The Pensions Act 2008, which received Royal Assent on 26 November, amended the 2004 Act to give TPR new powers to counter moral hazard. In particular a "material detriment" test has been introduced in response to the emergence of new alternatives to the standard pensions buyout. The Government fears these may lead to weakening of the sponsoring employer's covenant, with consequent detriment to scheme members' benefits and the PPF. The risks represented by these models may not be within the power of trustees to address.

In our previous report we noted that TPR had published a draft Code of Practice on how it proposed to apply the new test for contribution notices, based on whether a sponsor's actions or failures have a materially detrimental effect on the likelihood of members receiving their benefits. Today this was formally issued as CoP 12 "Application of the material detriment test", for consultation until 6 February 2009.

The code sets out the circumstances in which the regulator expects to use this new power:

• transfer of a scheme out of UK;
• transfer of a sponsoring employer out of the UK where there is a material reduction in the level of support or legal and regulatory protection;
• severing of employer support so that employer support is either removed, substantially reduced or nominal; and
• transfer of liabilities to a scheme/arrangement with inadequate employer support**.
  ** "employer support" = the scheme obligations of the employer or any other person; and the likelihood of the recovery in full for the scheme under the scheme obligations.

There is a statutory defence under the Act. A contribution notice must not be issued on grounds of material detriment if TPR is satisfied that:

• before becoming party to an act or failure, the person gave due consideration to the extent to which there may be a resulting material detriment to the likelihood that the pension scheme members would receive their accrued benefits;
• where as a result of that consideration there was considered to be a potential detriment, that the person should take all reasonable steps to eliminate or minimise the potential detrimental effects that the act or failure might have on the likelihood that the pension scheme members would receive their accrued benefits; and
• at the time of the act or failure the person, having regard to all the relevant circumstances prevailing at that time, could reasonably conclude that the act or failure would not detrimentally affect in a material way the likelihood of members' accrued benefits being received.

This approach allows the relevant party to demonstrate with evidence that it was reasonable to conclude, at the time, that the effect of the act or failure to act would not be materially detrimental.

Also today, the DWP has published a consultation draft of The Pensions Regulator (Miscellaneous Amendment) Regulations 2009. Two proposals are contained:

1. to extend the look-back period for issuing a Financial Support Direction contained in SI 2005/2188 Reg 5 from 12 to 24 months; and
2. to remove the following notifiable events from the regulations (SI 2005/900):
   • Two or more changes in key scheme post: the Government accepts that frequent changes in the holders of these posts can indicate weakening scheme governance, but they are not risks in themselves.
   • Credit rating change: this event covers information that is useful for TPR but there are alternative sources of information available that can give TPR the same information.
   • Changes in key employer posts: frequent changes in senior management, such as chief executive or finance director, could indicate that the company is in financial difficulty or that there is an imminent sale or purchase of the company or its subsidiary, which could impair the company's ability to support the scheme. However, such changes are not a risk in themselves and TPR's experience of this event indicates that too many routine staff changes have been notified causing unnecessary work. Corporate transactions and restructuring may be made known directly to TPR through other notifiable events, clearance applications, whistleblowing reports and routine monitoring of industry sectors, which obviates the need for the indirect route.