XPS Pensions Group plc (406.F) Earnings Call Transcript & Summary

Good afternoon, everybody, and many thanks for joining today's webinar. Now believe it or not, it's now over 9 months since the majority of the pensions regulator is tougher new powers that were set out in the pension schemes like 2021 came into force. And you may recall that at the time these new powers caused quite a bit of discussion in the industry, given their wide scope and the potential severity of the sanctions. But the one that probably raised the most initial discussion was the power to apply criminal sanctions for the rather broadly defined conduct risk include benefits. And we discussed that topic with the regulator at an XPS Live event back in May last year. And at that webinar, the regulator confirmed the view that the new powers were intended to target serious wrongdoing, and they weren't expected to impact ordinary activity and commercial norms. So whilst it's still early days in terms of the actual use of these powers, we're here today to consider whether they have had any impact on the behaviors and decision-making for both trustees and pension scheme sponsors. So I'm delighted to be joined by a panel of experts to discuss this topic. Firstly, we have Richard Pettit, who's a partner of Burges Salmon, to give us the legal view. We're also joined by Elen Watson, who heads up the XPS Covenant Advisory team and Dan Auton from our Corporate Transactions team. They'll be sharing their experiences together with the results of the survey that we've carried out at corporate pension scheme sponsors to capture their view. We also want to hear from you as we go through. So there'll be plenty of time to your comments and questions later in the session. So please do enter them into the Q&A box as we go through, and we'll try and cover up as many as we can. For those you haven't used the platform before. You should find that you're able to resize and move around the various windows to find the set up you want and if webinar does freeze, I suggest just hit refresh the browser and that should connect to you. So before we go across to the panel, I'm interested to hear some of your thoughts. So you should shortly find a polling question pops up on your screen. It's a simple yes, no answer, so to avoid any sitting on offense here. And the question is, how the pensions regulator's new powers changed your behavior in relation to pension scheme? So if you can all click either yes or no to that question and then hit the submit button, you need that to register your vote. We'll let the results come through and then we'll see what's there. Now as I mentioned before, we carried out a survey with similar questions like this of corporate contacts. But I know that in the audience today, there's quite a range of different attendees, there's trustees. There's in-house pension people, corporate sponsored and the advisory community so it will be interesting to see the view of people there. I'll just give you a few more seconds. There's still some responses coming through, and then I'll bring up the ounces. Okay. That seems to have slowed down there. So I will bringing that up, and let's see. Okay. So there's a mixture of responses there and perhaps that's possibly what I might have expected to see. So we've got just under 1/3 of you saying, yes, there has been some behavioral changes, 2/3 saying no. And I guess, as I mentioned, this might depend on role or it might depend on the particular activity that you've got going on in your scheme or have had going on over the last year or so.

But let's go over to our panel now and see what their experiences have been. So perhaps, first of all, if I go across to Richard. So Richard, welcome, and thanks for joining us today. If you can give us a brief reminder of what the new powers were? And then share your experience on what you've seen in terms of trustee and sponsor behavior.

Thanks, Rob. Yes. Hello, everyone. Very happy to do that, give a brief recap of what changes we've seen and also the context to the regulators' powers as to why the changes have how happened, what the intention on the wards, which feeds a little bit into the discussion we'll have then about. What's happened in practice. And it's quite interesting to see that survey result compare and contrast where you said, Rob, there was a lot of discussion around coming into force of the new powers before they came in October last year and since they came in where you've got nearly 70% of people having had no impact on these schemes day-to-day. I think the first thing I'd always say when considering the regulators powers in particular more out of powers on to some extent, the criminal sanctions. It's around how draconian and to some extent, unprecedented they are. You look across the world, it is quite unusual to have a power which like the moral hazard powers, compares to corporate veil, the protective shield that surround the company, take that company's pension liabilities and make an individual or another company pay for them. And obviously, criminal power is a potential sanction up to 7 years in jail or draconian given the context. And is that harsh in draconian nature that is inherently meant there has to be quite a lot of safeguards and checks and balances and the use of the powers, things like the reasonableness test that the regulator has to satisfy, use the moral hazard powers, the threshold test to impose a contribution notice and statutory defenses and it has made those powers quite difficult to use for the regulatory in practice. We'll come onto it slightly later, but as already previously before last year, back in 2008, only a couple of years after the all hazard regime came in a new threshold test the material detriment test was introduced for confusion notices to give a more straightforward way for the regulator to make our case and use those powers. This isn't the first time we've had a significant change. The other point, which we'll perhaps come back to in questions and how all of this applies in practice for schemes is that the regulators powers are just one of the sweet weapons available to protect members and their benefits. It's very important to look at the other powers the trustees have both their powers under the legislation, general power as a creditor of an employer and particularly for corporates as well as trustees to be aware of when something like a transaction where restructuring is happening as things like contribution powers and rules, wind up powers and many separate agreement will come on later to things like information sharing arrangements. In terms of why have we had some changes, everyone will probably be aware of the headline cases of BHS and Carillion a few years ago, and there's a lot of criticism as a result of those of the regulator but more properly, I think not the regulator, but of the regulatory regime, the legislation that the regulator was operating within. There was a response from DWP that the regulator is going to be clearer, quicker and tougher and there will be changes to the anti-avoidance or moral hazard powers to make them more straightforward to use. There'll be new criminal sanctions these headlines. To just give a bit of an overview of the changes we've seen. I'm just going to use something which we developed, which is called the Pension Schemes Act Triage Tool, which is an interactive tool. I'll just show some screenshots from it now. It's available from our website. I think also Rob's going to be distributed to attendees this webinar and what the tool aims to do is be a platform for employers associated companies and trustees to look at when something is happening, click-through, let's say, going back on they click through, you've got a business event, something like finance going into business, change in asset position. You can click through, see what powers might be engaged, then if you click through the relevant power, you can look at mitigation steps that affects a few practical tips. I say it's aimed just to be an aid for discussion between the parties. And I won't delve any more, anyone does want a separate debt then obviously do get in touch with Burges Salmon, we're happy to do that. As I said, it's a free tool. But I think what it's useful to use the tools also going to be the background for powers onto this slide, just to look at the key powers we've had previously the contribution notice in FSD power and then new criminal sanctions and financial penalties and think about how those will interact. The first to mention the contribution notice parallelly, you can always see running across this slide, its development. I mentioned that when it came in, in 2008, there was a little -- costumer in 2006, who's more challenging to use. There's just one threshold getaway entry to use the power. That's in purple on left-hand side, the new threshold test material detriment test was introduced in 2008. And now since last October, you've got 2 new tests in employer and insolvency test and the employer has launched these tests. And in some ways, they're very straightforward. They do exactly what they say on the 10 employer and insolvency tests, rescue units in deficit compared the position immediately before and after an event and looks at whether the impact of that event would have had a material impact on the recovery under a hypothetical Section 75 debt. Kind of an analysis that trustee might have already often taken we're looking at corporate transaction and employer resources test again, does really what it says on the tenant looks at if there's a reduction in employer resources and what that's material relative to schemes, Section 75 debt. So those contribution notice power is potentially more straightforward to use FSG regime remaining unchanged really. And then what everyone talked about and what was talking earlier about, they haven't a lot of interest in the industry and a lot of concern. I think our impact is going to have on corporate and trustee behavior, these headline sanctions. And they are -- these are headline power they're designed, I would say, to be headline grabbing, you've got up to 7 years in prison. Key obviously concern in everyone's risk benefit analysis when you're taking in kind of something that particularly very heavy penalty, but also the fact that the net is cast widely. So rather than the moral hazard powers we were just looking at where the targets have to be associated and connected with an employer in the scheme. Anyone in theory, can be subject to the criminal sanctions. Although you can see they're both based in quite a similar way to the threshold tests for the contribution of notice powers that we had before last year, so reporting to endpoint debt risk accrued benefits. There are some nuances in there in terms of needing to intend the debt or be aware or should have been aware of the impact on risk and accrued benefit they're still cast quite widely. And then they're subject to a general defense. So the idea of having a reasonable excuse. He's always harking back to the COVID legislation that we sort of know and maybe don't love where you could be in good house unless you had a reasonable excuse. No one knew what reasonable excuse was. A little bit similar here, but certainly, that's the risk, and that's why there's been a lot of push for guidance from the regulator and that has largely been forthcoming but doesn't solve all potential problems. They got financial penalties up GBP 1 million fine, again, largely mirroring those 2 kind of threshold tests, not contribution notice regime, potentially more straightforward to appoint practice in the criminal sanctions or contribution notice. So that's a bit of a sort of 2 or 3, but what does that mean in terms of what we've seen in practice both over the last 9 months and in the future. I think what we've seen change in practice is not to see change in trustee behavior certainly and not the kind of complete aversion to risk or making decisions and being frozen that some of the commentators perhaps anticipated, but we have seen an impact on corporate transactions. We've seen the price of mitigation, the degree between companies and trustees increase, seeing quite a few better deal from a trustee perspective. We've seen, as was expected and intended by the drastic legislation. We've seen an uptick in the interest in clearance. Previously clearance applications for the regulators fell from a higher of 360-odd back in 2008, 2009, 3 a year before the green and white papers on this legislation came out. We've seen a lot more interest, and we're engaged with a regulator on lower cases at the moment. I think our experience and collectively what others is, again, the regulator is driving half a part of bargains to trustees are. So we're seeing that impact. But what I'm expecting to see is actually a greater impact from now or from perhaps this October onward and one of the things I haven't talked about at all in the slides we've just gone through is what I think is going to make the greatest impact in practice, which is the changes to the information gathering power as the regulator has. I think what we just talked about, moral hazard powers and criminal sanctions, they're big headline cases, they're designed to affect behavior in the extremes and they're very difficult powers to use in practice, very time consuming to the regulator and so I wouldn't expect that they would affect behavior for the vast majority of schemes. What I think will is the notable events regime when that changes, we're still waiting for a new consultation come out on the regs hopefully over the summer and then hopefully having a new regime in place in October, but that we expect will bring even greater corporate trustee engagement, cover engagement at a much earlier stage in the process, partly because it forces that because it brings in notification for new actions like putting in debt into employers at a certain level it forces that, now it probably went to the regulator earlier in the process, and you get in some cases, a 2-stage notification and requirement on accompanying statement for companies to show how they've engaged with trustees and what mitigation they get in place. But I think it's a package which we'll really just push corporate much more at the table with trustees earlier on, and hopefully, therefore, lead to I think better and clearer outcomes for members. And we have -- we've already seen the act both of wider powers and the notice of events regime have an impact. Even early last year, before the act was passed like coming into port, we have been contacted by trustees or overseas parent companies where overseas parent companies were have had the publicity and we're taking a much more cautious and prior to be engaged approach. So I think it's largely wait and see because I think the notable entry had a big impact as well as slight tweaks to the other information gathering power, things like the Section 22, information regime changing and there being ability to compel an interview with the regulator. So it'd be interesting to see the development over the next 9 months and beyond, I think, Rob.

Yes, very nice. Thanks a lot, Richard. And obviously, you talked about the heavy penalties there perhaps being some of the early folks we had last year. And I guess, I know some trustees and companies were worried about how they would make decisions with those penalties potentially looming over them. Since then, the regulators put out quite a few sort of policies around how they approach and how they would plan to investigate and prosecute and I think there's a recent consultation on the national enforcement approach as well. Do you think those policies from the regulator give trustees and sponsors sufficient clarity and comfort in their decision making?

I think they give as much clarity and comfort as the regulators going to be able to give, I mean, conscious there were some responses that came out in the last couple of days from the SPP, for example, which was -- I wouldn't say critical of the consultations in the papers but asking for more. And I think it's the nature of the regime that that's always going to be the case. The regulator can't give guidance to cover every possible situation because it backs itself into a corner. And again, it comes back to what I was saying at the beginning about the powers or with draconian and cast deliberately quite widely. In some areas, you're getting towards a general anti-avoidance regime, it can come back to the political drivers of putting the criminal sanctions in place to start with their delivery cast widely within a quite wide flexible, reasonable list effects. And I think the regulator simply is never going to be able to narrow down the breadth of that statutory criminal offense and the defense in a way that's going to satisfy, give reassurance to everyone. That said, for the vast majority of trustees and companies where you're not on the edges and you're not really touching on something that's going to have a significant detrimental impact on scheme benefits except in an extreme unlikely scenario. I think it does give a lot of comfort and really it comes back to a long stuff nowadays, it's going to be about taking advice and having a strong audit trail for a defense if it is necessary for the future.

Okay. Thank you, Richard. I think then we'll come back to some of the other points you made in due course, but perhaps for now, I'll pass over to Elen. So Elen, you obviously provide covenant advice to a number of schemes. So perhaps you can tell us a bit about changes in trustee behavior you've seen from the single factor?

Absolutely. Thanks, Rob. And so just to summarize this beforehand that Rich has outlined these 2 new tests that are so key to the covenant advice that we're providing. And these are the threshold test of the employer resources test and the insolvency test. But when the regulator can reasonably use its powers. So really are before and after analysis is going to be applied directly to the moral hazard powers. But your question, how does this change the trustees expectations and behaviors that we're seeing. I think as Rich just mentioned, there's not been too much change in the trustee behaviors. But we have seen that there has been some nervousness around the new act and the use of the regulators powers meaning that trustees expectations of mitigation have generally increased. So historically, we were frequently seeing mitigation, that's around 50% of the detriment and this mitigation will be in a number of ways, whether it be cash, contingent assets, guarantees, escrow accounts, negative pledges. And what we're seeing more is that the regulator expects Section 75 to be the baseline and trustees and their advisers using Section 75 as the starting point for negotiations. So we're seeing an increase, as Richard mentioned, in the level of mitigation that's requested or nearer to pound, per pound mitigation for detriment. I think to some extent, given the newness of the power, the advisers, trustees and corporates are all finding their way as to what appropriate mitigation kind of in this new world. And one illustration of the expectation gap that there is, in some cases, if there's a recent deal that I was working on where a group was selling one of their subsidiaries, and they had a number of bidders involved, one bidder and their adviser considered the trustees expectations were extremely unreasonable and they thought that they would be able to negotiate with the trustees to agree much lower mitigation as part of the deal. And what this actually resulted in was the selling company actually dropped this bidder. And they didn't think that the bidder was being realistic given the regulator's new powers and because pensions were pivotal to the deal, they weren't willing to risk the deal falling through, through lengthy discussions and negotiations. And another point that Richard touched on as well. And regarding the notifiable events regime is the timing of trustees involvement. We're seeing that becoming earlier and earlier in the process. The trustees pushing to be involved at a really early stage. And what really helps with that to establish best practice is having information sharing agreements in place. So I personally see a significant increase in the number of schemes putting in place these information share agreements. And certainly, those schemes that have got a regulator involvement, it's one of the things that the regulator is requesting that trustees do put in place if there isn't one already. So one case that I had where we didn't have such an information sharing agreement in place and our corporate basically came to the trustee literally days before a deal was due to complete with a done deal, expect your managers just to agree to it. So there was significant delays involved because the trustees and their advisers have to educate the company and basically the company has to prepare significant amount of additional information that they didn't have already prepared at the last minute. So hence, there were the long delays. And if we had an information sharing agreement in place, this could have been avoided because corporate would have known what our expectations were in any kind of transactional situation. So we are seeing that a lot more use of the information sharing agreements. We're also seeing trustees becoming more robust with the governance and really appreciating the importance of documenting decisions and having a strong audit trail. And this is resulting in seeking more formal advice. So historically, we may have seen some situations where there's been an internal reorganization or restructuring undertaken where the FD may go and present to the trustees and the trustees got themselves comfortable with our internal. Even though now what we're seeing is there's much more of an appreciation that some reorganizations have unintended consequences on the strength of the employer covenant. And this only comes to life with a more detailed analysis, the before and after analysis that advisers undertake looking at the employer resources test and the employer insolvency test. So we're really seeing a bigger uptake in that level of work. And finally, we're finding that the regulators being more proactive in the frontline regulation teams proactively contacting trustees as soon as they become aware of a transaction are basically setting out their expectations that trustees engage early, but they understand the legal obligations of employers to the scheme, and that's really so that the trustees can understand what leverage they would have in a transactional situation and negotiation. The trustees request information from the employer that they consider what skills the trustee board have as well. So do they have the necessary skills to negotiate with the employer through a transaction and also expecting that trustees consider our conflict situation, if there's any conflict on the Board as a result of the transaction. So thankfully, all of my clients who have been contacted in this way, had already been aware of these transactions. So it didn't come out with a blow. But it's just an indication of the more proactive approach the regulator taking in these situations. So just to summarize, as many people said in the polling question, we're not really seeing a fundamental change. It's just the behavior for strengthening of their leverage and negotiating that. And we're also seeing a tightening of the governance and process that they have including setting expectations through a real increase in information sharing agreement. Thank you.

Thanks, Elen. Just to pick up on that point about information sharing agreements. I agree that they're sort of a hot topic, and I think a lot of schemes have been looking at either refreshing what they've already got or putting something in place over the last year or so. From your perspective, how do trustees and employees go about knowing what's important to include in those documents? And how formal should those agreements actually be?

Yes. I mean, to be honest, it really depends on the client. I got some clients who really, what they're looking to do is to just document the processes that are already in place. So just putting it all in one place, the evidence and document that they are receiving this information and what the expectations are from both parties in transactional situations. Other clients do want a more formal full legal review documents. So those are being used by my clients, certainly. And in terms of what goes into those documents, I think it's really important that trustees and corporate sit down and agree up between themselves because it's important that the trustees, as far as possible, try and fit in with the information that the corporate is already providing. There will be certain internal reporting processes that the trustees can kind of link into to make sure that they're not asking for information outside of the normal cycle unless it's a transactional situation. So I think it's important to have that discussion to make sure that you're not putting too much additional work on the corporate, but also satisfying your requirements because the information will generally be available to either for internal reporting or for reporting stakeholders.

Thanks, Elen. And I guess, Richard, I don't know if you have any comments on that topic about the sort of the legal standing of these kind of arrangements?

I think really, I'll just agree with Elen. I think the most important thing about information sharing framework is to make it important that 2 things are to have one and that it reflects reality. And as Elen says that the employer and trustees have sat down and agreed it and it's practical, reflects reality. The legal form, I think, is secondary to that really, I mentioned is are you aware of wider power, there are wider statutory powers are getting information for employer. But I think the information sharing framework is helpful because it reflects reality. Everyone is clear on what should be obtained in reality, whether you execute that as indeed, wherever a lighter agreement, we see both the more on the lighter agreement side because the reality is employer fails to comply with supplying information, you're not likely as trustees to go to court in quarter. You've got other routes you've probably got at that stage, other issues ongoing. It's more of an early warning mechanism.

Thanks, Richard. And perhaps just before I go to Dan, Richard, maybe I can -- for a question your way that's coming from the audience. And this is just about how the regulator will sort of cope with wind in these new powers? Do they have, first of all, the resource to do it? And also, do they have the experience, I guess, given they're sort of branching into the criminal domain, which might be sort of perhaps a new area for them.

Yes, it's a really good question. And there are 2 elements to it. And I think this sort of thing described in the question of resource and Elen, caliber and experience in area. There is a big problem with the regulator being resource constrained. And I think it's clear, it's always been clear in use of the power. And I mean, if the case you and I worked on rock took 6 years of development from beginning of the investigation to settlement without even reaching the determination of the panel and there's ultimately a wider appeal beyond that. So the regulator has always had to very much focus its power or it's fire where it can. And again, some of the responses that are coming out, the latest consultation are taking issue with the fact that the regulator says that its resources will impact on how it uses its power be one of the factors they consider, whereas I think really that's just a reflection of reality. And we do, unfortunately, we'll have to live in that world that the regulator will only operate in certain very targeted ways unless until they get more resources and that they have some more, I don't think any greater answer forward coming that does have a factor into everyone's risk analysis but likely use of the powers. Then I would say about if they are interested in the casing, this comes across my experience from a number of cases, once the regulator is committed, they are very committed to a case raises a particularly important point towards a particular issue for the scheme involved, then you can't necessarily outspend the regulator and they get targets sometimes else where, when they end up being subject to regulatory investigations. In terms of caliber experience, there can be issues there, but I don't see that as being a major issue in practice we've seen, and we've been involved in like the sort of more cases. It's a very successful outcomes for members of schemes as a result of the regulators, interventions, including in some very challenging areas. They do involve resources where they need to from our side, particularly kind of barristers in Q2. So I think it is -- experience can be varied because of the resourcing issue, but I think that they can, I think, will push forward for some cases where they need to.

That's great. And thanks so much, Richard, for answering that one. And yes, please keep your questions coming in, and myself frankly there's many to the panel as we can as we go through. But now I'll pass it over to Dan. Dan, I know you've sort of been working on a number of some transactions over the last year or so, where the powers have been a consideration and part of the discussions. So perhaps I can pass you to give your thoughts on how these are affecting corporate behavior?

Great. Thank you, Rob, and good afternoon, everyone. I think it's probably fair to say that corporate sponsors have probably changed their behaviors more than trustees have in response to regulators new powers. Pensions have generally risen up corporate agendas and are considered the Board level more frequently now than they ever before, particularly around corporate actions, which may actually impact to see. And whilst this was probably happening to some extent anyway before the introduction of the new powers, new powers are really sort of accelerated this process. So looking at sort of some examples of changes in corporate behaviors, we've certainly seen corporates, I mean, in particular at a Board level, wanting increased visibility of pension risk. So when corporate now prepares papers on a sort of quarterly basis for our Board covering pensions updates, including investment strategies, funding positions and other various risk metrics. Previously, these papers will probably actually produce sort of once a year or perhaps every 3 years in line with valuations. But now the pension scheme is on the agenda for nearly all Board meetings. I think this is sort of a really positive step, I think it will mean that if corporate activity or any actions are being discussed at these meetings. And pensions will always be at the back of the directors' minds and should there will be considered as part of any sort of actions that are right, corporate activity that's been cited on, which is obviously really important. We've also seen more and more sponsors forming a formal view on how they go about managing risk. And I think some companies have actually taken a view on sort of the amount of risk that a pension scheme is running. So for example, a few of my clients, which points to several schemes where 1 or 2 of their schemes are running significantly higher levels of investment risk than others. And in corporate you're actually excessive investment risk. They -- the sort of the results of that was that the clients actually encouraged the trustees to reduce expenditure growth assets and increase sort of interest and inflation rate hedging. So while the investor strategy is obviously the trustees decision, we're increasingly seeing sponsors wishing to have an input on this. And I don't think they're sort of aligning strategies across schemes as far as possible. One of the key changes we've seen as a result of the new powers is a review of governance processes and in particular, corporate management and decision-making. This is essentially to ensure events that may be covered by the new powers are firstly identified, they're managed. And as Richard was explaining earlier, once the new notification requirements come into force notified if it is indeed needed to be notified to the regulator. The new tests effectively mean that corporates are having to consider pension schemes in more circumstances compared to previously. As a result, we've seen companies change our processes so that the impact on DB pensions are considered in advance of actions taken by companies rather than sort of a matter. So for example, paying dividends may now require consideration of the pension scheme and whether the payments of dividends can actually impact the ability of the company to support the pension scheme going forward. Another example of our decision-making process has changed, a parent company of one of my clients wanted to reorganize the group structure for tax efficiencies. Before the new powers were introduced, these types of decisions are probably not sort of considered or wouldn't have considered pensions. And basically what that would have been carried out and if there was a type of events, mitigation would have had to have been sort of agreed after the fact. And for now the decision processes have certainly changed. Our client identified that pension scheme should be considered as part of the decision-making process because while the companies impacted by the reorganization was actually sponsoring employer of the scheme. In this case, the trustee agreed that the action will actually come enhancing. So it didn't actually impact the outcome, but there is now a clear documentation as to why the decision could go ahead, from the action could go ahead. So with these trustees, we've certainly seen quite a large increase in the number of companies also seeking advice on any corporate activity taking place as well. So in particular, sort of overseas companies wanting to sort of understand the new regulatory regime. And then Elen discussed this from a trustees perspective, we've also seen an increase in corporate reviewing or putting in place information sharing agreements with the trustees. Now this obviously ensures that rather than any other event is identified, managed in a timely and a proportionate manner. And we've actually found that this helps the corporate engage more easily with other parties, such as the trustees for example, where it has been necessary to get an agreement from trustees that certain actions are at least coming neutral or to potentially agree your required mitigation advance. So that's certainly improves the sort of the whole process to get early engagement from various parties and enables sort of an easier solution to be found. On the tax reorganization case, the company was working to extremely tight time scales. So this process was really useful for getting a trustees agreement and the impact on the covenant was actually sort of cost neutral in a timely manner. And finally, we've seen some direct insurance and indemnities being impacted and updated as a result. We're currently going out a survey, which Rob mentioned at the start, which asked corporate how they prepare or how prepared they are for the new powers and what impact they could have on corporates. And we're still looking for further responses. I can actually really encourage you to complete the survey, which is available on the follow-up question following this webinar. I thought it might be useful to show you a sneak peek of where we got to with the results so far. Now roughly a third of companies who have responded to their directors have received training on new powers with a further 1/3 suggesting some have received training, but not all, and the remaining received neutral. So there's potentially a bit of a knowledge gap here for some companies. However, in terms of internal controls, over 80% confirmed that they have controls in place to ensure relevant corporate events identified which could impact the pension scheme. And that's really we're showing that the controls are in place and processes can be followed to identify these to make sure that it's sort of highlighted and considered by the decision-making process. Beginning this showed that the majority respondents were sort of in a pretty good position overall. In terms of protocols, we've got sort of 80% confirming that they have the protocols in place with this information sharing protocols in place with the trustees. And so overall, whilst there's potentially a little bit of training that's required actually, the corporates do seem to be in a pretty good position to identify these events and share the information, rest of the information with the trustees quickly and in a good format. These survey then addresses what impact new power could have on regular corporate activity, in particular, dividend policies, corporate restructuring and corporate refinancing. Now only about 30% of responders do not think that their dividend policies will be impacted with 50% onshore, having 20% believing that there will be an impact. They have a very similar type of results for corporate refinancing as well. Results we have for corporate restructuring imply that the new powers are likely to have more of an impact. So 40% responding yes to this question. And that's overall, we have relatively few responders that think that there will be no impact on corporate actions. But again, we're still seeing quite a large amount of uncertainty around this with broadly 50% unsure whether the new powers will have an impact. I think that's probably a fair response to the survey given we get to see the regulator use their new powers in anger. So there is actually quite a lot of uncertainty around and how they might be applied in practice. So this survey covers a high-level view of the corporate activity and how that might be impacted. I also want to take you through what we've actually seen on the ground during the transactions that we've -- and corporate activity that we've helped advise on. Now we're more frequently seeing the full Section 75 debt proposed starting position, either by bidders or price adjustments or in negotiation with trustees around the potential impact of the transaction. That's very similar to what Richard and Elen was saying earlier. So I think that's quite a key trend throughout the industry. And now that doesn't necessarily mean that Section 75 debt was where the end result is, as has been in most cases, there's been a clear shift in focus from various parties on the measures to use during negotiation processes. We've also seen a greater focus on future events, for example, looking beyond the immediate impact of the transaction itself, actually understanding where there could be additional sort of that's introduced as possibly underlying or if there may be sort of a change in dividend policy in the future. So looking for sort of protections against those sorts of actions. Also where we've seen the regulator involved in negotiations. We do see quite a significant reinforcement of these points from them in particular on the Section 75 debt references, the key reference spaces. And these sort of factors and changes have clearly had an impact on the results of transactions. As I mentioned, there's now much more of a focus on Section 75 debt or insolvency deficit. Time scales or transactions have certainly been stretched by pensions. There is -- it's quite a bit more uncertainty as to the impact of the new powers. And as a result, the parties in negotiations are tended to be sort of further apart when they start the negotiation process. That obviously takes quite a bit of time to sort of close that gap. And therefore, we tend to see timetables extended quite significantly. We only see the bidders to engage more and earlier in the pension side of the transaction are more successful. Elen highlighted earlier, an example where bidders who thought that the seller and trustees were being too cautious with pensions but then excluded from the process when it went to exclusivity is very strong. As Elen mentioned, regulators often contacts trustees to mention that the transaction is taking place and actually, in some cases, have been involved in negotiations with the sponsor on the impact of the -- a particular transaction and even in the bidder in some cases. And that tends to have a material impact on the transaction time table with some transactions delayed by over 6 months. We're starting to see more of structural solutions as well to some of the issues raised. And so for example, where debt has been introduced as part of a transaction maybe to fund the transaction, it could actually be subordinated to the pension scheme, which would help on the employer insolvency test. Another noncash-based solution could be to provide continued support. On a recent transaction, the parent company guarantee was provided as part of the transaction which improve the covenant and provided mitigation to the impact of the transaction itself. Now where mitigation has been agreed between the trustee and sponsor the amount of mitigation has been moving closer to the theoretical insolvency impact. So it's not generally one-to-one yet, but because this is a measure of the sponsor were to go insolvent and immediately which is unlikely, but it's certainly moving closer to one-to-one of the theoretical insolvency impact, as Elen highlighted earlier. Clearly, if the regulator and trustee are focusing more on future projections as well. This is likely to result in agreements being more likely to include protections such as negative purchase. And we are really starting to see these far more of these used in practice. So overall, there is certainly more to consider if DB pension schemes are involved in corporate activity and pensions are certainly becoming more of a sort of a key factor. But we do think transactions are certainly still very, very much achievable and within the sort of reasonable time scale as well. When there is a pension scheme involved, we really think it should be assessed earlier in the process, which means more options can be drawn up than practical solutions proposed by the sellers, bidders and trustees all engaging earlier and having sort of -- by using new information sharing agreements, you can actually sort of look at a greater range of options and solutions. So the process should be easier, run to schedule as well. And then if pensions were -- if I start up compared to if pensions were left later in the process, which I think certainly when new powers came out, we sort of see -- saw quite a lot of transactions where pensions were sort of focused on later on in the process potentially even after sort of the sale process in between there and the completion. And that's what really causes the issue on sort of the time scales being thrown out, whereas it's being engaged early in the process, much early on in the process of pensions. Then we do think that time scales can be kept as well. And there's a good solution for everyone involved. That's it for me. Rob, I'll pass back to you now and see if there are any questions.

Yes, great. Thanks very much for that, Dan. We've got a few questions coming forward. I want to say, but just to remind the audience, please do go on to the Q&A box and put your comments or questions because we have got a bit of time left and we'll finance the panel. But Dan, perhaps if I come to you first. So you obviously -- you and Richard touched in the past we -- perhaps haven't seen many of the powers come to fruition then haven't been used that many times. I mean do you think that given the expansion of the moral hazard test been a contribution notice test, does that make it more likely we're going to see a lot more of these actually being used in the future?

I think it's a hard one to tell you. On the one hand, you have the new rules are likely to mean that more corporate actions are likely to -- you need to consider pensions as part of more cooperative actions because of the fact that they're likely to trigger more threshold tests. However, I hope that because of the fact that pension is becoming more of an issue at the Board level and companies seem to be more engaged with pensions, particularly during transactions. And equally, they're putting really good processes in place to identify when sort of certain corporate activity impact pension schemes that there would be fewer contributions as a result because the pension scheme is getting the best results or is being leased considered as part of all the actions. And importantly, there's good documentation as to why they the corporate stock trading set an actions. Overall, though, I suspect, as Richard alluded to earlier, that the number of contributions that are likely to be dependent on the regulators' capacity to actually carry out assessments. So I'm sure we'll focus on sort of the key and maybe sort of higher profile cases that potentially causes more or a higher impact to the pension scheme members.

Great. Thanks, Dan. And I guess one of the phrases I mentioned earlier, it was used quite a lot when these regulations were sort of first announced was commercial norms. And I think I did it on the regulator said they don't want to affect commercial norms and that wasn't the intention of the powers. Do you think what we've seen so far that they've achieved that aim?

I think that's an interesting question. I wish we think what we mean by commercial norms here, of course, is the regulator may have a slightly different view as to what a commercial norm is compared to some sponsors and even trustees. I expect these differences will be uncovered over the coming years as we sort of understand more about the impact and more about what they would consider to be sort of commercial norms. Having said that, I think in the short term, we've obviously seen quite big impact for the company, certainly, where there remains uncertainty as to how the impacts are like to be used. And corporates undergoing transactions, in particular, have been probably quite substantially impacted by some of these -- the new powers and not necessarily in the outcome, but more has been the process and sort of more things to consider and elongating the process overall. Corporate is certainly seeking more advice and processes are sort of taking longer. However one of these new processes have sort of bedded down and the industry better understanding the impact of the new powers. I would hope that to time scales could revert to normal and commercial norms less impacted in the longer run.

Great. Thanks, Dan. We've had a question coming. Perhaps I'll throw this one over to you, Richard. So it's coming from a member trustee. I guess, expressing concerns that the regulatory environment and the regulation that we have now and what might come in is due to coming over the coming months and years is just for ramping up the cost of schemes and that has the sort of inevitable hit on funding levels. I just wondered if you had any comment on how trustees can sort of manage the sort of rising costs to deal with dealing with regulations and enhanced governance?

Yes, thanks, Rob. I think it's a really valid concern. I think there's some contract a couple of weeks ago, possibly from past, I'm not sure, but just suggesting that I think it survey results are just the biggest hurdle for schemes combine with legislation and more actively improving governance standards with the volume of new legislation, new standards. And I think there is sometimes lost a lot of schemes can be better served by focusing on their schemes, governance and it's -- and if you like, because our restructuring comes up just on getting advice and the audit trail rather than thinking specifically about legislation. So I think that is right. It is a risk and a concern and all we can do to mitigate the impact of that particularly in relation to these powers is focused on the fact that these are only really intended to have an impact around the edges. So you should -- trustees shouldn't be needing to do any more than they already would have been doing to respond to a corporate event, restructuring or a sale, which is take advice, engage with the company and get the best mitigation you can and engage with the regulator with your concerns. I think that's, unfortunately, any way mitigating it is taking a kind of pragmatic approach and really do what you've always been doing with documenting it well.

Thank you, Richard. We've had another question come in, perhaps you may want to chip in on this perhaps I'll go to Elen, first. The question is we've obviously all talk about material detriment here, but what makes that material in inverted comments?

I don't think, that's the million dollar question. The regulator has been very relax and historically to give advisers to what they do consider to be material, and they will look at each case on its own merit. So it's a really difficult question to answer. I mean, really, the way that we look at it is by looking at the test, looking at the impact on insolvency, and looking on the impact on the prior resources and making a sort of professional judgment that's to what we've seen historically. And that comes out of experience from dealing with the regulator and their responses in certain cases as to what the what they expect. But we haven't really had guidance on that, unfortunately, in terms of what they consider to be material, although there is some guidance around the new notifiable events regime, I understand that where I'm not saying that this is what they consider to be material, but the levels around that -- have been around 25% of reduction in turnover if you're selling assets. Richard may want to chip in on that point as well?

Yes. I think it's interesting to mention the noticeable events regime that we've seen the gestation of that we're waiting for consultation to come out in the summer, but in some cases, the specific numbers on what might be material, say 20% or 25% of started to come out of what's in the framework. I think because for the same reason, again, I come back to the point that it's a very broad anti-avoidance regime, a lot of the powers are intended to be broad, so that you can potentially go after any one and then it's just restricted down by some of the protections of the reasonableness test. And we've seen that in live cases. I mean, I would be surprised if the regulator will get completely pinned down in guidance on what is or isn't material because what we've seen in practice lagging around material detriment in relation to the powers, but also that we've, for example, in relation to the insufficiently resource test for FSD there is a specific percentage. And we've seen situations where people have gained the system and trying to make sure you just work with the right side of the line rather than just the wrong side of the line and it's that kind of behavior. I think the regulator would want to avoid opening up the possibility for and also simply, I think we have to be open in suits regulatory bodies for it to be relatively unclear and people to wear on the side of caution. So it will come back to sometimes trustees and companies having to take quite robust views based on advice that trustees are comfortable with the kind of -- with the situation.

Thanks, Richard. Perhaps one for you, Dan. Obviously, we're in a fairly difficult economic environment at the moment, lots of volatility, high inflation, et cetera. Is that having any impact, you think, on the level of corporate activity or might have an impact going forward?

I think in recent months, we're anything we've seen sort of improvements in funding levels. And in particular, we've seen a hotting -- the market as you're hopping up the market and insurance bucket and it's quite attractive to us to get to say, we've got the pension scheme that's actually fairly well funded, likely to be able to buy out within sort of 3 to 5 years or so. So actually, this improvement in funding level if anything might actually make transactions more -- with large pension schemes more feasible. Most schemes, I mean, this is sort of really applies where schemes potentially well hedged in inflation. But then so most schemes that are not potentially well hedged, it could obviously go the other way. So it is sort of scheme dependent. But if anything, we've sort of seen a sort of uptick in the transactions that we're seeing.

Okay. Great. Thanks very much, Dan. I think we're sort of drawing towards the clock now. So I think I'll probably bring proceedings to a close, which until the panel can read a sigh of relief after a bit of a grilling there. I think it's been really interesting to hear the discussion. And I guess what I take away from it is, it seems to be largely business as usual for trustees, although the panel and myself we strongly encourage those of you on the trustees side to make sure your governance processes and your audit trails are robust enough just in case something goes wrong or someone starts to look back at this in a few years' time. It's clear that there's been more impact on the corporate side. And as Dan mentioned, the pension schemes simply getting more of a seat at the table, perhaps certainly earlier on in the process. And hopefully, that will lead to better outcomes for scheme members. But this is a topic that we'll need to keep our eye on as time moves on and things unfold. And it will be interesting to see if when the regulator does start to wield these new sanctions. So just a few pieces of housekeeping as the survey that Dan gave you a sneak peek is still open. For those of you who have a corporate role in relation to the pension scheme. And I think there should be a link somewhere on your dashboard to vote that. So please do contribute to that survey, if you can. We'll be publishing the full highlights from it in due course. There's also on the dashboard a linked to checks that we put together the schemes on making sure that your sort of governance framework is robust enough to sort of deal with the new powers, making sure that the audit trails and your procedures and your approach to assessing any corporate activity is up to scratch. So please do take a look at that as well. And just applied for a couple of other events. We've got another XPS live on the 19th of July, which is focusing on the future of the bulk annuity market. We have a special event on 21st of July where pension is actually taking a back seat and XPS networks are presenting a session title, How Your Brain Impacts Your Authentic Self at Work. I mean we have a special guest to give that Dr. Sabrina Brown. So we hope you can join us for those events. So I think all that remains for me is to thank the panel for their input today and the audience for attending a few questions. Please you give us some feedback on the form that will pop up when you close down the webinar as that really helps us to shape further content for you. But for now, thank you very much, and we hope to see you again soon. Thank you.