The UK government has issued its response to the Pensions Regulator’s contribution notices and information-gathering powers regulations consultation.
The UK already has a robust system in place to protect defined benefit pensions, and the measures in the Pension Schemes Act 2021 build on and strengthen these safeguards, aligning the overall policy with TPR’s approach of being clearer, quicker and tougher,” Guy Opperman, minister for pensions and financial inclusion, said in the response released on Tuesday.*
“Provisions in the act give TPR stronger powers to deal with the small number of circumstances where employers decide to evade their obligations,” he added.
Provisions in the act give TPR stronger powers to deal with the small number of circumstances where employers decide to evade their obligations
Guy Opperman, pensions minister
The consultation ran from March 18 to April 29 and sought views on two draft regulations, namely The Pensions Regulator (Contribution Notices) (Amendment) Regulations 2021, which outline the employer resources test, and The Pensions Regulator (Information Gathering Powers and Miscellaneous Amendments) Regulations 2021.
Section 103 of the Pension Schemes Act 2021 introduced two tests, intended to work alongside the existing contribution notice regime, to assess whether “an act or failure to act” has occurred that justifies the issuing of a notice.
The new employer resources test is met where TPR is of the opinion that an act or failure to act has reduced the value of the employer’s resources, and that this reduction was a “material reduction” relative to the scheme’s section 75 debt.
The original consultation document explains that two tests are necessary, because in the past “the act or failure to act on which the action is based is something that affects the employer, as opposed to something which damages the scheme directly”.
“As a result, TPR is required, in practice, to extrapolate from an employer-related act, the impact on the scheme which is evidentially challenging. It was the policy intention therefore to introduce a jurisdictional test in the contribution notice regime, which is assessed by reference to the impact on the sponsoring employer,” the document stated.
As part of the same consultation, TPR sought views on the drafting of regulations around the new powers afforded it by the Pension Schemes Act, in particular those allowing it to compel attendance at interviews, those allowing inspectors to enter private premises, and those around “new fixed or escalating penalties which may be imposed for non-compliance with information-gathering requirements”.
Subjectivity remains
In the consultation, the government acknowledged that even its preferred option for the employer resources test – normalised profitability before tax – “is not perfect however, and neither are the alternatives that have been considered”.
Using normalised profitability “would be something akin to the employer’s ability to support the scheme, which is examined as part of assessing employer covenant”, it explained.
“This would not be a simple test and there remain subjectivities in this approach that could lead to complexities in future contribution notice cases and uncertainty for the market as to whether future actions would be caught by the employer resources test,” the document stated.
“However, upon consideration, no alternatives that are simpler in application, nor any less subjective, were identified.”
It justified its decision by pointing out that assessing resources of the employer “through the lens” of normalised profitability “whereby non-recurring or exceptional items are removed is something that the industry would be familiar with, and this approach would allow for the test to have a higher degree of specificity and should minimise uncertainty”.
It added that an impact assessment was unnecessary, and that “the impact assessment for the Pension Schemes Act 2021 assessed the additional costs to business of familiarisation with the new regime”.
“This regulation provides details of what constitutes employer resources and how they will be determined, calculated and verified and does not add any further costs to business.”
The government received a total of 19 responses to the consultation from law firms, consultants and advisers, covenant assessment organisations, as well as from a range of pension-related bodies including trustees, actuaries, accountants and lawyers.
Sackers partner James Bingham told Pensions Expert that TPR’s new powers to compel attendance at “police-style” interviews may cause some controversy.
ACA laments lack of guidance on TPR’s employer resources test
On the go: The Association of Consulting Actuaries has lamented a lack of guidance accompanying a consultation into new information-gathering powers by the Pensions Regulator, arguing that the consultation is too narrow to properly assess their consequences.
“I think there’s an interesting question there about the status of somebody who is called for interview. Are you being interviewed as a witness, or are you being interviewed as a potential suspect when we’re talking about criminal fines?”
He added: “It isn’t something that we would expect will be used left, right and centre, but it is something that does give the regulator a string to its bow that it didn’t have before.”
The regulations are expected to come into force in October 2021.
*An earlier version of this article referred only to the consultation and not the government’s response.
