UK: What Does The Pension Schemes Bill 2019 Say About New TPR Powers

Last Updated: 8 November 2019
Article by Jason Coates

The government has introduced long-awaited primary legislation dealing with pensions. The Pension Schemes Bill 2019-20 (the Bill) sets out a framework for collective defined contribution schemes, lays the foundations for pensions dashboards and proposes new powers for The Pension Regulator (TPR) and new trustee duties in relation to DB funding.

In the first of our series of insights on the Bill, we focus on the changes to TPR's powers and to the funding regime for defined benefit (DB) schemes. In relation to TPR, the Bill:

  • creates two new grounds on which a contribution notice (CN) can be issued by TPR;
  • introduces new criminal offences;
  • provides for new non-criminal sanctions;
  • gives TPR additional information-gathering powers; and
  • revises the notifiable events framework provisions.

Proposals set out in the Bill also provide for new duties on trustees of DB pension schemes to determine a funding and investment strategy. The Bill states that this must then be set out in a written 'statement of strategy' signed by the chair.

Key points for trustees and employers

1. New primary legislation will give increased powers to TPR

The government has introduced legislation to Parliament that will enhance TPR's powers in areas such as moral hazard and information gathering.

2. There will be two new grounds for TPR to issue a contribution notice

The new 'employer insolvency test' and the 'employer resource test' will give TPR additional powers in situations such as those highlighted by the collapse of BHS and Carillion.

3. The legislation proposes harsher criminal and financial penalties

A raft of new offences will be punishable by unlimited fines and, in some cases, custodial sentences.

4. The defined benefit funding regime will be amended

Trustees will have new duties to determine a funding and investment strategy and to prepare a 'statement of strategy as soon as reasonably practicable after determining (or revising) their scheme's funding and investment strategy.

What does the Bill cover?

The Bill began its progress through Parliament when it was introduced in the House of Lords on 15 October 2019. As was widely anticipated in the pensions industry, the Bill focuses on:

  • new powers for TPR;
  • collective defined contribution schemes (CDC) (or, as the Bill defines them, 'collective money purchase schemes'); and
  • pensions dashboards.

The Bill also covers some other areas of pensions policy, namely the DB funding regime, statutory transfers (CETVs), administration charges and changes to the Pension Protection Fund (PPF) compensation rules.

The Bill is also interesting for what it does not cover, most significantly:

  • DB consolidators (also known as superfunds);
  • TPR's powers to issue financial support directions; and
  • easements in relation to the statutory process for the conversion of guaranteed minimum pensions (GMPs).

In the midst of political wrangling over the timing of Brexit or a general election, it is unclear when (or indeed if) the Bill will become law. The Bill does, however, have broad, cross-party support and so we can expect it to move forward, although of course there are likely to be changes to the detail before it becomes law.

What are the proposals relating to The Pensions Regulator in the Bill?

While the driver for most of the changes set out in this part of the Bill was to give TPR stronger powers to target unscrupulous directors and companies, the changes are likely to have an impact on the wider corporate community. Directors are likely to be more concerned about the risks involved in corporate activity involving DB schemes and TPR is likely to play harder in situations where it is involved in transactions or funding discussions.

Moral hazard framework - contribution notices

The Bill introduces two more tests for imposing a contribution notice (i.e. an order requiring a person to make a payment to a DB pension scheme):

  • the employer insolvency test - essentially this will be met if TPR considers that at the time of an act or failure to act, a scheme was in deficit on a 'buy-out basis' and, had a section 75 debt fallen due, the act or failure to act in question "would have materially reduced the amount of the debt likely to be recovered by the scheme". A statutory defence will be available which will broadly depend on the reasonableness of the person's conclusions about the effect of the proposed act or failure to act and how they tried to mitigate any adverse effect.
  • the employer resource test - essentially this will be met if TPR considers an act or failure to act "reduced the value of the resources of the employer" and the reduction was material relative to the amount of the estimated section 75 debt in relation to the scheme. Detailed regulations will need to follow to define what constitutes the "resources of the employer" and how they are to be valued. This could be very complicated, difficult to make workable in practice, and create uncertainty for companies. Again, a statutory defence will be available which will broadly depend on the reasonableness of the person's conclusions about the effect of the proposed act or failure to act and how they tried to mitigate any adverse effect on the employer's resources.

It is not immediately obvious how much wider these new tests might be in practice as compared to the existing bases on which TPR can issue a contribution notice, namely if the material detriment test is met or if there is an act or failure to act with a sole or main purpose of preventing the recovery in whole or in part of a section 75 debt.

New offences and financial penalties

Three new criminal offences are introduced, all of which will attract unlimited fines and in some cases, a prison term. The three criminal offences are:

  1. a failure to comply with a contribution notice without reasonable excuse - this offence will be punishable by an unlimited fine;
  2. avoiding an employer debt (also known as a section 75 debt) (i.e. where the person acts or engages in a course of action that prevents the recovery of the whole of or any part of an employer debt; prevents such a debt becoming due; compromises or otherwise settles such a debt; or reduces the amount of such debt, the person intended the act or course of action to have such an effect and the person does not have a reasonable excuse for the act or the course of action) - this offence will be punishable by an unlimited fine and/or up to seven years in prison; and
  3. conduct that risks accrued benefits (i.e. where a person acts or engages in a course of action that detrimentally affects in a material way the likelihood of accrued scheme benefits being received, provided the person knew or ought to have known that the act or course of conduct would have had that effect and they do not have a reasonable excuse for engaging in such conduct) - this offence will be punishable by an unlimited fine and/or up to seven years in prison.

Alternatively, TPR will have the power to impose a civil penalty (referred to in the Bill as a "financial penalty") in respect of any of these offences, up to £1 million.

TPR's information gathering powers and sanctions

The Bill revises some of the provisions relating to the notifiable events framework. The new financial penalties referred to above will apply to a person who fails to comply with the notifiable events duties (which are essentially to notify TPR of prescribed events or changes to those events) without reasonable excuse.

TPR's information-gathering powers have also been extended to include:

  • a power to summon for interview relevant persons; and
  • more far-reaching powers for TPR to inspect premises for the purpose, amongst other things, of investigating whether TPR has grounds for issuing a CN.

There are also new fixed penalty powers (up to a maximum of £50,000) and escalating penalty powers (up to a maximum daily rate of £10,000) where TPR establishes non-compliance with the existing provision-of-information requirements under the Pensions Act 2004 and also the new requirements to attend an interview or allow TPR to inspect premises.

In addition, where a person knowingly or recklessly provides TPR (or trustees in certain circumstances) with false or misleading information, they open themselves up to a civil penalty of up to £1 million.

What are the proposals relating to scheme funding in the Bill?

It is proposed that Part 3 of the Pensions Act 2004, which deals with the statutory scheme funding regime for DB schemes, will be amended as follows:

  • Duty to determine funding and investment strategy - there will be a new duty on trustees of DB schemes to determine (and to keep under review and revise if necessary) a funding and investment strategy. This is defined as a strategy "for ensuring that pensions and other benefits under the scheme can be provided over the long term". This ties in with TPR's existing expectation for schemes to set long-term funding targets.
  • Duty to prepare a statement of strategy - trustees will also need to prepare a written statement of their scheme's funding and investment strategy as soon as reasonably practicable after determining (or revising) their scheme's funding and investment strategy. This is referred to as a 'statement of strategy' and this will require consultation with the employer. The chair will need to sign it. It may be that this becomes the early incarnation of a wider DB chair's statement, which may evolve into covering other matters, for example on trustee board diversity.

Next steps

What does the Bill mean for trustees and employers?

The changes introduced by the Bill are broadly what we were expecting following the Government's White Paper and various announcements from TPR itself.

The proposed changes are very much focused on strengthening the role and functions of TPR and making it a more proactive and effective regulator. That is very much evident from the particular emphasis on TPR's ability to obtain information and the significant penalties that can be imposed where required information is not provided.

The new powers and related sanctions reinforce the changing approach of TPR to the discharge of its statutory functions. The changes may cause most concern for sponsoring employers, who will likely see TPR leaning on its new powers alongside its existing ones as it seeks to influence outcomes in funding or transactional situations.

What happens next?

The Bill is scheduled to have its second reading in the House of Lords on Wednesday 30 October. Whilst the Bill generally is a relatively uncontroversial piece of legislation and is reported to have cross-party support, its passage will depend on getting sufficient parliamentary time amidst a raft of legislation presented in the Queen's Speech.

In addition, if Parliament is dissolved in advance of a general election, the Bill will fall and would have to be reintroduced by the new government. At this point, we can only wait and see but it would be disappointing, particularly for TPR, if the key elements of this Bill do not get progressed reasonably quickly.

"Read the original article on GowlingWLG.com".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions