Last weekend saw pensions making the headlines again with the Secretary of State for Work and Pensions promising that the Government would hold to account employers who 'play fast and loose' with their employees' pension funds. Then, on Monday, the Government published its response to last year's consultation on strengthening the powers of the Pensions Regulator. Although couched in less emotive terms, it heralds a significant bolstering of the Regulator's powers.
The changes that the Government intends to make fall into four categories. Here we set out the headlines in each category.
- Extending the notifiable events framework. Two new employer-related notifiable events will be introduced: (i) the sale of a material proportion of the business or assets of a scheme employer which has funding responsibility for at least 20% of the scheme’s liabilities and (ii) the granting of security on a debt to give it priority over debt to the scheme. The Government is still looking at where it might be beneficial to require earlier notification of an employer-related notifiable event.
- Declaration of Intent. The "planner" of a corporate transaction will be required to make a statement where the transaction involves the sale of a controlling employer or either of the two new employer-related notifiable events outlined above. This declaration of intent will include an explanation of the transaction, confirmation that the trustees have been consulted and how any detriment to the scheme will be mitigated. It will be addressed to the scheme trustees and shared with the Regulator. The timing of the declaration will be explained in the Regulator's code of practice on notifiable events.
- The Regulator's voluntary clearance process will still be available.
Power to "deter reckless behaviours"
- Two new criminal offences will be introduced for wilful or reckless behaviour in relation to a pension scheme and for failing to comply with a contribution notice. The first offence will carry a maximum penalty of up to seven years in prison and/or unlimited fines; the second offence will carry a maximum penalty of an unlimited fine.
- The Regulator will be given power to issue a civil penalty of up to a maximum of £1 million for serious breaches of pensions requirements, including wilful or reckless behaviour in relation to a pension scheme, failing to comply with a contribution notice/a financial support direction/the notifiable events framework/the requirements for a declaration of intent, and knowingly or recklessly providing false information to trustees or the Regulator.
- Contribution notices (CNs). The Government will amend the reasonableness test to reflect that the actual or potential impact of the act/failure to act on the value of the scheme’s assets or liabilities would be a relevant consideration when determining the amount to be paid under a CN. It will also makes changes to the material detriment test to make it clear when a CN might be issued. The Government is in favour of an uprating mechanism to protect the value of a CN from the impact of the delay in payment but is still considering how this should be achieved. It has also confirmed that it will change the date on which the cap on the level of a CN is calculated from the date of the ‘act’ in question to a date closer to the final determination.
- Financial Support Directions (FSDs). The FSD regime will be stream-lined to a single stage process to be renamed the Financial Support Notice (FSN) regime. Although directors will not become the target of FSDs, the Government will extend the scope of FSD targets to capture controlling shareholders of the sponsoring employer (who are individuals). The Government intends to replace the "insufficiently resourced" test with a new test which will be scheme-focussed.
- The Regulator will be given a "stand-alone" interview power and its power to inspect premises will be expanded.
- It will be able to impose fixed and escalating fines for non-compliance with the Regulator's broader interview and inspection powers.
What happens now?
The Government has said that it will bring forward legislation to implement the changes as soon as Parliamentary time allows. Government sources have mentioned the possibility of a wide-ranging pensions bill in this year's Queen's Speech on several occasions. However, the detail of many of the changes has yet to be worked out so further consultation, both formal and informal, is likely. We will continue to monitor developments and keep you informed as the changes progress.