New guidance on how The Pensions Regulator (TPR) will use its new criminal powers to investigate and prosecute those who avoid employer debts to pension schemes or put savers’ pensions at risk has been published this week for consultation.
The powers come with the ability to impose unlimited fines and prison sentences of up to seven years.
TPR has published the draft policy and a consultation on how it plans to use these criminal powers given to it by the Pension Schemes Act 2021.
This Act introduces two new criminal offences: the offence of avoidance of employer debt, and the offence of conduct risking accrued scheme benefits. The offences are not yet in force but are expected to be by Autumn 2021.
TPR executive director of regulatory policy, says: “Our new criminal offence powers are part of a strong package of measures which enhance our existing avoidance powers, supporting our objectives to protect pension savers.
“The intent of the new criminal offences is not to change commercial norms or accepted standards of corporate behaviour. Rather it is to tackle the more serious examples of intentional or reckless conduct that puts members’ savings at risk; and strengthen the deterrent and punishment for that behaviour. Our policy is consistent with this intent. It is important our approach is clear and understood, and so I call on industry to take part in the consultation as we finalise our policy.”
This is the first in a series of consultations TPR will be publishing as it takes forward the Government’s plans outlined in the Pension Schemes Act 2021.
The two offences outlined in the draft policy will be committed if someone acts, or fails to act, with the relevant intention and does not have a reasonable explanation for their behaviour. The onus will be on the prosecution to prove that the accused did not have a reasonable excuse.
In the key area of what amounts to a reasonable excuse, the policy sets out factors which we think should be significant in answering that question.
Fairs says: “We appreciate the industry’s interest in our intended approach to investigating and prosecuting people under these new offences and the desire for clarity. The policy discusses in detail the points of similarity and differences with our existing anti-avoidance powers and provides examples of the types of behaviour that could fall within the scope of the new offences.”
The consultation is open for six weeks and will close on Thursday, 22 April 2020. TPR will review all consultation responses and make any appropriate changes before publishing the final policy later this year.
But although TPR says that Ministers have offered reassurance that the powers: “are not intended to achieve a fundamental change in commercial norms or accepted standards of corporate behaviour in the UK”, companies who sponsor pension funds will need to carefully review their processes when any decisions are taken which could have a material impact on the likelihood of pensions being paid in full, says LCP principal Laura Amin.
Amin says that while on a written statement on the new powers, the Pensions Minister, Guy Opperman said on 1st March that these new powers were “…for bosses who plunder or run pension schemes into the ground”, the powers actually apply to a much wider group of people than ‘bosses’, and there is a risk that acts which can be justified, or seem justified at the time, can be viewed differently after the event, especially if a pension scheme winds up short of money. In addition, whilst the TPR guidance is designed to be helpful, it will still be what is contained in statute rather than guidance which ultimately determines whether conduct breaches the law, she says.
Amin adds: “Although the government’s rhetoric is all about evil bosses who ‘plunder’ pension funds, in reality these new powers are much wider and are actually about those who take money out of businesses rather than steal from pension funds. Today’s guidance offers some reassurance that normal business behaviour will not be caught, but what seems defensible today may look very different through the lens of history, especially if things go wrong. Corporate Britain cannot afford to relax and needs to make sure that all key decisions are seen through a pensions lens and go through a proper and well documented decision-making process”
Sackers partner Peter Murphy says: “Two new criminal offences, both punishable by an unlimited fine and/or up to seven years in prison, were hotly debated during the Act’s passage through Parliament and have caused a great deal of industry alarm – firstly, avoidance of a statutory employer debt and secondly, conduct risking accrued DB scheme benefits. Owing to the breadth of the drafting, these offences have the potential to capture ordinary business activity, as well as a wide spectrum of people (including directors of sponsoring employers, trustees and their advisers.
“Reassuringly, TPR intends its approach to be guided by statements already made in Parliament, that the new offences are not intended to give rise to a fundamental change in normal commercial practice or accepted standards of corporate behaviour in the UK. They are very much targeted at the more serious intentional or reckless conduct that is already within the scope of its existing anti-avoidance powers, such as contribution notices.
“The examples of behaviour set out in the draft policy help to reinforce this intended approach. But they provide little detail, and judicial consideration of the existing anti-avoidance powers is limited. So while it might allay fears around the more incidental consequences on affected pension schemes, there will still be a lot of shades of grey and I expect the new criminal offences will result in more cautious corporate behaviour where the legal position is not so clear.
“It is also important to note that TPR is not the only one in the driving seat when it comes to the new criminal offences. Both the Secretary of State and the Director of Public Prosecutions could initiate a prosecution and TPR’s approach will not tie their hands.”
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