The Department for Work and Pensions (DWP) has confirmed its intention to legislate to introduce a criminal offence against those found to have committed “wilful or reckless behaviour” in relation to a pension scheme.
In its white paper, Protecting Defined Benefit Pension Schemes, published today 19 March 2018, the DWP highlighted that it will criminalise company directors and any concerned parties that have wilfully neglected their DB pension responsibilities.
“To ensure this power is proportionate, we will work with the relevant parties and carry out a consultation over the coming months so that all associated impacts are considered,” the DWP stated.
In order to enable The Pensions Regulator to take a more proactive stance in the prevention of pension scheme neglect and reckless behaviour, it has been given greater powers. The white paper confirms that it will strengthen the regulatory framework and TPR’s powers as set out in the government’s 2017 manifesto.
TPR will be able to allocate punitive fines for those who have deliberately put their scheme at risk and will see the introduction of legislation to introduce greater information-gathering powers including the power to compel any person to submit to an interview, the power to issue civil sanctions for non-compliance and an inspection power.
Where employers, trustees and other parties may previously have not prepared to attend interviews with TPR, its new powers will see the extension and broadening of its interview requirements beyond this.
The white paper adds that TPR will be given the power to inspect records, documents and electronic devises at premises for “purposes relevant to the regulator’s functions”. To do this, TPR would generally issue advance notice of an inspection, as long as notice works against the purpose of the inspection. Inspection powers for the purpose of ‘compliance checks’ already exist under section 73(2).
As an alternative to its power to impose criminal sanctions for non-compliance with a section 72 notice without a reasonable excuse, the government has also stated that it will legislate to give TPR the power to impose fixed and escalating civil sanctions.
Currently, TPR’s main anti-avoidance power is the issuance of contribution notices, which require those involved in a detrimental act to pay an amount into the scheme. The payment can be up to a maximum amount of the scheme’s section 75 deficit at the time the act took place.
It is hoped that the additional powers will give the regulator the “ability to respond more quickly and decisively” where wrongdoing involving pension schemes have taken place, the DWP explained.
“Currently, in cases where the regulator has evidence of any criminal offence taking place, they are able to use existing powers to pass that information onto the appropriate law enforcement (or another suitable) agency to take action. This regime has worked well, but following recent high-profile cases, we believe that enhancing the regulator’s existing powers, would enable the Regulator to be clearer, quicker and tougher in these situations.”
In addition, the government will now require trustees of DB pension schemes to appoint a chair who will be required to report to the regulator in the form of a chair’s statement, submitted with the scheme’s triennial valuation.
As a result of its earlier calls for the extension of its powers, TPR has “welcomed” the white papers’ proposals. While this has been well-received, the white paper outlines that although "it may be possible to take some measures forward with secondary legislation, primary legislation will be needed in most cases.
"Where primary legislation is required, this is unlikely to be before the 2019–20 parliamentarysession at the earliest," it said.
TPR chief executive Lesley Titcomb commented: “Planned improvements to our scheme funding, information-gathering and anti-avoidance powers will enable us to be clearer about what we expect from employers in relation to scheme funding and tougher where a scheme is not getting the funding it needs.
“Furthermore, strengthening the notifiable events framework will improve our regulatory grip and will ensure we are sighted sooner on planned transactions that could pose a risk to scheme members.
“We will now work closely with government to develop the white paper’s proposals, including fines and criminal sanctions, to ensure they are proportionate, act as an effective deterrent and work in practice."
Pensions and Lifetime Savings Association director of external affairs Graham Vidler added: “The ability to impose significant fines, undertake enhanced information gathering exercises and introduce an increased oversight regime can all play a role in safeguarding people’s pensions.
“However, while there is support for ensuring that TPR has the power to undertake its role, our members are keen that they are proportional and practical. We also need to ensure that we guard against unintended consequences as we build a more sustainable system. Further consultation is needed to identify how these new powers can work with and complement TPR’s existing approach and its commitment to be “clearer, quicker and tougher”.
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