New rules bringing in criminal sanctions for misconduct in the management of occupational schemes could lead to schemes deferring contributions and would discourage people from becoming trustees.
That is the warning from the Association of Consulting Actuaries (ACA), as it adds its voice to concerns over the scope of proposed new rules for investigating and prosecuting criminal offences in relation to pension schemes.
The call is the latest in a string of industry opposition to the scope of The Pensions Regulator’s consultation on its approach to the investigation and prosecution of new criminal offences.
ACA says the criteria for selecting cases for investigation is too widely drafted, and argues the proposed “reasonable excuse” guidance casts doubt on whether many typical business activities – such as payment of dividends – would satisfy the statutory exemption.
The organisation says building on the existing material detriment guidance is helpful, but this needs to be tightened to reflect the more significant penalties and increased scope of the new powers.
The ACA response to the consultation on the rules adds that the lack of clarity in these details will impact behaviours and lead to unintended consequences, such as contribution payments being deferred, so they can count as “mitigation” at a later date, discouraging individuals from acting as trustees, guarantees from parent companies and investment in companies that sponsor UK pension schemes.
The Pensions and Lifetime Savings Association (PLSA) says TPR should adopt FCA principles related to the seriousness of misconduct.
The calls echo industry criticism of the proposals from the Society of Pension Consultants earlier this week.
ACA chair Patrick Bloomfield says: “We accept Government’s intent to give TPR new powers, but a lack of clarity on the circumstances in which the powers could be used will have important unintended consequences for the schemes, their sponsors and the wider pensions industry. There is concern that the powers could be used in a wide range of circumstances and it is not certain where the line will be drawn.
“We encourage the Regulator to work with the other authorities who have powers to prosecute these offences, to reassure industry that prosecution will not take place in circumstances other than those set out in TPR’s policy. The ACA has written a joint letter with other industry bodies, making this point to the Minister for Pensions and Financial Inclusion.”
ACA pension schemes committee chair Peter Williams says: “To the extent that it is not possible to provide clarity now, it would be helpful if the guidance could be updated regularly, to provide additional clarity as regulatory experience develops.”
The Pensions and Lifetime Savings Association (PLSA) comments on the Pensions Regulator’s (TPR) consultation Approach to the investigation and prosecution of the new criminal offences.
PLSA director of policy & advocacy Nigel Peaple says: “While the PLSA is supportive of the underlying objectives of the criminal sanctions regime we believe that the current wording of the policy intent is still too vague and will create very problematic consequences for the pensions community.
“We continue to be concerned that these criminal offences powers will not enable TPR to take timely and meaningful action but will impede normal corporate behaviours and transactions. We are calling on TPR to review and adopt some or all of the principles used by the FCA in their approach to prosecution of criminal cases.
“In particular, we ask that TPR considers adopting the FCA principles related to the seriousness of misconduct, the extent and nature of the loss suffered, the extent to which redress has been provided, the element of cooperation, the degree of dishonesty or abuse of position of authority, and that account be taken of the personal circumstances of the prosecuted party.”
Hymans Robertson head of corporate DB Alistair Russell-Smith says: “The approach set out by TPR appears to be broadly consistent with the policy intent to increase the deterrent for reckless conduct in relation to DB schemes, rather than to fundamentally change corporate norms or accepted standards of corporate behaviour. It is likely to increase the need for corporates to have a clearer audit trail of their decision making and rationale – it will force the DB scheme higher up the corporate agenda.
“Our main concern is that TPR’s new powers appear wide and on the face of it would capture routine corporate activity. Practical cases will take a while to develop so in the meantime expanding guidance from TPR to cover actions and considerations that it would expect from companies as part of its decision making to support a view that there is a reasonable excuse for the act would be helpful. One area where we think more clarity could be provided is the steps a company should take to conclude that they have a ‘reasonable excuse’, e.g. what is the order of events, how should decisions be made and documented.
“Finally, the fundamental new legal powers from Pensions Act 2021 remain potentially wide-ranging. Whilst the policy gives comfort on how TPR will respond in the short term, it does not remove the risk for corporates that the legal powers will be enforced far more heavily or in a more wide-ranging fashion in the future.”
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