The Pensions Regulator’s Consultation on Criminal Powers- Some Key Initial Thoughts 

We support the work being done by the Pensions Regulator and others in seeking to address serious intentional and reckless behaviour and improving standards of governance and conduct in relation to pension schemes. The new powers are extensive, and their interaction with new and existing civil powers, including £1m penalties that cover all (including employers, trustees and advisers), means that additional examples and guidelines would be welcomed and vital to all in the industry.

Turning to the Regulator’s questions from the consultation:

Given that the offences have now been set in law, is TPR's overall approach consistent with the policy intent?

We also welcome the Pensions Regulator’s confirmation that it does not intend to change commercial norms or accepted standards of corporate behaviour in the UK. However, we believe that there is a concern in the pensions industry that the scope of the Pensions Regulator’s new powers could have the impact of altering commercial activity. In short they are so powerful that they will de facto have an impact on commerce, this could well be for the better, but the prospect of an impact is nearly inevitable. Employers and Trustees will need to take into account the new powers and we recognise that this is likely one of the underlying regulatory goals. We believe therefore that additional examples and parameters in respect of circumstances in which the Pensions Regulator may use its powers would assist to provide certainty to both trustees and employers.

Amongst other things, we believe that greater detail in respect of the interaction between the criminal penalties and the civil sanctions including in sections 58C and 58D will be key.

We believe that industry (including many employers and trustees) would likely welcome a de minimis rule to be adopted by the Pensions Regulator to bring additional clarity to the use of the concept of “material” that has been frequently included in the offences. This would reduce uncertainty for those advising on this in practice. For example, that a reduction of resources below a certain percentage would not be considered to be subject to the new powers.

Is the policy clear on our overall approach to the new offences? If not, how could we make it clearer, without constricting the powers? 

As regards the defence for regarding material detriment that an individual/company gave due consideration to whether or not the intended act or failure to act would cause material detriment, and reasonably concluded that it would not, we note that this defence is only available if the Pensions Regulator is satisfied that the relevant conditions are met. This may pose a difficulty in practice without substantial guidance, as a person and/or their advisers may be uncertain as to what circumstances and evidence would likely give rise to the Pensions Regulator concluding that it is satisfactory. Again, therefore we believe that this is an area where substantial guidance will be important.

Similarly, we believe that the concept of what is incidental for the purposes of a reasonable excuse would benefit from further guidance and examples.

We appreciate that the Pensions Regulator has the ability to choose between civil and criminal penalties for offences. However, we believe that there is a strong argument that the Pensions Regulator should set out at the outset to any person investigated whether or not that investigation is to be for civil or criminal grounds and that any one investigation should not give rise to the potential for being used for either of a civil or criminal action. Reasons for this include the underlying uncertainty that this would post for any person subject to an investigation and in particular would cause difficulty having regard to the different procedural protections and processes in criminal and civil matters. For example, if an investigation is to be brought for criminal matters, then a defendant may understandably choose to rely upon the various protections against self-incrimination.

We also note that the limitation period for issuing a Contribution Notice is within six years of the date of the act or failure, whereas there is no limitation period applicable to the criminal powers. The ongoing prospect of criminal sanctions would make it difficult for individuals/companies to plan and invest. This may act as a bar to commercial conduct, and we would welcome the introduction of guidance that clarifies that only extreme behaviour (with examples) would be pursued after 6 years.

Is the policy clear on how cases will be selected for investigation? If not, how could we make it clearer?

The Pensions Regulator’s powers under sections 58A and 58B are wide, as these criminal offences can be committed by anyone other than an insolvency practitioner appointed and acting within the scope of that appointment (whereas a Contribution Notice can only be issued to someone who is the employer or was associated with or connected to the employer). Likewise, the related civil penalties under 58C and 58D have the same general wide application.

We acknowledge the absence of a clearance regime or an equivalent provision applicable to the criminal offences. We believe that it would be positive and important to be able to seek protection in respect of potential criminal liability. The Pensions Regulator has confirmed that it would “not usually expect to prosecute anyone under section 58B who could establish a statutory defence to a material detriment CN under section 38B”. It would be beneficial if this was further amplified with additional guidance. We would assume that for any protection on a particular set of facts, clearance on a Contribution Notice would be taken to extend generally to the criminal offences as well.

Are the examples useful in illustrating the factors that we will take into account when considering whether a potential defendant has a reasonable excuse to act or fail to act? Are there any other examples you would consider helpful?

We support the underlying principles of the Pensions Regulator’s draft policy in that it is seeking to reduce extreme behaviour.

It would be helpful to have more examples in order to be able to understand how the Regulator would approach the balance between corporate activity and funding schemes. As an example, the Pensions Regulator could set out a list of more everyday corporate events and their potential to be considered for investigation. It would also be beneficial for a sliding scale approach, for example around the commercial decision of an employer granting security.