Background
The Pension Schemes Act 2021 gave new powers to the Pensions Regulator (TPR) to:
- bring criminal prosecutions, or impose fines of up to £1 million, for:
- avoiding an employer debt or for conduct that risks accrued benefits in a scheme or
- providing TPR with false or misleading information and
- issue Contribution Notices, requiring a party to pay money into a scheme, in a wider range of circumstances (see our earlier news article covering this).
These powers came into force on 1 October 2021. TPR has issued a policy setting out how it will investigate and prosecute the new criminal offences but has also been consulting on its draft overlapping powers, monetary penalties and information-gathering policies.
Overlapping powers policy
This policy is to deal with situations where both a regulatory and a criminal penalty may apply.
The consultation includes a table setting out the circumstances in which TPR may use more than one of its powers to impose a penalty. When considering which power to use TPR will take account of the likely effect of using each and which it deems more likely to produce the desired outcome and to deter further offences. TPR’s primary objective will be, usually, to obtain funds for the scheme, in which case it is more likely to issue a contribution notice than to pursue criminal proceedings. However, where there are aggravating features (such as previous breaches, an ongoing pattern of non-compliance or clearly deliberate or dishonest behaviour) it may move immediately to criminal proceedings.
A number of case examples illustrate the factors that TPR will take into account when deciding the most appropriate penalty in a particular case.
Monetary penalties policy
Where a party has failed to pay a debt due under a Contribution Notice, the penalty will, generally, be fixed at 20% of the Contribution Notice value, capped at £1 million. This may be reduced by 50% if the debt is settled prior to the relevant hearing by the Determinations Panel.
In other cases of avoiding employer debt or conduct risking accrued scheme benefits, TPR will determine the level of penalty taking account of the culpability of the party concerned and the harm done to the pension scheme, as follows:
| Band |
Penalty in range |
|
| HF1 |
Low culpability, low harm |
£100,000 to £400,000 |
| HF2 |
Low culpability, high harm or high culpability, low harm |
£250,000 to £650,000 |
| HF3 |
High culpability, high harm |
£400,000 to £1,000,000 |
The starting point for any penalty will be the middle of the relevant band but TPR may adjust this, up or down, taking account of any relevant aggravating or mitigating factors.
TPR will adopt the same approach in relation to fines for providing false or misleading information, though with the addition of a band “R”, with penalties ranging from zero to £100,000. Band R will apply in cases of a breach of regulatory requirements with minimal harm to the scheme.
Information-gathering powers policy
TPR’s information-gathering powers include voluntary requests for information and statutory powers to:
- issuing Information Notices, which require a person to provide documents and/or information which are relevant to TPR’s functions,
- requiring a person to attend an interview and
- undertaking an inspection (supported potentially by a warrant) to obtain the information relevant to the exercise of TPR’s functions.
The draft policy explains the factors that TPR will take into account in deciding how and when to exercise these powers, as well as to setting penalties for non-compliance.
Implications for trustees
A recurring theme in these policies is that TPR will be looking carefully at whether acts (or failures to act) were committed deliberately or recklessly. As ever, it will be important for trustees – and other parties – to keep an audit trail of their decision-making process, so that they can demonstrate that they considered the likely impact of those decisions on the scheme and, where appropriate, put in place mitigation.