Updated TPR guidance on Regulated Apportionment Arrangements

The Pensions Regulator (TPR) has published an update to its guidance on Regulated Apportionment Arrangements (RAAs), replacing its earlier guidance published in 2010 and its subsequent 2017 ‘quick guide’.

An RAA enables an employer facing inevitable insolvency to apportion its liabilities under a defined benefit scheme to another participating employer(s) and cease participation in the scheme, which will then enter the Pension Protection Fund (PPF). There are a number of regulatory requirements to be met including TPR approval and the PPF must not object to it.

The updated TPR guidance, while mostly aligned with TPR’s current approach, is more detailed than earlier guidance and places a stronger focus on the criteria needed for RAA approval.

TPR has emphasised:

• Employers should rule out all other options before applying for an RAA.
• TPR expects to be involved in discussions when restructuring options for the scheme are being considered by the scheme’s employer.
• The view of the trustee is a crucial part of TPR’s consideration of any RAA proposal.

The guidance sets out the following principles that will need to be satisfied and how this can be evidenced:

• The employer’s insolvency is inevitable within the next 12 months.
• The upfront cash consideration proposed is significantly greater than the recovery expected for the scheme in the case of the employer’s insolvency.
• A better outcome could not be attained for the scheme by other means, including through the use of TPR’s powers, where relevant.
• It would not be reasonable for the wider employer group or any entity within it to support the scheme or its employer in the future.
• The scheme is receiving equitable treatment in comparison to the employer’s other creditors, shareholders and other stakeholders.
• The scheme receives an appropriate portion of the equity in the employer departing the scheme under the RAA.

The guidance also states that:

• The PPF also has its own guidance on employer restructuring that it expects to be followed in respect of any RAA.
• TPR expects that any RAA application is accompanied by a clearance application by the scheme's employers (and its clearance template has been designed so that this can be done in one form).
• As an approval notice for an RAA cannot be issued until 28 days after the Determination Notice to approve the RAA, applicants/employers should factor this into commercial deadlines.
• TPR will apply its RAA principles to other arrangements that produce a similar outcome to an RAA e.g. a clearance application in respect of a compromise of the employer’s section 75 debt.