Well over a third (40%) of DB scheme sponsors don’t claim to be familiar with what the Pension Schemes Act 2021 requires regarding their company planning, financial activity, and compliance, according to research by Hymans Robertson.1 Yet, nearly two thirds (61%) say that recent corporate activity has been impacted by the Act and 29% of respondents see complying with the 2021 Act as a key challenge for their DB schemes over the next three years. The leading pensions and financial services consultancy warns that more education is needed to raise awareness of how the requirements could or should affect their company, including on the implications to dividend policy and corporate strategy.
Commenting on why it is important for companies to know the PSA21 requirements, Leonard Bowman, Head of Corporate DB Endgame Strategy, Hymans Robertson, says: “The Pension Schemes Act 2021 (PSA21) was the most significant piece of UK pensions legislation in the 17 years since the Pensions Act 2004, and its requirements are already having an impact for most companies. A significant proportion believe that recent corporate activity carried out by their company has been impacted by the Act’s requirements. Despite this, it is worrying that only 29% of the DB schemes sponsors we surveyed strongly agreed that they are familiar with the 2021 Act’s more penal sanctions and new contribution notice requirements. Given the severity of the criminal offences, no company or director is going to want to be in that minority.
“In our experience, knowing how to interpret compliance with PSA21 and to avoid accidently being on the wrong side of the law is what companies are struggling with most. One obvious example is the investigations and measures that should be taken by a fundamentally sound company when considering some form of special dividend, a common business activity that now feels far more fraught than in the past.
“Companies should embed clear audit trails for pension decisions and statutory defence documentation within their corporate governance. The new notifiable events regime, when enforced, will make this especially true for all companies with DB plans. It is expected to require companies to provide a “declaration of intent” to the Regulator and the trustees by way of early notice of corporate transactions which could adversely affect a scheme.
“DB pension commitments continue to be a significant financial concern for companies and have implications on longer term corporate strategy, especially through the lens of PSA21. Over half (55%) of the companies we spoke to said that their dividend policy has been affected by PSA21. Given the clear message from companies that PSA21 is impacting corporate behaviours, it will be interesting to see if that continues to be the case as scheme funding improves further and whether it serves to increase companies’ appetite to proceed with scheme buy-outs as soon as is practicable.”
The report on the survey findings can be read here.
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