October is an important month for those of us working in the pension industry. The Pension Schemes Act (2021) comes into force with key areas for trustees and scheme managers to take note of and as a company that offers both actuarial and trustee support, we outline some issues that should be on the agenda.
The Pensions Regulator’s new information-gathering powers
The Pensions Regulator (TPR) now has the power to extend its powers of inspection and interviewing of individuals. It has recently issued further consultation on these new powers and we always advise engaging with these consultation processes in order to influence future legislation. The three areas TPR is consulting on are:
- overlapping powers policy which is around pursuing criminal and/or regulator powers
- monetary penalty powers policy which proposes high fines for information gathering and avoidance
- information-gathering powers policy which is around the use of Section 72 notices, interviews and inspections.
The consultation ends on December 21 so do take time to get involved.
Criminal sanctions and fines
If there was ever a case for schemes to use professional or, at least highly experienced trustees the prospect of up to seven years in prison or an unlimited fine, or both – is it!
Should TPR be able to prove failure to comply with a contribution notice, conduct risking accrued benefits or where avoidance of a Section 75 debt has occurred – then these severe penalties could be applied.
However, TPR has responded to concerns and calls around clarity and made clear that it does not wish to punish or prevent bonafide and usual corporate activity. It has now published its policy on how it will investigate and prosecute actions risking accrued benefits or avoiding a debt – and has stressed the powers will be a deterrent to prevent any wrongdoing. Nevertheless, trustees may need support in crossing the t’s and dotting the i’s.
Climate change governance and reporting
1 October 2021 also sees the implementation of the phasing in of new governance and reporting on climate change for trustees of large schemes, authorised master trusts and collective money purchase schemes. This will then be extended to £1billion plus schemes from October next year and will eventually be phased in to include smaller schemes. Therefore, this means all schemes, even small ones should be making plans now or seeking advice on how to make the necessary changes. Although more guidance is to be issued on this in due course Broadstone welcomes these changes. The pensions sector controls trillions of pounds worth of assets and so we can have a significant impact on climate change through positive stewardship.
New “moral hazard” powers for TPR
Finally, we now have new grounds for TPR to issue “contribution notices” based on “employer insolvency” or “employer resources” tests which work in parallel to their existing main purpose and material detriment tests under other legislation. The new powers will develop the reasons that TPR should decide if it would be reasonable to issue a contribution notice and will make it easier for them to do so in the future. In addition, this could be a significantly higher amount than previously as the offending date has changed from when the ‘offence’ occurred to when the contribution notice is issued. What this means is that more corporate activity could fall into the range of the contribution notice and so it may be prudent to think about making a clearance application before starting a new transaction. Failure to comply with a contribution notice, once issued could risk either a criminal penalty of an unlimited fine or a financial (not criminal) penalty of up to £1 million.
Broadstone proactively assists trustees across a wide range of duties and roles and if you need clarification on what the new rules mean for you, we would be very happy to discuss these with you.