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UK proposes £1m fines as part of expanded powers for regulator

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UK trustees and company executives could face fines of up to £1m (€1.1m) and even criminal charges for neglecting pension schemes, as part of government proposals to enhance the Pensions Regulator’s (TPR) powers.

The UK government today set out the details of a three-pronged plan to boost TPR’s options in the wake of high-profile corporate collapses such as BHS and Carillion.

The Department for Work and Pensions (DWP) also proposed changes to the framework that governs when employers must notify the regulator of corporate transactions, and a stronger, more efficient system for TPR to enforce scheme contributions.

“We want to complement the existing penalty regime with new penalties that can be imposed as appropriate, for both low-level compliance breaches and more serious offences (for example in the event of reckless behaviour in relation to pension scheme liabilities),” it said.

A new civil penalty of up to £1m is to be introduced under the DWP’s proposals, which is in particular aimed at allowing TPR “to apply high-level fines to deter behaviours which are more serious in nature and have resulted in actual harm to the pension scheme or have the potential to do so if left unchallenged”.

The government said it believed the £1m cap would be in line with similar fines levied by other regulators, and it would be up to TPR to determine the amount of the fine based on the seriousness of actions.

The government has also proposed introducing new criminal offences to punish certain transgressions, such as “wilful or grossly reckless behaviour” in relation to a defined benefit scheme or failure to comply with the notifiable events framework.

All those who have responsibility to the pension scheme, including directors, sponsoring employers and in some circumstances trustees, would be eligible targets under the new penalties regime, according to the DWP.

Pensions minister Guy Opperman announces the launch of the consultation

Corporate actions

The DWP has also put forward plans to expand the list of corporate actions of which TPR must be notified by employers.

“The enhanced notifiable events regime will strengthen the system which gives the regulator early warning of detriment to a defined benefit pension scheme,” the department stated in the consultation.

In addition to expanding the range of events that require TPR to be notified, the DWP has also proposed bringing forward the timing for notification. For events such as the sale of a controlling interest in a sponsoring employer or the granting of security in priority to scheme debt, the notification should be brought forward to much earlier in the planning process.

In practice TPR was sometimes notified after the transaction had gone through, the DWP said.

Also in connection with strengthening oversight of corporate transactions, the DWP proposed a new requirement for employers to issue a “declaration of intent” for some notifiable event transactions, which would set out the implications of the transaction for the pension scheme and how any risks would be mitigated. 

The third prong of the government’s plan involved strengthening the “contribution notice” regime and the way “financial support directions” work.

The intention was to make it more efficient for TPR to compel companies to provide financial support to a scheme and require compensation if companies have caused loss or detriment to the scheme.

A spokesman for TPR said: “The proposal to enable us to apply a range of sanctions, from administrative penalties to high level fines and criminal charges, for different types of breaches, will provide TPR with a more flexible enforcement framework.

“It will also help act as a strong deterrent against risky and reckless behaviour which threatens the retirement incomes of workers.

“These measures, together with greater transparency for trustees and TPR over the potential detrimental impact of corporate transactions on pension schemes and improvements to our anti-avoidance powers, are a major step forward in the protection of members.

“We will continue to work closely with the DWP to ensure the new powers work in practice and, in conjunction with our existing powers, are effective and proportionate.”

The consultation, ‘Protecting defined benefit pension schemes – a stronger Pensions Regulator’, closes on 21 August and can be found here.

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