UK Pensions - Scope of Pensions Regulator’s anti-avoidance powers clarified by Court of Appeal

The Court of Appeal has handed down its judgment in the long-running Box Clever case (Granada UK Rental & Retail Limited and others v The Pensions Regulator). The case clarifies the scope of the Pensions Regulator’s anti-avoidance powers and will therefore be of interest to sponsoring employers of defined benefit (DB) pension schemes and those connected or associated with such employers.

What are the Regulator’s anti-avoidance powers?

Since 6 April 2005, the Regulator has been able to issue contribution notices and financial support directions (FSDs) as a means of imposing DB funding liabilities on parties who are not necessarily employers in the relevant scheme. The Box Clever case concerns an FSD. In short, an FSD requires the recipient to put in place financial support for the scheme. This could include, for example, providing additional contributions to the scheme. The Regulator may issue an FSD if:

  • at some time during the previous two years, the employer was either a service company or insufficiently resourced;
  • at that time, the recipient was connected with or an associate of the employer; and
  • the Regulator considers it reasonable to issue an FSD.

In 2011, the Regulator issued an FSD against five companies in the ITV group, requiring them to provide financial support to address an estimated deficit of £115 million in the Box Clever Group Pension Scheme.

The Regulator’s case for issuing an FSD was based on the target companies’ involvement in a joint venture known as Box Clever, which existed between 1999 and 2003. The joint venture was established by Granada (now ITV) and Thorn (now Carmelite) when they each sold their TV rental businesses to the newly-created Box Clever group of companies, which was owned 50-50 by Granada and Thorn. The purchase was funded by a loan secured on Box Clever’s assets. 

The pension scheme was established in 2001. The Box Clever companies were the sponsoring employers. Neither Granada nor Thorn were sponsoring employers and they had no liability to fund the scheme.

In 2003, administrative receivers were appointed over the principal Box Clever operating companies. The Box Clever business was sold, with all the proceeds of the sale going to the secured lender. 

Following the Regulator’s decision to issue an FSD, the targets referred the decision to the Upper Tribunal. The Upper Tribunal confirmed that the Regulator had power to issue the FSD in this case and that it was reasonable to impose the requirements of the FSD on the targets (see our May 2018 client alert). The targets appealed to the Court of Appeal against that decision.


The Court of Appeal had to consider the following issues:

  • whether the Regulator could have regard to events which occurred before the relevant legislation came into force on 6 April 2005;
  • whether each of the targets was connected with or an associate of the employers at the relevant time (31 December 2009); and
  • whether it was reasonable to impose an FSD on the targets.

The Court of Appeal has dismissed the appeal, concluding that:

  • Retrospectivity: there are no express time limits under the legislation in relation to the matters which the Regulator must take into account when deciding whether it is reasonable to issue an FSD. The targets argued that the legislation should nevertheless be construed as having no application to events occurring before 6 April 2005, but the Court said it is “unlikely that Parliament intended in effect to limit the scope of the power to issue an FSD to future circumstances rather than to give it a wide and immediate effect”.
  • Association: on the facts, the targets were associated with the employers on 31 December 2009.
  • Reasonableness: the Tribunal’s decision that it was reasonable in this case to impose an FSD on the targets involved no error of law. The Court said that it was “irrelevant whether this Court or a differently constituted Tribunal might have come to a different conclusion. The Tribunal was entitled to reach the conclusion which it did”.

Although some aspects of the Court’s decision (such as those relating to association) are fact specific, the decision provides helpful clarification of the scope of the Regulator’s anti-avoidance powers. In particular, companies need to be aware that actions and decisions taken by employers (and those connected or associated with employers) many years ago may be considered by the Regulator when deciding whether it is reasonable to issue an FSD. This should be taken into account when assessing potential exposure to anti-avoidance action by the Regulator.

For more information, please speak to your usual Linklaters contact.