Important reading for trustees and employers of defined benefit (DB) schemes in distress scenarios.  The Pensions Regulator (TPR) has updated its guidance on RAAs.  Although not a big change in approach, the latest guidance is more detailed and gives helpful examples of relevant considerations. 

An RAA is an arrangement where a distressed employer facing insolvency can legitimately separate itself from its DB pension scheme liabilities to save its business. 

RAAs are not very common but they are a valid liability restructuring option in the right circumstances and we have worked on a number of successful cases.

There are various requirements that must be met before an RAA can go ahead. These include that an RAA must be approved by TPR (and that the Pension Protection Fund (PPF) must not object). Until recently, TPR’s guidance on RAAs was contained in 2010 and 2017 publications. (In 2018, the PPF also published guidance on how it approaches these types of transaction)`. Both parties have a number of principles that must be met before they will agree to a proposed RAA. 

The updated 2023 TPR guidance is largely consistent with its previous messaging but is expanded. 

  • The main thing that is new is that TPR now helpfully sets out examples of evidence it would expect to see to demonstrate that each of its principles (which essentially mirror the PPF’s own approach) have been met in any case.  For example, to evidence that “The employer’s insolvency is inevitable within the next 12 months”, TPR states that parties must show “trading and cashflow forecasts, with evidence of when liquidity becomes constrained and what the prospects are for rephasing/renegotiating payments” and “evidence that the company has sought renewed or alternative sources of financing” amongst other examples. 
  • Another principle for a successful RAA is that the Scheme is “receiving equitable treatment in comparison to the employer’s other creditors, shareholders and other stakeholders”. The updated guidance sets out a number of questions that are relevant to the question of whether the Scheme’s treatment is equitable.  
  • TPR also sets out its expectations about how parties go about making an RAA application for it to consider. This highlights the importance of early engagement with TPR and with the Trustees and also requests that supporting information for an application is targeted and relevant amongst other factors. 

In our experience of advising both employer and trustee clients in distress scenarios, successful discussions (whether they ultimately lead to an RAA or not) are more likely where the Trustees’ views (which TPR describe as being a “crucial part of its consideration”) are fully considered. 

Trustees and Employers will welcome this further clarity from TPR on its approach. (And TPR says it will apply its RAA principles to other arrangements which produce a similar outcome to an RAA). If you would like to discuss options for DB pension schemes in distressed scenarios please contact Chris Brown or your usual Burges Salmon pensions contact. 

Written by Chris Brown (Director) and Georgia Hanson (Trainee Solicitor) in Burges Salmon’s Pensions Team.