The Pensions Regulator (TPR) has published a response to the consultation on its policy concerning the use of its new criminal sanction powers – for those seeking to avoid an employer debt or putting accrued benefits at risk. It has also published the final version of the policy in light of that consultation. TPR has also published its updated Code of Practice and related guidance on the existing material detriment test, which now includes the new employer resources and insolvency tests that can trigger the issuing of a ‘contribution notice’ (CN) – together with its response to that consultation. As if that were not enough, TPR is also consulting on three draft enforcement policies covering how:
These various publications seek to address many of the concerns that were raised as part of the consultation. They can broadly be considered as seeking greater clarity from TPR – with examples/case studies where appropriate – as to when corporate activity strays from business as normal into action that warrants regulatory intervention. Respondents also requested guidance as to how TPR would deploy the variety of measures now at its disposal.
TPR clarifies that it understands the intent of the legislation is to counter “the most serious, intentional and reckless” behaviour; not business as usual. The final policy includes an appendix setting out examples of when TPR expects someone to have “a reasonable excuse”; these include:
TPR indicates that it believes the Code, as drafted, satisfies its obligations to set out the circumstances in which the new employer-related tests are met. In response to calls for more guidance, TPR considers this should be separate and states that it “will consider publishing such guidance in the future”. TPR also does not consider it practical to accede to consultation respondents’ requests to “set out materiality thresholds”, citing that this will vary by case-specific factors. However, it implies that its draft overlapping powers policy may help in this regard.
Perhaps as expected, the starting point is that TPR will consider use of its various powers on a case-by-case basis. These will cover the power to prosecute, the power to impose a financial penalty and the power to impose a statutory notice. The last of these include, amongst other things, directions to pay a sum to the scheme or to refrain from acting in a particular way. Failure to comply may then lead to other sanctions – financial and/or criminal. TPR may take some measures, such as a CN and a punitive financial penalty, in tandem.
TPR includes a helpful table setting out situations where both regulatory and criminal powers may be available – this also covers actions outside of TPR’s ‘moral hazard’ provisions. For example, failures in relation to automatic enrolment duties or acting as a trustee while prohibited.
Breaches of a direction or restriction imposed by TPR are described as unacceptable and TPR would likely move immediately to impose financial penalties or to commence criminal proceedings.
The draft policy includes three case studies covering a breach in employer-related investments, a manipulated insolvency leading to a CN and frustrating TPR’s information-gathering process.
High fines can be applied in two separate ways. First, the discretionary powers for TPR to impose a financial penalty not exceeding £1 million covering matters such as failing to comply with a CN; this will be fixed at 20% of the CN value capped at £1 million, but may be reduced if the CN is paid promptly. The level of a (non-criminal) penalty for avoiding an employer debt or conduct risking accrued benefits will be assessed against three bands determined by the level of culpability and harm – with low culpability and low harm leading to a penalty between £100,000 and £400,000 and with high culpability and high harm attracting a penalty between £400,000 and £1 million. The draft policy sets out examples of what TPR considers to be evidence of culpability and harm and states that it will consider aggravating and mitigating factors when determining where in the band it will place the penalty.
Second, the discretionary powers to impose a penalty up to £1 million relating to information gathering. This includes failing to comply with the duty to report a notifiable event or providing false or misleading information to TPR or the trustees. Again, TPR’s approach is to band the penalties based on culpability and harm – albeit an additional category is included where there is a breach but there has been minimal harm, where the penalty could range between £0 and £100,000.
TPR can seek information from a wide range of stakeholders – including employers, trustees, members, advisers and third-party service providers. The draft policy sets out TPR’s various powers including information notices, interview notices and inspections. Amongst the items that TPR could ask to see are copies of trustee minutes, the scheme’s risk register and relevant advice. Unless TPR considers there to be an immediate risk, it will allow a reasonable time to comply. Failure to comply may lead to fixed or escalating financial penalties.
Consultation on the draft policies closes on 21 December 2021.