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Pensions (No. 2) Act (Northern Ireland) 2008

Schedule 8: Contribution notices and financial support directions under 2005 Order

Schedule 8 amends the Pensions (Northern Ireland) Order 2005 in relation to contribution notices and financial support directions to strengthen the Pensions Regulator’s anti-avoidance powers.

Paragraph 2(1) amends Article 34(5)(a) to enable the Regulator to issue a contribution notice if it is of the opinion that the material detriment test is met in relation to an act or failure to act.

Sub-paragraph (2) inserts Articles 34A and 34B.

Article 34A provides the meaning of “material detriment test” and related terms. It provides that the test is met if the Regulator is of the opinion that an act or failure to act has detrimentally affected in a material way the likelihood of accrued scheme benefits being received.

Article 34B provides a statutory defence in relation to the material detriment test. This allows the relevant party to demonstrate with evidence that they considered the impact of the act or failure to act on the scheme as part of the normal due diligence process and that where (i) it was not likely that the effect would be materially detrimental, (ii) or the detriment was minimised and (iii) it was reasonable for the party to do the act or fail to act, the contribution notice would not apply.

Paragraph 3 amends Article 85(2) to place a requirement on the Regulator to set out in a statutory Code of Practice the circumstances in which it intends to use this power.

Paragraph 4 amends Article 91 to provide that, where warning notice is given in respect of a contribution notice under Article 34, and the contribution notice would be issued wholly or partly as a result of the Regulator’s opinion that the material detriment test is met, the standard procedure must provide for an explanation of the statutory defence under Article 34B and provide an opportunity to exercise that right.

Paragraph 5 amends Article 288(3) to provide that regulations made under Article 34A(10) or 34B(13) in relation to the material detriment test and contribution notices shall be subject to the confirmatory procedure.

Paragraph 6 amends Article 34(5) to remove the words “otherwise than in good faith”. The current test sets an inappropriate evidential hurdle; requiring the Regulator to prove that a person was acting in bad faith.

Paragraph 7 amends Article 34 to clarify the circumstances in which it is reasonable for the Regulator to issue a contribution notice and require it to consider any detriment to the scheme in the context of the value of any benefits the person receives, or is entitled to receive, under the scheme and the likelihood of relevant creditors being paid and the extent to which they are likely to be paid.

Paragraph 8 amends Article 34 to provide that, where a person was party to a series of acts or failures to act, the series of acts or failures to act is to be regarded as an act or failure to act.

Paragraphs 9 and 10 insert Articles 35A, 35B, 39A and 39B which deal with transfers of members of a scheme. These provisions apply where the Regulator has met the relevant tests for issuing a contribution notice or a financial support direction, but the member of the occupational pension scheme to which the tests have been satisfied have been transferred to a different scheme. Under current rules, the Regulator can issue a contribution notice or financial support direction only to the original scheme.

Articles 35A and 39A permit the Regulator to issue a contribution notice or a financial support direction to require the support for which the employer is liable to be directed to the pension scheme(s) to which affected members have been transferred. These provisions also permit support to be directed to the appropriate scheme in circumstances where there are multiple transfers of some or all of the members of the original scheme to one or other work-based schemes, including onward transfers.

Articles 35B and 39B provide that Articles 35A and 39A apply in circumstances where the original scheme has been wound up. Articles 35B(8) and 39B(8) provide regulation making powers to permit the application of Articles 35B and 39B to arrangements other than the standard transfers from one scheme to another. This will enable the Regulator to continue to protect member’s benefits where the transfer or other arrangement could put those benefits at risk.

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