Beware the Pensions Regulator: stronger powers and criminal penalties
Earlier this week, the government issued its response to its consultation paper on proposals to strengthen the Pensions Regulator’s powers in relation to corporate activity. Those proposals were aimed at deterring behaviours by pension scheme sponsors and their corporate groups that could detrimentally impact on a defined benefit pension scheme. Key points to note:
- Company directors could face up to 7 years’ imprisonment if they are found guilty of a new criminal offence of reckless or wilful behaviour in relation to a pension scheme.
- Proposals to expand the corporate events requiring mandatory notification to the Pensions Regulator have been somewhat watered down but a failure to comply with the notification requirements could result in a civil penalty of up to £1m.
- There will be no mandatory clearance but “corporate planners” will be required to provide a statement to the Pensions Regulator, prepared in consultation with the pension scheme trustees, setting out the pensions impact of a transaction and any mitigation proposed. These statements will be required for (i) change of control of an employer, (ii) sale of material assets and (iii) granting security which ranks ahead of the pension scheme. The government suggests that the legislation won’t specify the timing for the statement, even though failure to comply will carry a potential civil penalty of up to £1m.
- There will be various changes to streamline the Pensions Regulator’s moral hazard powers and make it easier for the Pensions Regulator to impose liability for pensions deficits on connected third parties.
- The “financial support direction” regime (under which liability can be imposed on a “no fault” basis) will be extended so that individuals who are controlling shareholders can be targets (currently only companies can normally be targets).
- These proposals will be implemented through legislation and/or guidance from the Pensions Regulator. Although the government has not specified a timescale, and any new legislation will be subject to space in the Parliamentary timetable, we understand that primary legislation to implement these reforms will be included in a Pensions Bill which is expected to be published in early summer.
- As a result of the proposals in the consultation paper and the Pensions Regulator’s mantra to be “clearer, quicker, tougher”, it will continue to be crucial for corporate groups to ensure that the impact of corporate activity on their defined benefit pension schemes is carefully considered and appropriately mitigated.