Right side of the line?
The new powers make it easier for tPR to take action against entities or people involved in activity which has a material impact on a DB scheme (a recent example being tPR's intervention resulting from the BHS administration). tPR can now bring criminal prosecutions carrying up to 7 years in prison and/or an unlimited fine. It can also impose civil penalties of up to £1m.These powers will impact on ALL corporates and individuals (including advisors) involved in transactions with a DB scheme in their orbit. It will now be necessary to follow a process to conclusively show that you fall on the right side of line.
The current powers
tPR has existing powers to issue contribution notices (CNs) and financial support directions (FSDs) both of which are subject to a “reasonableness” requirement.
CNs (for a set amount) can be issued against an employer participating in a DB scheme, a person connected or associated with that employer (including a director) if there is an act or failure to act that:
- detrimentally affects the likelihood of scheme benefits being paid in full; or
- prevents the recovery of a statutory debt payable to the scheme.
FSDs (support in the form of cash and/or security) can be issued to connected or associated entities where a sponsoring employer of a DB scheme is either insufficiently resourced or a service company.
New ground for contribution notices
There will be two new grounds on which tPR can issue CNs in relation to an act or failure to act based on:
- an employer insolvency test: this assesses whether the amount of any statutory "section 75" debt that a scheme would have been able to recover on a hypothetical insolvency would be materially reduced; and
- an employer resources test: this assesses whether the value of employer resources has been reduced to a material extent relative to the scheme's estimated section 75 debt.
There is a statutory defence available where a person can show they considered the potential detriment of their actions on the DB scheme and took all reasonable steps to offset or mitigate the detriment.
New criminal offences
Three new criminal offences are introduced which apply to any person who, broadly takes action or engages in a course of conduct that has a materially detrimental effect on a DB pension scheme provided the person knew or ought to have known that the act would have such an effect and has no reasonable excuse for any of the following:
- conduct risking accrued scheme benefits, with actual or implied knowledge of the negative impact on members' benefits;
- avoidance of employer debt as result of an act/omission or course of conduct, with avoidance as its intention and without a reasonable excuse; or
- failure to comply with a CN.
New civil penalties
Fines of up to £1m can be issued where any person:
- is a party to an act or failure to act which is materially detrimental to a DB scheme where it was not reasonable for the person to act or fail to act in the way they did; or
- knowingly or recklessly provides tPR or the DB scheme trustees with false or misleading information.
New information gathering powers
The new powers include:
- new requirements to notify tPR of certain corporate transactions due to come into force in 2022 – read more here);
- summons for interview; and
- enhanced powers in relation to inspection of premises (e.g. "dawn raids" to gather information for the purposes of a CN/FSD investigation).
There are also new penalties associated with the information gathering powers. These include new fixed and escalating penalty powers (up to a daily rate of £10,000) in the event of failure to comply with a notice requiring the provision of information.
Civil penalties of up to £1m or imprisonment for up to two years can be imposed for knowingly or recklessly providing tPR or trustees with false or misleading information.
