In its response (39 page / 383KB PDF) to a consultation on strengthening the Pensions Regulator’s (TPR) powers, the government said it would introduce a new offence of “wilful or reckless behaviour” in relation to pensions, while also making failure to comply with a contribution notice a criminal offence.
Employers who are found guilty of recklessly endangering a pensions scheme could be sentenced to up to seven years in prison or given unlimited fines. Those found guilty of failing to comply with contribution notices will also face unlimited fines.
The government will also introduce new civil penalties with fines of up to £1 million for a series of other misdeeds, including knowingly or recklessly providing false information to trustees or TPR. Non-compliance with information requests or funding standards will also incur civil penalties, although the level of these is yet to be determined.
TPR’s powers to carry out interviews and inspect premises will also be expanded with fines for non-compliance to be set at similar levels to the fines currently levied for non-compliance with Section 72 of the Pensions Act, which requires employers, trustees and third parties to provide the regulator with information.
The government will also strengthen TPR’s powers in other areas. The regulator will now need to be notified if a “material proportion” of the business or assets of an employer with funding responsibility for at least 20% of a pension scheme’s liabilities is sold. Employers will also have to notify TPR if security on a debt is granted to give it priority over debt to the pension scheme.
However the government said it would not take forward proposals to introduce other ‘notifiable events’, such as a significant change in the make-up of a company’s board.
TPR is to update its guidance on the notifiable events framework and consult on a revised code of practice for this area, to make sure sponsoring employers are clear about their responsibilities. The code of practice will make it clear that the pension scheme trustees and the sponsoring employer collaborate to ensure the impact of any company transaction on its pension scheme is understood.
Pensions litigation expert Isabel Nurse-Marsh of Pinsent Masons, the law firm behind Out-Law.com, said: "The new threat of a 7-year prison term has succeeded in grabbing headlines, but for most schemes it will be the less eye-catching reforms which have the greatest impact. The new Declaration of Intent, which will put scheme trustees and the Regulator on notice of corporate transactions which might affect the scheme, is a good example. New notifiable events and stronger penalties for non-compliance should also help hold employers to account."
"Despite the fanfare, it may be a while before the impact of these changes is felt," she said. "Parliament needs to find time to legislate for all this, and is currently preoccupied with Brexit. The Regulator also has plenty of work to do. Revising its funding standards and DB Code of Practice is already on the cards – but the consultation response repeatedly mentions that government and TPR will need to work together on further new guidance to make expectations clear. Wider information-gathering powers and new penalties for non-compliance weren’t included in the consultation because the government had already confirmed these would go ahead – the Regulator will need to update its compliance and enforcement policies to explain how its new stand-alone interview power will be used. As the Regulator’s approach and its powers evolve, schemes will need to make sure they keep up to date."
The government said the changes would improve the regulator’s ability to monitor corporate events and take appropriate action and make its investigations more efficient and effective.
Legislation will be brought forward to implement the changes “as Parliamentary time allows”.