Pensions Regulator approves mechanism for Hoover scheme to enter the PPF
The Pensions Regulator has approved a restructuring proposal by Hoover Limited under which the Hoover (1987) Pension Scheme (HPS) will enter the Pension Protection Fund. This followed the inability of the scheme trustees and employer to agree the 2013 valuation.
The restructuring involves a mechanism known as a regulated apportionment arrangement (RAA). Under this a financially troubled employer may detach itself from its DB pension scheme liabilities if insolvency is otherwise inevitable and so long as it provides the scheme with more funding than would be available on an insolvent break up. The criteria for an RAA are very strict and are designed to stop employers abusing the mechanism, and include that the scheme’s employer would have become insolvent within the coming 12 months if the RAA had not taken place.
In this instance the HPS, which has 7,500 members, will receive £60 million from Hoover and is expected to transfer into the PPF. The scheme will also receive ordinary shares representing a 33% stake in Hoover.
Hoover and HPS trustees have agreed the RAA and the Regulator has granted clearance to the proposal. Formal approval of the RAA was issued on 30 May 2017.
This is the first RAA that the Regulator has approved this year and only the second in the last two years (see Pensions Bulletin 2016/28).
This case was also notable for being the first time the Regulator has exercised its legal power to instruct an independent adviser to prepare a “Skilled Person’s” report, the costs of which are shared by the employer and trustees. This report provided independent evidence that Hoover could not afford even the current inadequate level of employer contributions. So as a funding solution was not possible, attention turned to restructuring. This in turn required the trustees and employer to engage separate experts – to estimate the outcome for the scheme on insolvency and to confirm that insolvency was inevitable within 12 months.
Comment
This is a case where an RAA is used with the whole scheme likely to transfer to the PPF. As the Regulator states, RAAs are still rare, although we know that there are at least two more in the pipeline (BHS and British Steel), both of which may result in a substantial portion of the schemes staying outside the PPF.
However used, the RAA mechanism can provide the best outcome for members of underfunded pension schemes with sponsors in financial difficulties, but the process is complicated and expensive and so RAAs are likely to remain rare. In Hoover’s case, two proposals were rejected before the successful solution.
It may be that suggestions in this year’s Green Paper to simplify the process by which stressed employers may either separate themselves from their pension liabilities or re-negotiate the benefit promise will come to fruition in which case this type of deal may become more common, but until then employers and schemes in difficulty face limited options.
HMRC’s pension schemes newsletter 87
HMRC’s latest pension schemes newsletter contains a number of administrative matters as follows:
- ROPS notification list – a reminder that the recognised overseas pension schemes notification list was temporarily suspended on 2 June while HMRC checked that some schemes meet the new qualifying conditions. The list was re-instated on 7 June, with 66 schemes added (mainly Australian) and 61 removed (largely from Gibraltar, Guernsey, the Isle of Man and Jersey)
- Pension advice allowance – scheme administrators can, if they choose, accept an email request from a member who wishes to use the pension advice allowance as being one made “in writing” for the purpose of the regulations that introduced this measure in March (see Pensions Bulletin 2017/13)
- Relief at source – schemes operating this form of tax relief on member contributions are reminded that they must submit their annual return for the tax year 2016/17 by 5 July 2017
There is also a short article that discusses the difference between the pension scheme return (PSR) and the SA970 tax return for trustees of registered pension schemes and clarifies that even if one has been submitted, the other must be completed on request. There is also a further article that reprises and builds on some of the messages set out in last month’s pension schemes Scottish rate of income tax newsletter.
Comment
The updated QROPS list excludes schemes that no longer meet the revised requirements and it is therefore important to check the list to ensure that even familiar schemes are still included on it. Any transfers made to a scheme that is not on the list will incur a tax charge.
Two months after the pension advice allowance came into force and it seems that we are no nearer seeing the HMRC guidance on this important new measure. One hopes that it will be available soon.
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.
