The Government has recently set out its plans to beef up the powers of the Pensions Regulator, in the wake of the Carillion and BHS pension scheme fiascos, to deter reckless behaviour towards defined benefit pension schemes.
The powers build on existing powers the Pensions Regulator has to prevent companies (and indeed their directors and controlling shareholders) from walking away from a company defined benefit pension arrangement (“DB Scheme”) and will bite on any company which (i) participates in a DB Scheme or (ii) is in a group with a company which has its own DB Scheme. A DB Scheme is one where members have received a promise of future pension often based on salary and length of service.
The Government is planning to introduce two new criminal offences for wilful or reckless management of a DB Scheme and for failure to comply with a contribution notice (issued by the Pensions Regulator), together with a number of civil offences. The majority of these are set out in the table below. These were announced in February in the Department of Work and Pensions’ response to its June consultation “Protecting Defined Benefit Pension Schemes”. These offences are not yet in force.
The Government’s response also covers various other areas where it perceives the regulation of corporate activity relating to DB Schemes could be improved. These include:
- Declarations of Intent – the Government intends to legislate to introduce a requirement on “transaction planners” to produce a statement which explains the transaction, confirms that the trustee board has been consulted and explains how any detriment to the scheme is to be mitigated. These will apply when the sale of a company which participates in a DB Scheme is envisaged, or when one of the two new notifiable events described below is envisaged.
- Two events will now become notifiable by sponsoring employers participating in DB schemes to the Pensions Regulator (failure to notify carrying a fine of up to £1m): (1) Sale of a material proportion of the business or assets of a scheme employer which has funding responsibility for at least 20% of the scheme’s liabilities; and (2) Granting of security on a debt to give it priority over debt to the scheme.
- Strengthening the Pensions Regulator’s information gathering powers through inspections and interviews, and introducing robust fixed and escalating civil penalties for failure to comply with requests to provide information.
The Government states that it intends to “bring forward legislation as soon as Parliamentary time allows”, although some of the measures will still need further consultation.
If you have any questions or would like to discuss the implications of the Government’s proposals with someone in our pensions team, please contact practice head Gabrielle Holgate.
The new offences and penalties
|Wilful or reckless behaviour in relation to a pension scheme||Criminal offence: Up to seven years' imprisonment and/or unlimited finesand/orNew civil penalty: Fine of up to £1m||Sponsoring employers and others associated or connected|
|Failure to comply with a contribution notice issued by the Pensions Regulator||Criminal offence: Unlimited fines and/orNew civil penalty: Fine of up to £1m||Sponsoring employers and others associated or connected|
|Failure to comply with the notifiable events framework||New civil penalty: Fine of up to £1m||Sponsoring employers and trustees|
|Failure to comply with requirements for a declaration of intent||New civil penalty: Fine of up to £1m||Sponsoring employers and others associated or connected|
|Knowingly or recklessly providing false information to trustees/The Pensions Regulator||New civil penalty: Fine of up to £1m||Any person who is required to provide information|
|Non-compliance with information requests, or delays in providing information||Fixed and escalating civil fine (levels to be determined)||Any person targeted by The Pensions Regulator who is required to provide information as prescribed|
|Failure to comply with a financial support direction||New civil penalty: Fine of up to £1m||Sponsoring employers and others associated or connected (but not individuals with the exception of controlling shareholders who are individuals)|