Corporate Insolvency and Governance Act 2020

The Corporate Insolvency and Governance Act 2020 (CIGA) came into effect on 26 June 2020. Whilst the Act makes a number of changes to the insolvency regime (which are detailed in our Restructuring and Insolvency team's previous article), the focus of this section of the article is the potential effects of the CIGA from a pensions perspective.

Key message

If you have a defined benefit scheme, the CIGA is likely to impact the assessment of your employer covenant and in particular the value placed on any security you have such as a parent guarantee or a floating charge in favour of the trustee. This is because the comfort such contingent assets were intended to provide could well be diluted. Urgent action should be taken to review any current contingent assets to address any weakening of the protection in place. Considering such protections after a moratorium has commenced or a Restructuring Plan is imposed is akin to bolting the stable door… pre-emptive action is strongly advised. Failure to consider the impact of the CIGA on any existing contingent asset could result in trustees having unrealistic expectations regarding the value the trustees are able to realise should the sponsor suffer an insolvency event. 

New measures introduced to assist distressed companies

The new free standing moratorium (that most company directors can obtain by merely filing certain papers (i.e. without court or creditor scrutiny) prevents creditors from taking actions and claims to recover debts owed, and is separate from any formal insolvency procedure. It also allows companies a "payment holiday", whereby the company with the benefit of the moratorium will not have to pay certain debts when they fall due.

The Restructuring Plan (RP) is a new method allowing a business in financial distress to come to an agreement with creditors, with the court's approval. It does not amount to a formal insolvency process, and, through the new "cross class cram down", allows the court to approve an RP despite the existence of dissenting creditors and shareholders. The "cross class cram down" applies if 75% of each class of the creditors approve the RP, and the court is satisfied that the dissenting party or parties won't suffer a greater loss if a different process was used.

This is about insolvency not pensions – why should it concern me?

The new moratorium nor RPs are classed as "insolvency events" and therefore the usual events of buy-out debts being triggered and the obligation to notify the Pension Protection Fund (PPF) are not engaged. In particular, in respect of defined benefit schemes, no assessment period is triggered leaving the trustees without any PPF support and probably with less leverage to recover debts and / or call in security and with the prospect of other debts being increased and ranked before the pension scheme debt.


Ongoing contributions into an occupational pension scheme must still be paid by the company during the moratorium. It is not yet clear whether this only includes contributions in respect of current benefit accrual, or whether deficit repair contributions and other debts owed by the company to the trustees need to be paid during the moratorium; on balance it is likely that the deficit repair contribution would not have to be paid during any moratorium.

As originally drafted, the legislation would not only have allowed lenders to "accelerate" their debts during the moratorium, but also any such debts would have had "super-priority" status should insolvency follow within 12 weeks of the cessation of a moratorium. This would have been detrimental to trustees of a defined benefit scheme; severely diluting, possibly eradicating, any recovery for the trustees. The pensions industry lobbied hard and the government agreed to an amendment which partially addresses this concern; lenders can still accelerate their debts but such debts will not have "super-priority" status.

Restructuring plan

If the scheme trustees vote against the RP, but the court approves it despite their dissent, the debts owed to the scheme are nevertheless "crammed down" into the RP. 


The House of Lords has also lobbied to increase the role of both the PPF and the Pensions Regulator (tPR). Although the amendments to the CIGA did not go as far as to make a moratorium or a RP an "insolvency event" (which would have triggered the usual notification procedures), they did place the monitor under an obligation to notify the PPF and tPR (where appropriate) and both have been given rights to challenge director or monitor conduct. In the case of tPR, the right arises when a company is or has been an employer in respect of a defined benefit scheme.

In addition, the CIGA gives the government the ability to give the PPF the ability to exercise trustee creditor rights via a regulation making power.

Pension Schemes Bill

The Pension Schemes Bill is currently at report stage in the House of Lords, and is awaiting a date to be fixed for the third reading; the final opportunity for amendments to be made to the Bill. A summary of the key provisions are set out below. It remains doubtful whether there will be sufficient parliamentary time to complete the process before summer recess but we will issue a further mailshot when the legislation is enacted.

TPR powers and new criminal sanctions

The circumstances in which tPR may issue a contribution notice will be broadened, and new criminal offences will be created to discourage employers (and others) from action that could avoid or reduce the recovery of an employer debt owed to an occupational pension scheme. The net of potential "defendants" is cast very wide which is causing some understandable concern in the pensions industry. Indeed it may be the case that action (or a failure to act) which is permissible under the CIGA is the same conduct that attracts a fine (of up to £1 million) and a prison sentence of up to seven years (or both).

Funding of defined benefit schemes

Scheme specific funding was introduced by the 2004 Act and tPR is keen to address what it sees as certain shortcomings, particularly against the backdrop of the majority of defined benefit schemes being closed not only to members but also to ongoing accrual. The amendments will focus on the "end game" and a requirement for trustees to set a secondary funding objective. However the lobbyists have reminded the government that there are schemes that are open to accrual and it is unlikely to be appropriate or advantageous to assume all schemes should focus on the end game. 

TPR has issued a draft revised scheme funding code for consultation, in contemplation of the primary legislation being amended by the Pensions Bill.

Transfer rights

Following a significant increase in the number of members being scammed out of their pensions, new measures are being introduced before a member can transfer accrued benefits to another scheme. The current requirement for members to take independent advice where the value of the transfer exceeds £30,000 do not appear to go far enough. The new restrictions are aimed at protecting members from scams, and will require a member to satisfy additional requirements relating to their employment and place of residence before the transfer can take place.

Separate to the Pensions Bill, the FCA has announced it is to prevent commission based charging by those advisers authorised to provide transfer advice. In the FCA's view far too many advisers are recommending a transfer, where it is unlikely that a transfer is in the best interests of most individuals.

Collective money purchase schemes

In addition to defined benefit and defined contribution schemes, the Government believes that there is a case for creating a third type of scheme: collective defined contribution (CDC) schemes (referred to in the Bill as ‘Collective Money Purchase’ schemes). In CDC schemes, both the employer and employee would contribute to a collective fund from which retirement incomes are drawn. The funding risk would be borne collectively by the individuals whose investments make up the fund. Similar to a defined contribution scheme, the employer carries no ongoing risk.

CDC schemes would offer a target income at retirement rather than a specified income like a defined benefit scheme. If the scheme is under (or over) funded then the level of member benefits can be adjusted to ensure that the assets of the collective fund are equal to the liabilities relating to the target incomes.

You may be aware that the Royal Mail intends to introduce a CDC Scheme.

Pensions dashboard service

There are provisions for the creation of a new pensions dashboard service (PDS), to allow people to view information about their pension in a single place (although there are likely to be more than one dashboard service) . There will be obligations for the Money and Pensions Service to provide information via a PDS about entitlements under occupational and personal pension schemes, and there will be obligations for trustees to provide information to a PDS, or to the Money and Pensions Service's PDS.

End note

The CIGA is now law but there is still time for amendments to be made to the Pensions Bill, particularly with regard to tPR's powers and the scope of criminal sanctions. Although the government did listen to the pensions industry and amended the CIGA to put in place limited protections (primarily for defined benefit pension schemes) it remains to be seen whether these protections will go far enough. The House of Lords was well briefed during the debate of the CIGA and the opposition may feel that the amendments to the CIGA did not go far enough. It was remarked by Baroness Drake that the CIGA "opens up the possibility that what may be lawful action under the Corporate Insolvency and Governance Bill may invite criminal sanctions under the Pension Schemes Bill.”

If you wish to discuss the implications of the CIGA or the Pensions Bill or have existing contingent assets in pace that should be reviewed, please speak with your usual contact in the pensions team or Suzanne Duff.