The changing powers of the pensions regulator

Sponsors must now, more than ever, ensure that they keep their defined benefit pension schemes at the forefront of their minds - particularly when embarking on corporate activity. 

Protecting defined benefit pension schemes from sponsor failure or adverse restructuring is something the Government has been keen to prioritise. In its response to the Consultation on Protecting Defined Benefit Pension Schemes, the Government has set out proposals to increase pensions regulation and to improve the powers of the Pensions Regulator.

Criminal offences

Two new criminal offences will be introduced. These will:

  • target individuals who demonstrate "wilful or reckless behaviour" in relation to pension schemes. The Government has cited chronic business mismanagement, allowing huge pension deficits to build up and/or taking large investment risks as examples of such behaviour. The penalty will be up to seven years' imprisonment or an unlimited fine; and
  • individuals who fail to comply with a contribution notice issued by the Pensions Regulator will be liable for an unlimited fine.

Notifiable events

The notifiable events regime requires the employer or trustee of a pension scheme to give notice of certain events to the Pensions Regulator. The Government's proposals include extending the current framework by requiring employers to notify the Pensions Regulator of: 

  • the sale of a material portion of the business or assets of a scheme employer who is responsible for funding at least 20% of the scheme's liabilities; and 
  • granting security on a debt to give it priority over any debt to the pension scheme. 

Declaration of intent 

There will be a new requirement for a Declaration which will need to be shared with the scheme trustees and the Pensions Regulator when certain corporate transactions are being contemplated. The Declaration will need to explain the transaction, confirm that the trustee board has been consulted and explain how any detriment to the scheme is to be mitigated. 

Powers of the Pensions Regulator 

The Government intends to introduce a new power for the Pensions Regulator to issue civil penalties of up to £1 million in a number of cases. The table below sets out some of the actions that the Government has identified will be subject to the new fines.

Actions that the Government has identified will be subject to the new fines

Changes have also been proposed to the Pensions Regulator's moral hazard powers. These include amending the reasonableness test for contribution notices and changing the tests for determining whether a financial support direction can be imposed.

Comment 

The introduction of criminal liability as well as substantial fines shows a clear shift in the regulation of defined benefit pension schemes. The Government is clearly undertaking its policy that the failings in BHS and Carillion must not be allowed to happen again. We await the details of the Government's proposals – it almost goes without saying that this is an area that sponsors and trustees of defined benefit pension schemes need to watch closely. 

Insights

DWP’s consultation on regulations under PSA 2021 strengthening TPR’s powers

Chris Edwards-Earl comments that under the recently enacted Pension Schemes Act 2021 (PSA 2021), the powers of the Pensions Regulator (TPR) were clarified and expanded.

In conversation: Transfer to master trust

This is an important conversation for anyone involved with a workplace DC pension scheme. The government has proposed some draft regulations which are due to come into effect on 5 October 2021. These are likely to force those running workplace trust-based DC schemes to transfer those schemes to a master trust. 

Occupational DC schemes - are you ready?

From October 2021, it is proposed that new and game-changing obligations for those involved in occupational defined contribution (DC) schemes will come into force. These will require certain schemes to compare their value for members against the value offered by large commercial DC schemes and, ultimately, result in increased consolidation of schemes in this area.

The Pension Schemes Bill - Just the beginning?

It was widely anticipated in the pensions industry that the Pension Schemes Bill (the Bill) would receive Royal Assent at the end of 2020. However, it is perhaps unsurprising it did not get over the line with much of the Government's time taken up with Brexit and Covid-19. It has, however now passed through all of the Parliamentary stages and is awaiting Royal Assent.

Pensions 2021 - the top six topics to watch

2020 was not the year that any of us expected. With Brexit and Covid-19 occupying much of the Government's time, it is little surprise that some of the developments that were expected to occur in the pensions world did not materialise.

Compliance Statements to CMA due by 7 January 2021

Requirements under the Investment Consultancy and Fiduciary Management Market Investigation Order 2019

The composition of the Retail Prices Index set to change

The composition of the RPI is set to change from February 2030. RPI index values will be calculated using the same methods and data sources that are used to calculate the CPIH. Based on recent economic conditions, this is likely to result in RPI being lower by an average of 1% per annum.

GMP equalisation – clarification on requirements for past transfers out

The long-awaited conclusion to the guaranteed minimum pensions equalisation litigation, concerning the Lloyds Banking Group’s defined benefit scheme, was handed down on Friday, 20 November 2020.

Pension fund management services provided to defined benefit schemes not exempt from VAT

The Court of Justice of the European Union (CJEU) has put an end to any suggestion that pension fund management services provided to occupational pension schemes are VAT exempt on the basis of an insurance exemption.

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