The Association of Consulting Actuaries (ACA) has called for greater clarity on the potential impact of the sponsoring employer resources test proposed in a recent government consultation.

In response to the government consultation Strengthening The Pensions Regulator's (TPR) Powers: Contribution Notice and Information Gathering Powers Regulations 2021, the ACA said that it was supportive of a test that seeks to ascertain whether an act or failure to act has damaged the normal profitability of a company.

However, it called for greater clarity as the consultation does not detail what non-recurring or exceptional items are to be removed by TPR when calculating normalised annual profit before tax (NAPBT).

The ACA also noted that the consultation does not give any illustration of how the impact on NAPBT would be determined following the act or failure to act.

The association warned that uncertainty remained as to how NAPBT would be measured and, assuming that there was a negative impact on NAPBT, said the industry is “no further forward” in understanding how such a reduction will be regarded as being ‘material’ in relation to the estimated section 75 debt.

Its response stated that it “would have been much more helpful” if the consultation on the regulations could have been paired with TPR draft guidance, as there was a fear that normal corporate behaviour could result in exposure to an employer resources Contribution Notice.

“Further clarity is needed on the intended impact of the employer resources test,” commented ACA Pension Schemes Committee chair, Peter Williams. “Companies need to know whether actions they are likely to take could depress the proposed profit measurement and whether such a reduction would be considered material. 

“They need to know this through sufficiently comprehensive guidance rather than through applying for clearance. 

“Companies will not want to find they are in situations where the employer resources test is potentially very frequently met, with power passing entirely to the regulator to decide whether or not it is reasonable to impose a Contribution Notice.”

The ACA also stated that the consultation was too “narrow” to be able to assess whether there would be unforeseen consequences to the proposed approach, but noted that there was a “clear danger” that corporates would be concerned at the perceived uncertainty.

Its response added: “We are disappointed that the consultation has not taken the opportunity to state that this new contribution notice test will not be backdated – ie it will only apply to acts or failures to act occurring after say 1 October 2021.

“There is a fear that when the relevant Commencement Order is laid it will catch acts and failures to act from any time after say 1 October 2015.”

The consultation also proposed that TPR uses interviews to gather information and views, with ACA noting that it would be “helpful” if the regulator provided guidance on how it will use its interview powers.

Share Story: