Over the last couple of years the Pensions Regulator (TPR) has been keen to emphasise that it is taking a "clearer, quicker, tougher" approach to the regulation of pension schemes - undoubtedly spurred on by some of the criticism that the Regulator received over BHS.
In the White Paper - Protecting Defined Benefit Pension Schemes - published in 2017, the Government announced that it would strengthen the regulatory framework for TPR. This was backed up a further consultation in June 2018 - Protecting Defined Benefit Pension Schemes - A Stronger Pensions Regulator
The Government has now issued its Response to the Consultation outlining the legislative changes that it proposes to make. These changes will affect all employers with defined benefit pension schemes - especially where M&A or re-financing transactions are proposed.
Criminal and civil penalties
The headline grabbing announcement was undoubtedly the new criminal offence of "wilful or reckless behaviour in relation to a defined benefit pension scheme." A failure to comply with a contribution notice will also become a criminal offence, but the Government has dropped its plans for failure to comply with the notifiable events framework (see below) to become a criminal offence.
These new offences will carry a potential 7 years imprisonment or an unlimited fine. Whilst a failure to comply with a contribution notice order will be straightforward to identify, "wilful or reckless behaviour" might be more difficult to pin down. It is possible to draw some parallels with the criminal offence of "reckless misconduct in the management of a failed bank" which was introduced post financial crisis - although that applies to senior management in respect of the failed bank they were controlling and already owed duties to. Here we are looking at behaviour in respect of a third party creditor of the employer.
A new civil penalty of up to £1 million is also being introduced - this can also apply to "wilful or reckless behaviour", failure to comply with contribution notices and also a failure to comply with notifiable events or complete a declaration of intent (see below). A table summarising all the new offences, penalties and the intended target is set out at the end of this briefing note.
The notifiable events framework requires trustees or employers to inform TPR on the happening of certain events. The aim is that the framework would give TPR advance warning of schemes which become a...