Pensions Act 2004: the changing relationship between employer and trustees

The Pensions Act 2004 (and in particular the approach of the new Pensions Regulator) changes the relationship between pension scheme trustees and employers quite significantly. Trustees and employers will have to assist one another so that they can fulfil the duties imposed on them by the Act. In order to do this, employers will have to share potentially confidential information with trustees. Trustees need to start a dialogue with employers to establish a 'business-like' protocol for this.

Pensions Act requirements

• Pensions Regulator: the Act introduces a new proactive Regulator which expects trustees and employers to work in partnership in assisting it to meet its objectives (including the protection of members' benefits and to reduce the risk of calls on the Pension Protection Fund). It expects trustees to act as unsecured creditors, monitoring the finances of the employers.
• Notifiable events regime: employers are now under a duty to notify the Regulator about certain 'employer-related events' which have a potential impact on employer solvency and the strength of the employer's covenant. Trustees are also under obligations to notify the Regulator about certain 'scheme events'. For more details please see the March 2005 Briefing Note 'Notifiable Events'.
• Anti-avoidance: the Pensions Regulator has specific powers to impose contribution notices where there is an act (or a failure to act) to avoid pension liabilities; and financial support directions when the employer in relation to an underfunded scheme is a service company or insufficiently resourced. It is possible for parties to get clearance from the Regulator to ensure that it will not use these powers as a result of a particular action. Trustees will need information on the employers finances to take part in clearances. For more details please see the March 2005 Briefing Note 'Impact for employers II – Anti-avoidance – a new factor in corporate activity?'.
• Scheme specific funding: as part of the new funding process trustees will generally be given more power in setting the employer contribution rates. The Code of Practice makes it clear that trustees will need to be in possession of full and accurate information about the employer's financial standing in order to assess the strength of the employer's funding covenant as part of the process.
• Trustee knowledge and understanding: trustees must have a sufficient level of knowledge and understanding of trusts, pensions law, the principles of funding and investment and be conversant with their scheme documents in order to carry out their functions as trustees properly. In relation to funding, trustees are required to understand the employer's finances and their impact on scheme funding.

What information will employers have to provide to trustees?

Employers should inform trustees of any matter which is likely to be of material significance to the funding of the scheme, subject to agreed parameters on materiality and proportionality. However, some of this information is likely to be of a sensitive nature. Trustees should be willing to enter into a confidentiality agreement with the employer to facilitate the provision of information.

We recommend that trustees write to the employer with a request for information in order to enable them to comply with their Pensions Act 2004 obligations.

Please contact us if you would like advice on the sort of information the trustees ought to be requesting from the employer or the confidentiality agreement the trustees should be looking to agree with the employer.