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Circumstances in relation to the material detriment test

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Introduction

  1. This code of practice is issued by The Pensions Regulator (the regulator), the body that regulates work-based pension schemes.
  2. The regulator's statutory objectives are to protect the benefits of pension scheme members, to reduce the risk of calls on the Pension Protection Fund, and to promote the good administration of work-based pension schemes [1].
  3. The regulator has a number of regulatory tools, including issuing codes of practice, to enable it to meet its statutory objectives. The regulator will target its resources on those areas where members' benefits are at greatest risk.
  4. Codes of practice provide practical guidelines in relation to the exercise of functions under pensions legislation and set out the standards of conduct and practice expected of those who exercise such functions [2].

Footnotes for this section

  • [1]

    See section 5(1)

  • [2]

    See section 90(1)

This code of practice

  1. The regulator is required to issue this code of practice (the code). It sets out the circumstances in which the regulator expects to issue a contribution notice [3] as a result of being of the opinion that the material detriment test is met [4].

Footnotes for this section

  • [3]

    See sections 38 and 38A

  • [4]

    See section 90(2)(a)

Status of the code

  1. When considering issuing a contribution notice under the material detriment test the regulator will take the relevant part of this code into account.
  2. This code is admissible in evidence in any legal proceedings and must be taken into account by a court or tribunal where it is relevant to any question arising in those proceedings [5].

Footnotes for this section

  • [5]

    See section 90(5)

Using this code

  1. This code should be read in conjunction with Part 1 of the Pensions Act 2004 (as amended). And in this code (and the footnotes), unless stated otherwise all statutory references are to the Pensions Act 2004 (as amended).
  2. Certain emboldened terms have the meaning as stated in Appendix A.

The regulator's other functions

  1. The circumstances in this code do not relate to the other functions of the regulator.

Northern Ireland

  1. In this code, references to the law that applies in Great Britain should be taken to include corresponding legislation in Northern Ireland. Appendix B to this code lists the corresponding references.

Material detriment test and the circumstances

  1. In order to issue a contribution notice by reference to the material detriment test, the regulator must be of the opinion that:
    • the act, or failure to act, has been materially detrimental to the likelihood of the accrued scheme benefits being received (whether the benefits are to be received as benefits under the scheme or otherwise) [6]:
      • there are factors which must be considered, when they are relevant, in determining whether there has been material detriment in relation to the act, or failure to act [7];
    • the statutory defence [8] is not met in relation to the act, or failure to act; and
    • it is reasonable to impose liability on the person to pay the sum specified in the contribution notice, having regard to:
      • the extent to which, in all the circumstances of the case, it was reasonable for the person to act, or fail to act, in the way that the person did [9];
      • such other matters as the regulator considers relevant [10].
  2. The circumstances in which the regulator expects to issue a contribution notice as a result of being of the opinion that the material detriment test is met are:
    • The transfer of the scheme out of the jurisdiction.
    • The transfer of the sponsoring employer out of the jurisdiction or the replacement of the sponsoring employer with an entity that does not fall within the jurisdiction.
    • Sponsor support is removed, substantially reduced or becomes nominal.
    • The transfer of liabilities of the scheme to another pension scheme or arrangement which leads to a significant reduction of the:
      • sponsor support in respect of these liabilities; or
      • funding to cover these liabilities.
    • A business model or the operation of the scheme which creates from the scheme, or which is designed to do so, a financial benefit for:
      • the employer; or
      • some other person,

      where proper account has not been taken of the interests of the members of the scheme, including where risks to members are increased.

Footnotes for this section

  • [6]

    See section 38A(1)

  • [7]

    Including (where relevant) the factors falling within section 38A(4)

  • [8]

    See section 38B

  • [9]

    See section 38(3)(d)

  • [10]

    Including (where relevant) the matters falling within section 38(7)

Appendix A: Defined terms

Jurisdiction means the jurisdictions of the United Kingdom. This includes England, Wales, Scotland and Northern Ireland.

Scheme means an occupational pension scheme [11].

Sponsor support consists of:

  • the scheme obligations of the employer or any other person; and
  • the likelihood of recovery in full for the scheme under the scheme obligations,

and scheme obligation [12] means a liability or other obligation (including one that is contingent or otherwise might fall due) to make payment, or transfer an asset, to:

  • the scheme; or
  • any work-based pension scheme, to which accrued scheme benefits have been transferred, in respect of any persons who were members of the scheme before the act or failure to act.

Work-based pension scheme [13] means an occupational pension scheme and certain aspects of stakeholder and personal pension scheme.

Footnotes for this section

  • [11]

    See section 1 of the Occupational Pension Schemes Act 1993 (as amended)

  • [12]

    See section 38A(5)

  • [13]

    See section 5(3)

Appendix B: Corresponding Northern Ireland legislation

GB Legislation Corresponding Northern Ireland legislation
The Occupational Pension Schemes Act 1993 (c48) The Occupational Pension Schemes (Northern Ireland) Act 1993 (c49)
Section 1 Section 1
The Pensions Act 2004 (c35) The Pensions (Northern Ireland) Order 2005 (SI 205/255 (NI1))
Section 5 Article 4
Section 38 Article 34
Section 38A Article 34A
Section 38B Article 34B
Section 90 Article 85
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