What does PSC mean for pension scheme sponsors?
From 6 April 2016, companies must take reasonable steps to establish and record, in a dedicated register, details of each individual who exercises control or significant influence over the company. These are known as persons with significant controls (PSC). UK companies now need to prepare and maintain a PSC register.
The requirement, which means each affected organisation will have to submit its register to Companies House from 30 June, was introduced in the Small Business, Enterprise and Employment Act 2015.
It can often be the case that with new legislation, there is a knock-on effect for pension schemes. In particular, many schemes are managed by trustee companies and trustee companies fall within the definition of companies used in the new corporate governance requirements. Therefore, trustee companies will need to comply with the new requirements.
But who are the PSCs for trustee companies?
Many trustee companies are wholly-owned subsidiaries of the principal employer or another group company. In such cases, the immediate parent company will usually be the only entity with direct control, therefore, for the large part, the trustee company will need to maintain a record of their parent company. But what if the parent company does not hold any shares in the trustee company? The word “control” is defined to include having the right to appoint or remove a majority of the board. So if the principle employer has the right to appoint and/or remove over half of the trustee directors (which it often will), it will be a PSC regardless of whether or not it owns the trustee company. In fact the definition of a PSC includes:
- Directly or indirectly owns more than 25% of the shares
- Directly or indirectly holds more than 25% of the voting rights
- Directly or indirectly holds the right to appoint or remove the majority of the board of directors.
- Otherwise has the right to exercise, or actually exercises, significant influence or control
- Holds the right to exercise, or actually exercises, significant influence or control over the activities of a trust or firm which is not a legal entity, but would itself satisfy any of the first four conditions if it were an individual.
So what does this all mean for companies that sponsor pension schemes and have a trustee company running their schemes? In short, companies and specific individuals at those companies can expect to receive an “investigation notice” from trustees if the trustees believe they are a PSC or have information about a PSC, asking them to confirm whether they are registrable and asking for their details.
This is not just a case of ‘more paperwork’ it will raise questions about the independence of trustee bodies. The reality is that trustee directors are required to act independently (or exclude themselves if conflicted) and some of the powers and rights conferring ‘PSC’ status on the sponsor are provided by legislation anyway. Any concerns raised by these new requirements should therefore be straightforward to address.