trustees negotiated a funding plan that TPR said would provide significant long-term support (including a lump sum in cash, contributions for deficit repair, a replacement guarantee from the parent company and an agreed funding framework for future assessments). Based on this, TPR was convinced that it was no longer appropriate to use his powers.
TPR said that “we will not hesitate to exercise our anti-avoidance powers over targets – whether based in the UK or (as in this case) overseas – to ensure that the regimes defined benefits receive sufficient financial support. … When targets are willing to engage with us and administrators to address our collective concerns, we are willing to end our regulatory action quickly to save time, costs and resources for all parties while getting a solid result for the regime and its members. ‘
Read the report.
The government’s ‘challenge’ to institutional investors on investing in long-term UK assets
The government has issued an open letter from the Prime Minister and the Chancellor urging UK institutional investors to consider investing in UK assets for the long term. Over the past few years, the government has tried different policy levers aimed at removing barriers to investing in long-term illiquid assets and encouraging UK pension schemes to invest in areas such as patient capital and infrastructure. . The latest letter is written in terms of the UK’s economic recovery following the Covid-19 pandemic. He acknowledges that there is “no single ‘right answer’ for how much should be invested in these asset classes over the long term” and that there are some structural hurdles to overcome, but challenges them. DB and DC trustees and investment advisers to consider investing further in UK long-term assets where appropriate.
Read the letter.
As a reminder, TPR published a blog post on managing liquidity risk in regimes at the start of the summer, which addressed the issue of investing in illiquid assets. TPR noted that while illiquid investments may present opportunities to capture an illiquidity premium or improve member results, directors should consider factors such as their plan’s investment, risk management , governance and financing methods, the holding structure of these investments and the degree of investor protection. provided.
TPR has also proposed a specific limit in its next single code of conduct on the maximum allocation of assets to investments that are not admitted to trading on regulated markets. TPR appears likely to adjust this proposal in response to consultation comments, but details of any revised expectations have yet to be confirmed.
Read the blog article.