Industry calls again for clarity as TPR criminal consultation closes

Pensions Expert has reported often on concerns raised as early as January this yearthat the new powers afforded to the regulator by the Pension Schemes Act could have unintended consequences.

The fear remains that the definitions of the two new criminal offences TPR is empowered to prosecute, avoiding employer debt and in particular risking accrued scheme benefits, are so broad that a whole range of ordinary and legitimate business activity could be at risk of prosecution. 

The second of the two offences could see everyone from trustees to business owners and lenders penalised with hefty fines and even jail time, should they take action subsequently deemed to have reduced the odds of members getting their benefits in full.

Successful prosecutions and effective deterrence would be more likely if the policy were clearer on what behaviour is now considered so unacceptable as to be criminal. This clarity would not only protect the innocent, but also better serve the interests of pension scheme members

Christopher Stiles, SPP

A number of industry figures have repeatedly warned that this risks causing unnecessary bankruptcies as lenders and companies put off taking action that could have saved their businesses for fear of eventual prosecution.

David Fairs, TPR’s executive director of regulatory policy, analysis and advice, told Pensions Expert in a podcast that the regulator’s criminal powers policy would “evolve” with time and experience, a point he reiterated in a blog post published on Monday in which he called for those with concerns to respond to the consultation.

That consultation closes on Thursday, and the responses were not overwhelmingly positive.

Draft policy contains ‘mixed messages’

In its response, the Society of Pension Professionals said that the regulator’s overall approach was inconsistent with policy intent, its own policy is unclear, and the illustrative examples offered by TPR in a bid to explain how its powers would be used were unhelpful.

It argued that the policy did not adequately distinguish between conduct giving rise to criminal sanctions and conduct giving rise to civil liability, and called for a number of measures to address this.

It said that the policy should explain how TPR will interpret and apply the concept of “reasonable excuse” in a “practical context when deciding what cases to prosecute”, and reassure trustees that actions taken in good faith would not result in prosecutions.

More should be done to help employers determine “which side of the line conduct would fall in difficult circumstances”, arguing that the examples given by TPR to date have been of “extreme scenarios”, which fail to address difficulties that are far more likely to emerge.

Furthermore, the SPP said the policy should make clear to people other than employers and trustees that they would not be expected to act against their best interests just because their actions might potentially impact a pension scheme.

Finally, it called on the regulator to establish a public record of what published guidance was in force at any given time, to be made available on its website.

Christopher Stiles, a member of the SPP’s legislation committee, said: “While criminalising behaviour that intentionally or recklessly puts savers’ pensions at risk may be commendable, the regulator’s draft prosecution policy allows a far wider range of conduct to fall within the scope of the new offences.

“Successful prosecutions and effective deterrence would be more likely if the policy were clearer on what behaviour is now considered so unacceptable as to be criminal. This clarity would not only protect the innocent, but also better serve the interests of pension scheme members.”

Herbert Smith Freehills partner Rachel Pinto seconded the call for clarity, arguing that the draft policy as it stands “contains mixed messages and leaves unnecessary uncertainty over when the new offences will apply”.

“On the one hand the policy indicates that the new offences are aimed at the most serious intentional or reckless conduct, and that they are not intended to achieve a fundamental change in commercial norms or accepted standards of commercial behaviour in the UK,” she said. 

“However, at the same time, it fails to give unequivocal assurance that an entity that has fully mitigated any detriment to its scheme or that has obtained clearance from the regulator will not be prosecuted. This creates unnecessary uncertainty.”

Pinto likewise pointed out that the illustrative examples offered by TPR are too extreme, “either falling clearly within the boundary of legitimate activity or clearly within the scope of the new offences”.

“Most corporate activity will fall somewhere in between, and this is where corporate sponsors, investors, lenders, trustees and their advisers need more clarity on how the new offences will be enforced to enable them to form a view about whether any proposed activity is lawful or not,” she noted.

PMI calls for ‘substantial guidance’

In its own response to the consultation, the Pensions Management Institute echoed a number of the points raised by the SPP, and called for “substantial guidance” to clear up concerns about TPR’s overall approach.

It noted that the “reasonable excuse” defence allowed for by the draft policy “is only available if TPR is satisfied that the relevant conditions are met”. 

“This may pose a difficulty in practice without substantial guidance, as a person and/or their advisers may be uncertain as to what circumstances and evidence would likely give rise to TPR being satisfied.”

Similarly, the PMI called on the regulator to provide reassurance to those being investigated, so that they know whether that investigation is on civil or criminal grounds, and to establish “that any one investigation should not give rise to the potential for being used for either a civil or criminal action”. 

“Reasons for this include the underlying uncertainty that this would pose for any person subject to an investigation, and in particular would cause difficulty having regard to the different procedural protections and processes in criminal and civil matters,” its response stated.

“For example, if an investigation is to be brought for criminal matters, then a defendant may choose to rely upon the various protections against self-incrimination.”