Threat of action by TPR settles sponsor dispute

The case involved the National Institute of Agricultural Botany pension scheme. The NIAB is a crop science and research organisation, and was originally packaged with the NIAB Trust as a single entity, also called NIAB.

The original NIAB, a quango associated with the Ministry of Agriculture, Fisheries and Food, was privatised in 1996 and split into its two constituent parts in 1998. Liabilities and operations transferred to the new NIAB, which became sole statutory employer of the NIAB pension scheme.

The problem began with the parcelling off to the NIAB Trust of responsibility for the body’s land assets, which the trust provided for the NIAB but held separately from it. 

In TPR’s judgment: “This separation of valuable land assets from liabilities (including the pensions scheme) left the scheme in a vulnerable position.”

It stated: “[The pension scheme’s] statutory employer, NIAB, had net assets of only £3.7m as at March 31 2017. According to the NIAB Trust’s accounts, its net assets at the same date were £50.5m. This included assets inherited from the institute, which before 1998 would have been available to meet its liabilities, include the pension scheme.”

An unsuccessful attempt by the NIAB scheme trustees to secure formal support from the NIAB Trust led to a failure to agree a 2015 funding evaluation, with the trustees concluding that the covenant of the NIAB alone was not sufficient to support the scheme.

Settlement discussions between the NIAB, the NIAB Trust and TPR began in 2018, with the regulator considering in June of that year the use of its anti-avoidance powers.

Specifically, it informed the NIAB Trust that it was considering “whether it would be appropriate to seek a financial support direction under section 43 of the Pensions Act 2004 against the NIAB Trust”. 

“An FSD requires financial support to be put in place for a scheme over and above that provided by the scheme’s statutory employer(s),” TPR’s report explained.

“The target of the FSD initially has the flexibility to propose how they will support the scheme and we will then consider whether this is reasonable in all the circumstances. If we conclude that the financial support proposed is insufficient, we can proceed to issue a notice for a fixed amount.”

In September 2018, TPR issued a warning notice to the NIAB Trust seeking an FSD in order that the trust provide protection for the pension scheme while the settlement talks continued.

Finally, in December 2019 and following what TPR described as “lengthy negotiations” between the NIAB Trust, the trustees and TPR, a settlement was agreed in which the NIAB Trust became a statutory employer to the pension scheme, sharing responsibility for the scheme deficit with the NIAB.

That the result was achieved without the regulator having to use its formal powers, and so avoiding the associated costs that would otherwise have been incurred by all members, has doubtless come as some relief to all parties involved.

Summarising the episode, TPR said: “The case demonstrates that we will work with employers, trustees and the targets of our FSD powers to achieve the best possible outcome for members.

“Meaningful settlement discussions can take place in parallel with avoidance investigations, and good outcomes achieved without the need for us to formally use our powers and the associated costs that a determinations panel process and/or an Upper Tribunal hearing would involve.”

It continued: “We will consider all credible settlement proposals that meet our statutory objectives, which include the protection of members’ benefits under occupational pension schemes and the reduction of the risk of calls on the Pension Protection Fund.”