As busy as … the Regulator!

Blog 24 Mar 2021 By Tom Pook

Spring is here at last and change is in the air. And it seems The Pensions Regulator (TPR) is as busy as the birds and the bees, working feverishly on a range of forthcoming changes that will keep a spring in the step of the pensions industry.

Consultation on new powers under the Pension Schemes Act (PSA) 2021

First up, the TPR powers under PSA 2021.

The DWP has published a consultation seeking views on the proposed drafting of two sets of regulations which relate to the new TPR powers, which are expected to come into force in October 2021. They should be read in conjunction with TPR’s recent consultation on how it will use its new powers (see below).

The Pensions Regulator (Contribution Notices) (Amendment) Regulations 2021

A new ‘employer resources test’ is introduced to assess whether an act or failure to act has occurred for determining if a ‘section 38 Contribution Notice’ can be issued.

The reason for this change is that the tests in the existing Contribution Notice regime – the “main purpose” and “material detriment tests”, are ‘scheme’ focused, whereby an assessment is made on the impact of the act or failure to act on the scheme. In most of TPR’s past Contribution Notice cases, the act or failure to act on which the action is based is something which affects the employer, as opposed to something which damages the scheme directly.

Several options were therefore considered whereby resources of the ‘employer’ could be assessed; the government now proposes that ‘resources of the employer’ be determined as normalised profits of the employer before tax.

The Pensions Regulator (Information Gathering Powers and Miscellaneous Amendments) Regulations 2021.

This prescribes:

    • information that interview notices should contain;
    • modifies how inspection powers may be utilised in multi-employer schemes; and
    • sets out the fixed or escalating penalty rates for non-compliance with information gathering requests.

The objective of these powers is to enable TPR to ask for any relevant information or documents from any time in the past during an interview or inspection. How it uses the material obtained will be subject to the admissibility of evidence provisions and, where relevant, the date that legislative provisions or offences came into force.

Where there is non-compliance with information gathering requests, the draft regulations provide for fixed and escalating penalties with a higher level of escalating penalty applying to those entities that are not individuals.

Criminal powers guidance

PSA 2021 has also provided TPR with new criminal powers to investigate and prosecute those who avoid employer debts to pension schemes or put savers’ pensions at risk. The Act introduces two new criminal offences:

1. the offence of avoidance of employer debt; and
2. the offence of conduct risking accrued scheme benefits.

The offences are expected to be in force by Autumn 2021. TPR has published its draft policy and a consultation on how it plans to use these criminal powers.

Both offences relate to defined benefit (DB) schemes and are punishable by up to seven years in prison and / or an unlimited fine. They apply to any person, including trustees, employers, professional advisers and others (e.g. lenders). Insolvency practitioners are excluded.

However, no offence is committed if there is a “reasonable excuse” and the burden of proof will be on the prosecution to prove the absence of a reasonable excuse (TPR has to prove that a person had intent or “knew or ought to have known” what they were doing).

Although the new offences are not expected to frustrate legitimate corporate activity, the provisions in the Act significantly strengthen TPR’s powers. Trustees, employers and others involved in DB pension schemes need to be aware of the changes. Considerations include:

  • Taking the provisions into account in a transaction that could potentially impact a DB scheme or the covenant of its sponsor.
  • Checking trustee insurance policies and indemnities.
  • Taking advice and keeping a good audit trail.
  • Getting some training on TPR’s new powers.

New Single Code of Practice (part 1)

TPR’s 15 existing codes of practice are set to be transformed into a new online code, which is intended to provide “one up-to-date and consistent source of information on scheme governance and management”. The new code will consist of 51 shorter, topic-based modules.

On 17 March, TPR launched a consultation on the first phase of its work – bringing together 10 of the current 15 codes and, it says, reducing the number of pages by nearly half.

The consultation also incorporates changes introduced by the Occupational Pension Schemes (Governance) (Amendment) Regulations 2018 relating to “effective systems of governance” and the “own risk assessment”.

TPR will be carrying out a series of engagement activities with more details about the new code and to provide the pensions industry with the opportunity to share its views. We expect that there will be significant interest in these activities from advisers and trustees.

And there’s more …

Time and space did not permit a summary of recent research from TPR on the ‘DB landscape’ but, with further consultations expected on the Single Code and the new Funding Code later in the year, there will be plenty of opportunities to comment on TPR activities as we move through the seasons (and hopefully get to enjoy a Summer holiday in 2021, even if it must be a staycation)!

Tom Pook

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