More than 90 per cent of pension professionals said they believe clearance applications are likely to increase, according to a Pension Schemes Act survey conducted by Norton Rose Fulbright.
The survey of more than 100 pension professionals by the law firm found 90.9 per cent of respondents expected the increase in light of the Pensions Regulator’s new criminal powers.
Additionally, 95.5 per cent of respondents said they thought the Pensions Regulator will issue penalties rather than pursue criminal convictions.
However, according to data released in the survey, only 59.1 per cent of respondents said criminal sanctions were an appropriate deterrent.
Recent legislation and regulatory guidance reinforces what sponsors and trustees have known for some time now, namely that pension schemes are major creditors of their sponsoring employer, and their rights — and those of their members — need to rightly be taken seriously and protected to the same extent as other stakeholders
Marc Hommel, EY-Parthenon
A total of 95.5 per cent of respondents said the statement of intent will give trustees more bargaining power than they currently have.
Earlier this month, Pensions Expert reported that the regulator’s draft guidance on its new criminal powers had failed to allay fears about the new sanctions, since it will be able to prosecute anyone in connection with an offence and will no longer be bound by limitation periods.
In documents published at that time, TPR warned that its new powers would strengthen punishment for reckless behaviour towards savers and that they should act as a deterrent for anyone intending to cause harm.
The Pension Schemes Act 2021 gave the regulator powers to crack down on two new criminal offences: the offence of avoiding employer debt and the offence of risking accrued scheme benefits.
According to the regulator, a person is in breach of the first offence if he or she prevents the scheme from recovering any part of the debt that is due from the employer without a “reasonable excuse”. The second offence is breached if someone acts in a way that affects the likelihood of savers receiving their pension without a reasonable excuse.
Pensions Expert has reported previously on worries that the powers in the Pension Schemes Act were so broadly defined that they risked ensnaring all manner of previously legitimate business activity. This could even result in insolvencies, where companies were paralysed by fear of the regulator.
There were particular concerns around the second of the two criminal offences established by the act — the offence of risking accrued scheme benefits — which seemingly threatened everyone, from trustees to lenders, with fines and jail time if their actions or inactions resulted in scheme members receiving less of their accrued benefits than they otherwise would have.
Lesley Browning, head of UK pensions at Norton Rose Fulbright, agreed with survey respondents that handing out penalties is preferable to chasing a criminal conviction. “The standard of proof for a successful criminal conviction is very high — beyond a reasonable doubt — and convincing a jury that the prosecution’s complex evidence amounts to a compelling case may not be easy,” she said.
“Handing out substantial fines is likely to be a quicker and easier way to punish wrongdoers. That said, there may be instances where the regulator feels that even the maximum civil penalty of £1m would be an inadequate punishment given the resources of the wrongdoer or the detriment suffered by the scheme.”
Speaking about the statements of intent, Browning added that the regulator’s draft criminal powers guidance makes clear that it will be vital for decision-makers to document the rationale for their actions where they could negatively affect a defined benefit scheme.
She said: “This includes their thought-process on whether to offer mitigation to the scheme or whether there is a less detrimental way forward. A statement of intent will remind transaction planners to consider mitigation and could be a useful piece of defensive evidence if things go sour in the future.”
Marc Hommel, EY-Parthenon senior pensions adviser, said: “Recent legislation and regulatory guidance reinforces what sponsors and trustees have known for some time now, namely that pension schemes are major creditors of their sponsoring employer and their rights — and those of their members — need to rightly be taken seriously and protected to the same extent as other stakeholders.
“Sponsors should be under no illusion that trustees are very much at the table in asserting their rights, supported by a regulator under continuous scrutiny and pressure to minimise risk — and be seen to be minimising risk — to ordinary men and women who have been promised pension benefits.
“I have no doubt that the regulator will be prepared to use its powers if and when the circumstances merit it.”
Rosalind Connor at Arc Pensions Law said: “A lot of people think that criminal sanctions are not too much if someone is completely ignoring their responsibilities to a pension scheme, but I would not be surprised if people feel differently about these criminal sanctions, which are really broadly worded and mean that lots of people are at risk for normal activity and, more importantly for pension schemes, a lot of employers will find it difficult to get investors or lenders, or even customers because of the threat of the sanctions.
“The statement of intent definitely gives the trustees more bargaining power because it means that they will be told about transactions earlier.”
The regulator’s consultation on the use of its criminal powers closes on April 22 2021.
