The background to the Pension Schemes Act 2021 (“PSA 21”) is largely political, and it was (in part) a response to the high-profile collapses of both BHS and Carillion, which involved large pension liabilities being passed to the Pension Protection Fund (PPF).
This in turn led to criticisms of the Pensions Regulator (tPR) for its apparent failure to intervene earlier. This ultimately prompted a review of tPR’s powers with a view to strengthening them.
In this article, we take a look at:
- The new criminal offences under PSA 21
- tPR’s new information gathering powers; and
- Changes to the notifiable events regime.
Criminal offences under the Pension Schemes Act 2021
One of the most commented on aspects of the PSA 21 is the introduction of new criminal offences. We take a closer look at these below.
What are the new offences?
There are two new offences:
- Avoidance of employer debt (new section 58A of the Pensions Act 2004); and
- Conduct which risks “accrued scheme benefits” (new section 58B of the Pensions Act 2004).
The drafting of the offences is based on the “contribution notice” legislation in the Pensions Act 2004, and both offences can either be committed by a positive act or through a failure to act. The penalty for committing one of the new offences is either up to seven years’ imprisonment or an unlimited fine, or both.
New “avoidance of employer debt” offence
In summary, a person commits this new avoidance offence where they (without a reasonable excuse) act or fail to act in a way which:
- Prevents the recovery of the whole or any part of the section 75 debt due from the employer; or
- Prevents the debt from becoming due or reduces the amount which would otherwise be due.
The offence’s scope is not limited to the employer(s) or to people who are connected or associated with the employer. So, individuals such as professional advisers and other third parties (lenders, suppliers and other contractual counterparties) are potentially within scope.
tPR has issued a “Criminal offences policy” which sets out some common practices that should not result in an offence under this section. These include apportionment arrangements to manage employer debts, as long as the statutory requirements are met and the parties act transparently and in good faith.
New “conduct risking accrued scheme benefits” offence
A person commits this offence when (without reasonable excuse) they do something that detrimentally affects in a material way the likelihood of accrued scheme benefits being received, and that person knew or ought to have known that the act would have such effect.
This offence has attracted much attention as it is so widely drafted. The key elements are:
Person – this includes anyone (trustees, employers, professional advisers, banks etc) except for someone appointed as and working in their role as an insolvency practitioner. This is much wider than the civil powers that tPR has to impose contribution notices, which can only be imposed on scheme employers or parties connected to them.
Intent – there is no need for the person to have deliberately committed the offence, all that is required is that the person new or ought to have known the effect that their conduct would have.
Time limit – there is no limitation period after which tPR cannot prosecute acts (or failures to act), although it cannot prosecute acts which occurred before 1 October 2021.
Despite the wide drafting of the legislation, tPR’s criminal offences policy makes it clear that the vast majority of people involved (whether directly or indirectly) with defined benefit schemes have nothing to worry about, as it will investigate and prosecute only the most serious of intentional or reckless conduct. There is a useful case study which illustrates how tPR expects to exercise its new powers, which should give comfort to trustees, directors and pensions professionals that if they act properly they have nothing to worry about.
tPR’s new Information gathering powers
tPR has been given extended information gathering powers by PSA 21. tPR’s new power enable it to require a wide range of people (employers, trustees, advisers etc) to attend an interview. tPR must first send a notice to the person setting out the matters that it wishes to address in the interview. At the interview, the person is required to answer questions and provide explanations in relation to those matters. Failure to do so without reasonable excuse is itself an offence.
tPR also has wider powers to inspect premises, and power to impose fixed and escalating penalties for failing to comply with its information gathering powers or hindering/preventing an inspection.
Changes to the notifiable events regime
Two new notifiable events are due to come into force in 2022 (no date has been confirmed). The duty to notify tPR (with a copy provided to the trustees) will fall on employers and those connected or associated with them where there is:
- a decision in principle by a controlling company to relinquish control of an employer;
- an offer to acquire control of the employer;
- a decision in principle by the employer to sell a material proportion of its business or assets; or
- a decision in principle by the employer to grant or extend a relevant security over its assets, where this would result in the creditor being ranked above the scheme in the order of priority.
A “decision in principle” is defined as “a decision prior to any negotiations or agreements being entered into with another party” i.e. when the employer or controlling company has decided a course of action, but has not yet taken it. This is to try to ensure that employers consider the potential impact of any transaction on the scheme as early as possible.
A “material proportion” of the employer’s business is defined as 25% of its annual revenue and a “material proportion” of its assets is 25% of the gross value of assets as set out in the accounts.
Notification needs to be given as “soon as reasonably practicable”, and must include a statement which provides a description of:
- the event, including the main terms proposed
- any adverse effects on the scheme
- any adverse effects on the employer’s ability to meet its obligations to support the scheme
- any steps taken to mitigate those adverse effects and
- any communication with the trustees about the event.
It is intended that sponsors will address the impact of corporate activity on the scheme at the earliest point possible.
Knowingly or recklessly providing the Regulator with information that is false or misleading in a material way when complying with the new notifiable events requirements can give rise to criminal penalties. In addition, failure to comply could lead to fines of up to £1 million.
What does this mean in practice?
Trustees and employers should take professional advice in relation to any corporate transactions which could impact their schemes to ensure they take the necessary steps to comply with the new requirements.
Considerations and decisions should be properly documented so that the paper trail can be provided to tPR if it requests.
Our experience
We have helped many trustees and sponsors grappling with this issue, and our wide-ranging experience enables us to quickly identify possible solutions and help you to find the right one. We’d be happy to have an initial discussion with you about the options.
Please contact Ian Mylrea if you would like to arrange an informal discussion.
