Progress is finally being made on the Pension Schemes Bill (the Bill). It has cleared the House of Lords and is ready to be debated in the House of Commons in the autumn. Now is a good time to highlight some of the Bill’s key proposals and the issues which will need to be resolved. The Bill proposes to grant the UK Pensions Regulator (tPR) a suite of enforcement powers. There will always be unresolved questions over whether these new powers are strictly necessary, but, either way, tPR is set to have more weapons added to its arsenal.
The key measures proposed in the Bill are:
- Criminal sanctions for: (i) avoiding an employer debt; (ii) risking accrued scheme benefits; and (iii) failing to pay a contribution notice. In each case, there is a reasonable excuses defence.
- Extension of the notifiable events regime. An increased number of people, including anyone connected or associated with an employer, must make a notification to tPR and prepare a detailed statement of intent setting out the impact of the notifiable event.
- New grounds for contribution notices where: (i) the scheme is in deficit immediately before a transaction and that transaction materially reduces the amount recoverable by the scheme; and (ii) an act or omission which materially reduces the resources of an employer in comparison to a hypothetical employer debt at that time.
The new criminal sanctions have certainly been attracting the most headlines since the Bill was introduced. Until tPR sets out a more detailed enforcement strategy, it is impossible to know when and if these will actually be used. tPR has the option to pursue civil rather than criminal actions for each of the offences and there is an argument that this is more likely because of the lower burden of proof involved (balance of probabilities rather than beyond reasonable doubt). That may be too simplistic, as tPR will be under political pressure to use the full range of its powers, including criminal enforcement. In any event, even in civil actions, tPR will be able to award penalties of up to £1 million (a huge increase on the current maximum of £50,000), making both options effective deterrents.
Unanswered questions remain around the extended notifiable events regime, not least on who will be required to make a notification and what must be included in a statement of intent. Details of this will be set out in secondary legislation. The new grounds for contribution notices should also cause concern. These are far more mechanical tests than the current requirements, with less scope for tPR discretion. The result of this is likely to be more requests for clearance, placing a strain on tPR resources at a time when it will be trying to set up a framework within which to use its new powers. There is also a risk that, in trying to avoid one of the grounds for a contribution notice, an employer may inadvertently cross a line in relation to the new offences of avoiding an employer debt or risking accrued scheme benefits.
The Bill has certainly been introduced with the best of intentions to protect members’ pensions. However, there is a danger that the wide range of powers granted to tPR and increased threat of liability will stifle economic activity at a time when it is desperately needed, particularly given the significant number of unresolved issues making it very difficult to plan to mitigate risk. The Bill still has a long way to go before it becomes statute and many of the concerns which people have may be resolved before tPR starts using these powers. There is still time for the government to provide more detail and much needed certainty.