Just when you might have thought the mountain of pensions related reading was at manageable levels, The Pensions Regulator (TPR) has launched yet another consultation paper, this time on the subject of Clearance.

Clearance was introduced by the Pensions Act 2004 and is a voluntary procedure requiring parties involved in specific corporate transactions for under-funded defined benefit schemes to seek a clearance statement from TPR confirming they will not use their anti-avoidance powers. It is the parties involved in the corporate transaction that may need to apply for Clearance - in other words, the employers/corporate bodies involved, not the trustees.

TPRs anti-avoidance powers, which can be retrospective, may be used where a transaction is materially detrimental and affects the ability of the employer to meet its pension liabilities. These powers take the form of Contribution Notices and Financial Support Directions (FSDs) – the TPR’s recently issued Determination Notice to Sea Containers was their first FSD and clearly shows they are ready, willing and able to exercise their powers.

In its 2006/07 annual report, TPR confirmed that 149 clearance applications were granted (only 1 was refused) and it’s this experience that’s prompted them to revise their original guidance.

It’s important trustees are in regular communication with employers on funding issues and TPR expects trustees to negotiate robustly whilst actively monitoring the employer’s covenant.

It can be a difficult decision to seek Clearance however, parties should enter the process early on. Advice should be sought in advance of any transaction, in fact, TPR encourages this and receives on average over 100 enquiries each month.

The consultation ends on 2 November when TPR will publish its final guidance so we’ll be able to tell you at the time if there are any changes to the proposals. In the meantime, if you want more information on Clearance or sample forms, you can find it here.