In June 2018 the Government launched a consultation entitled Protecting Defined Benefit Pension Schemes – A Stronger Pensions Regulator in which it sought responses to its plans for strengthening the regulatory framework of the Pensions Regulator (TPR).
The consultation outlined a number of proposals that focused on strengthening TPR’s anti-avoidance powers, broadening their information gathering powers, enhancing the existing notifiable events framework and introducing new civil and criminal offences. The Government has now published its response to this consultation which is summarised below.
Anti-avoidance powers
The Government will continue to work with TPR and the Pension Protection Fund to amend the financial support direction process to a single-stage process. In the single-stage process, the determinations panel will impose a particular form or monetary amount on the target. The name will also change to “financial support notice”.
Information gathering powers
It is proposed that TPR will have a stand-alone interview power but would be required to issue a prior notice giving a date, time and a broad explanation of what the scope of the interview is about. This could potentially make it easier for people to comply with information requests or reduce the number of information requests issued by TPR. The Government intends that the interview power would override an adviser’s duty of confidentiality to their client. It is further proposed that TPR’s current inspection power will also be extended to inspect premises.
Notifiable events framework
The Government has confirmed its intention to introduce two new employer-related notifiable events:
- the sale of a material proportion of the business and assets of a scheme employer which has funding responsibility for at least 20% of the scheme’s liabilities; and
- the granting of security on a debt to give it priority over debt to the scheme.
The existing notifiable event of “wrongful trading of the sponsoring employer” will be removed. The thinking behind this is that no director would admit wrongful trading. There will be a further consultation on draft regulations to amend the existing notifiable events framework. With regards to the timing of notification, the Government has said that it will consult with TPR and the pensions industry to identify whether earlier notification could be beneficial in relation to each of the employer-related notifiable events.
Declaration of intent
The declaration of intent was first proposed in the Department for Work and Pensions’ white paper. You can read our blog about the white paper here. The declaration would be made by the planner of the corporate transaction (i.e. the sponsoring employer) and addressed to the trustees; it would also be shared with TPR. The declaration would be made in respect of the following corporate transactions:
- the sale of a controlling interest in a sponsoring employer;
- the sale of the business or assets of a sponsoring employer; and
- the granting of security on a debt to give it priority over debt to the scheme.
The declaration of intent will not replace the clearance process. The Government is of the view that a declaration would help trustees to understand the implications of a proposed transaction for the scheme. However, there is currently no intention to legislate to specify when the sponsoring employer should provide the declaration of intent.
New penalties
The Government plans to introduce a range of new criminal and civil sanctions. Two new criminal offences will be introduced: wilful or reckless behaviour in relation to a pension scheme (which carries a maximum penalty of 7 years’ imprisonment and/or an unlimited fine); and failure to comply with a contribution notice (for which the maximum penalty is an unlimited fine). The following new offences also carry a maximum civil penalty of up to £1m:
- failure to comply with a financial support direction;
- failure to comply with the notifiable events framework;
- failure to comply with requirements for a declaration of intent; and
- knowingly or recklessly providing false information to trustees
TPR will also have the power to issue fixed and escalating penalties more widely outside of the auto enrolment and master trust regime in line with the statutory maximum amounts (currently £50,000 for a fixed penalty and the daily rate of £10,000 for an escalating penalty).
Comment
The Government is pressing on with a number of the changes outlined in the consultation with a few proposals being dropped. TPR has welcomed the changes saying that the “new powers will act as a powerful deterrent against the poor treatment of pension schemes and help us in protecting members”. There is no timescale set out for the implementation of the changes and in many cases further consultation will be needed before the changes are made into law.