The Pensions Regulator has issued a £25,000 penalty against Rentokil Initial Pension Trustee Limited for failure to complete two actuarial valuations for the Initial Hospital Service Limited No.1 Pension Scheme within the statutory deadline. This is the first time that the Regulator has issued a penalty for an overdue actuarial valuation.
Defined benefit occupational pension schemes are required to carry out actuarial valuations every three years and those valuations must be completed within 15 months of their effective date. The Trustee in this case had been late completing the actuarial valuations due in 2006 and 2009 and had explained to the Regulator in 2012 that it was planning to merge the Scheme with another pension scheme in the Rentokil group. The Pensions Regulator's Case Team informed the Trustee that it would "not regard an imminent merger as a reasonable excuse for late completion of that valuation."
Despite the warning, the Trustee was also late completing the 2012 and 2015 valuations by their respective deadlines. This meant that a schedule of contributions and recovery plan could also not be completed. The Pensions Regulator issued a warning notice stating its intention to impose a penalty under section 10 of the Pensions Act 1995 for the failures to meet the statutory deadline.
The Determinations Panel – an independent committee of the Pensions Regulator which determines whether to exercise certain powers of the Regulator – determined that the Trustee had no reasonable excuse for the failure to complete the valuation. The Determinations Panel backed up the view expressed by the Case Team that a proposed merger was not a good reason to fail to complete the valuations, stating that "It is not for the Trustee to pick and choose whether to comply with the mandatory provisions and timescales." The Determinations Panel considered that there were a number of aggravating factors including that previous valuations, a scheme return and scheme accounts had been completed late; a failure to report the breach within a reasonable timeframe; the lack of proactive contact with the Pensions Regulator; and the increasing deficit in the scheme (as a result of the recovery plan not being revised). The Determinations Panel issued a £25,000 penalty which is at the uppermost point of a "Band 2" level breach under its Monetary Penalty Policy.
Clyde & Co Comment
This is another example of how the Pensions Regulator is adopting a "clearer, quicker, tougher" approach to enforcement. The Regulator has also announced that it has taken similar action to issue warning notices for late valuations in 8 other cases since April 2017. It follows on from the Regulator's announcement in February 2018 that it had issued its first penalties against trustees for failing to complete annual accounts.
The House of Commons Work and Pensions Select Committee has been critical of the Regulator not using its powers, but that is changing. The question remains whether the Regulator has sufficient resources to take action in all the cases which it should be investigating.
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